New Town Bank offers you a line of credit of $50,000 with an interest rate of 2.1 percent per quarter. The loan agreement also requires that 2.5 percent of the unused portion of the credit line be deposited in a non-interest-bearing account as a compensating balance. Short-term investments are currently paying .68 percent per quarter. What is the effective annual interest rate on the line of credit if you borrow the entire amount for one year? Assume any funds borrowed or invested use compound interest.

Panelli’s is analyzing a project with an initial cost of $139,000 and cash inflows of $74,000 in Year 1 and $86,000 in Year 2. This project is an extension of current operations and thus is equally as risky as the current company. The company uses only debt and common stock to finance its operations and maintains a debt-equity ratio of .39. The aftertax cost of debt is 5.1 percent, the cost of equity is 13.2 percent, and the tax rate is 21 percent. What is the projected net present value of this project?

Over the past 12 years, the common stock of The Flower Shoppe has produced an arithmetic average return of 12.6 percent and a geometric average return of 12.3 percent. What is the projected return on this stock for the next five years according to Blume’s formula?

Revolution Bikes has credit sales of $822,400, costs of goods sold of $396,700, average accounts receivable of $43,200, and average accounts payable of $78,500. On average, how long does it take the credit customers of Revolution Bikes to pay for their purchases?

Consider a project with an initial asset cost of $168,000. The asset will be depreciated to zero over seven years using straight-line depreciation. Ignore bonus depreciation. At the end of the project’s four-year life the asset can be sold for $65,000. Given a combined federal and state tax rate of 24 percent, what is the aftertax salvage value of the asset?

An investment project provides cash flows of $7,000 per year for 10 years. If the initial cost is $20,000, what is the payback period?

Currently, Rangel Accessories sells 42,600 handbags annually at an average price of $149 each. It is considering adding a lower-priced line of handbags that sell for $79 each. The firm estimates it can sell 21,000 of the lower-priced handbags but expects to sell 7,200 fewer of the higher-priced handbags by doing so. What is the amount of annual sales that should be used when evaluating the addition of the lower-priced handbags?

The Taco Truck has projected next year’s quarterly sales at $960, $890, $980, and $1,050 for Quarters 1 to 4, respectively. Accounts receivable at the beginning of the year are $212 and the collection period is 18 days. What is the amount of the accounts receivable balance at the end of Quarter 2? Assume a year has 360 days.

A project has an accounting break-even point of 7,264 units. The fixed costs are $164,800 and the projected variable cost per unit is $24.57. The project will require $398,000 for fixed assets which will be depreciated straight-line to zero over the project’s four-year life. What is the projected sales price per unit?

ParkCrest, Incorporated, is considering a new 10-year expansion project with an initial fixed asset investment of $132,900. The fixed asset will be depreciated straight-line to zero over its 10-year tax life, after which time it will be worthless. No bonus depreciation will be taken. The project is estimated to generate $99,000 in annual sales, with costs of $34,300. The tax rate is 22 percent and the required return is 14.8 percent. What is the net present value of this project?