22. Kneelson and Botes Inc. (K&B) is a construction company that does road and bridge work for the state highway authority. The state government solicits bids on construction projects from private contractors. The winning contractor is chosen based on its bid price as well as its perceived ability to do the work.

Sophisticated contractors develop bids using capital budgeting techniques because most projects require cash outlays for hiring, equipment, and materials before getting started (C0). After that the state makes progress payments to cover costs and profits until the job is finished (C1 . . . . . Cn).

Contractors know that even after they’ve won a bid, realizing the planned prof-

its and cash flows isn’t assured in part because government budgets can change while construction progresses. If funding is up, officials tend to add to the work

originally ordered leading to increased profits and cash flows. But if funding is down, officials start to nit pick the contract looking for cost savings, which gener- ally leads to lower cash inflows. State budget projections are fairly good for a year or two, but tend to be inaccurate over longer periods.

K&B has been offered two, four-year contracts, but doesn’t have enough cash or management depth to take on both (mutually exclusive because of resource limitations). One project involves road repair, most of which will be done and paid quickly. The other requires working on a new bridge. The bulk of the cash inflows on bridge projects generally occur near completion.

K&B’s estimating department has put together the following projections of the two projects’ cash flows:

($000)

Road Repair Bridge Work

C0

($3,000)

($4,500)

C1

3,000

100

C2

2,000

2,000

C3

1,000

3,000

C4

100

4,500

K&B doesn’t know its exact cost of capital, but feels it’s between 10 and 15%.

This is not uncommon in smaller companies. (In Chapter 13 we’ll learn that estimating the cost of capital can be difficult and less than precise for firms of any size.)

The company has hired you as a financial consultant to make a recommendation as to which project to accept.

a. Calculate the payback period for both projects. Which does payback choose?

b. Calculate the IRR for both projects. Which does the IRR method choose? Is the choice clear or is it a close decision? Is the choice consistent with the result of the payback method?

c. Calculate NPVs for both projects for costs of capital from 10 to 15% in 1% increments. Then plot both projects’ NPV profiles on a graph similar to that shown in Figure 10.2 on page 435. Does the NPV method give a meaningful result? If so is it consistent with the results of the payback and IRR methods? Which method is theoretically the best? Does that help in this situation?

d. You must make a recommendation to K&B’s management regardless of any technical difficulties you’ve encountered. Provide another, less quantitative argument that tends to support one project over the other. (Hint: See question 6 on page 446 and Business Analysis 4 on page 447.)

e. What is your recommendation and why?

 

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23) A Treasury bond is quoted as 99.6325 asked and 99.1250 bid. What is the bid-ask spread in dollars on a $5,000 face value bond?

A) $17.500

B) $.675

C) $16.250

D) $.508

E) $25.375

 

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23) Use Figure 21.2. When the price decreases from $10 to $2, total revenue…$10— ? icn Demand Quantity A) decreases from areas A + B to areas B + C and demand is inelastic. 5 B) decreases from areas A + B to areas B + C and demand is inelastic. C) increases from areas C + D to areas B + A and demand is elastic. D) increases from areas B + C to areas A + B and demand is inelastic. Explain why

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(i) Show that the skin depth for Cu at 5×1015 Hz (middle of the visible light band) is
approximately 1 nm, compared to 10 mm at 50 Hz (AC mains frequency). (4 marks)
(ii) Show that for Cu the limit s e? ? corresponds to 18 f 010 Hz , meaning that this
approximation applies at frequencies up to at least the ultraviolet. (3 marks)
(iii) Show that for Cu at 1.0 MHz the ratio of the wavelength inside to that outside the
conductor (air or vacuum) is 1.41×10–6
. (2 marks)
(iv) Calculate the skin depth for steel at 50 Hz. (2 marks)
(v) If you want to prevent 50-Hz electromagnetic radiation from affecting a sensitive
electronic instrument, is it better to make the case of copper or steel? Explain your answer. (4
marks)
(vi) Mirrors are generally made by coating silver onto glass. Would coating iron onto glass
also make a good mirror? Explain your answer. (3 marks)

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24.How do you delete your crontab entry?A.Crontab -dB.Crontab -eC.Crontab -rD.Del -crontab

 

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