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The IOA Division is also considering whether to undertake an investment in the West of the country (the West Project).
An initial cash outlay investment of ￡12 million will be required and a net cash inflow amounting to ￡5 million is
expected to arise in each of the four years of the life of the project.
The activities involved in the West project will cause the local river to become polluted and discoloured due to the
discharge of waste substances from mining operations.
It is estimated that at the end of year four a cash outlay of ￡2 million would be required to restore the river to its
original colour. This would also clear 90% of the pollution caused as a result of the mining activities of the IOA
Division.
The remaining 10% of the pollution caused as a result of the mining activities of the IOA Division could be cleared
up by a further cash outlay of ￡2 million.
(c) Evaluate the West project and, stating your reasons, comment on whether the board of directors of NCL plc
should spend the further ￡2 million in order to eliminate the remaining 10% of pollution. (6 marks)
(Ignore Taxation).
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更多 “ The IOA Division is also considering whether to undertake an investment in the West of the country (the West Project).An initial cash outlay investment of ￡12 million will be required and a net cash inflow amounting to ￡5 million isexpected to arise in each of the four years of the life of the project.The activities involved in the West project will cause the local river to become polluted and discoloured due to thedischarge of waste substances from mining operations.It is estimated that at the end of year four a cash outlay of ￡2 million would be required to restore the river to itsoriginal colour. This would also clear 90% of the pollution caused as a result of the mining activities of the IOADivision.The remaining 10% of the pollution caused as a result of the mining activities of the IOA Division could be clearedup by a further cash outlay of ￡2 million.(c) Evaluate the West project and, stating your reasons, comment on whether the board of directors of NCL plcshould spend the further ￡2 million in order to eliminate the remaining 10% of pollution. (6 marks)(Ignore Taxation). ” 相关考题
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Present value measuresA.the value to us today of future cash flows.B.the rate of return on an investment when we take account of cash inflows and outflowsC.the current estimates of our project budgetD.the dollars worth of work accomplished as of todayE.All of the above.
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A technique that can be used to measure the total income of a project compared to the total moneys expended at any period of time is:A . return on investment (ROI)B . net present value (NPV)C . discounted cash flow (DCF)D . B and CE . All of the above.
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Which of the following is not a measure of the profitability of a project or program?A . Return on original investment.B . Net present value.C . Depreciation.D . Discounted cash flow.E . None of the above
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The technique most commonly used to determine the profitability of a project includes _____ methods.A . Net present value (NPV).B . Return on investment (ROI).C . Discounted cash flow (DCF)D . Payout time and risk sensitivity analysis.E . All of the above.
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115 The technique most commonly used to determine the profitability of a project includes _____ methods.A. Net present value (NPV).B. Return on investment (ROI).C. Discounted cash flow (DCF)D. Payout time and risk sensitivity analysis.E. All of the above
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137 Which of the following is not a measure of the profitability of a project or program?A. Return on original investment.B. Net present value.C. Depreciation.D. Discounted cash flow.E. None of the above
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136 A technique that can be used to measure the total income of a project compared to the total moneys expended at any period of time is:A. return on investment (ROI)B. net present value (NPV)C. discounted cash flow (DCF)D. B and CE. All of the above
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3 The managers of Daylon plc are reviewing the company’s investment portfolio. About 15% of the portfolio is represented by a holding of 5,550,000 ordinary shares of Mondglobe plc. The managers are concerned about the effect on portfolio value if the price of Mondglobe’s shares should fall, and are considering selling the shares. Daylon’s investment bank has suggested that the risk of Mondglobe’s shares falling by more than 5% from their current value could be protected against by buying an over the counter option. The investment bank is prepared to sell an appropriate six month option to Daylon for ￡250,000.Other information:(i) The current market price of Mondglobe’s ordinary shares is 360 pence.(ii) The annual volatility (variance) of Mondglobe’s shares for the last year was 169%.(iii) The risk free rate is 4% per year.(iv) No dividend is expected to be paid by Mondglobe during the next six months.Required:(a) Evaluate whether or not the price at which the investment bank is willing to sell the option is a fair price.(10 marks)
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(b) Misson has purchased goods from a foreign supplier for 8 million euros on 31 July 2006. At 31 October 2006,the trade payable was still outstanding and the goods were still held by Misson. Similarly Misson has sold goodsto a foreign customer for 4 million euros on 31 July 2006 and it received payment for the goods in euros on31 October 2006. Additionally Misson had purchased an investment property on 1 November 2005 for28 million euros. At 31 October 2006, the investment property had a fair value of 24 million euros. The companyuses the fair value model in accounting for investment properties.Misson would like advice on how to treat these transactions in the financial statements for the year ended 31October 2006. (7 marks)Required:Discuss the accounting treatment of the above transactions in accordance with the advice required by thedirectors.(Candidates should show detailed workings as well as a discussion of the accounting treatment used.)
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(c) At 1 June 2006, Router held a 25% shareholding in a film distribution company, Wireless, a public limitedcompany. On 1 January 2007, Router sold a 15% holding in Wireless thus reducing its investment to a 10%holding. Router no longer exercises significant influence over Wireless. Before the sale of the shares the net assetvalue of Wireless on 1 January 2007 was $200 million and goodwill relating to the acquisition of Wireless was$5 million. Router received $40 million for its sale of the 15% holding in Wireless. At 1 January 2007, the fairvalue of the remaining investment in Wireless was $23 million and at 31 May 2007 the fair value was$26 million. (6 marks)Required:Discuss how the above items should be dealt with in the group financial statements of Router for the year ended31 May 2007.Required:Discuss how the above items should be dealt with in the group financial statements of Router for the year ended31 May 2007.
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3 Moffat Ltd, which commenced trading on 1 December 2002, supplies and fits tyres and exhaust pipes and servicesmotor vehicles at thirty locations. The directors and middle management are based at the Head Office of Moffat Ltd.Each location has a manager who is responsible for day-to-day operations and is supported by an administrativeassistant. All other staff at each location are involved in fitting and servicing operations.The directors of Moffat Ltd are currently preparing a financial evaluation of an investment of ￡2 million in a new ITsystem for submission to its bank. They are concerned that sub-optimal decisions are being made because the currentsystem does not provide appropriate information throughout the organisation. They are also aware that not all of thebenefits from the proposed investment will be quantitative in nature.Required:(a) Explain the characteristics of THREE types of information required to assist in decision-making at differentlevels of management and on differing timescales within Moffat Ltd, providing TWO examples of informationthat would be appropriate to each level. (10 marks)
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1 The Great Western Cake Company (GWCC) is a well-established manufacturer of specialist flour confectioneryproducts, including cakes. GWCC sells its products to national supermarket chains. The company’s success duringrecent years is largely attributable to its ability to develop innovative products which appeal to the food selectors withinnational supermarket chains.The marketing department of Superstores plc, a national supermarket chain has asked GWCC to manufacture a cakeknown as the ‘Mighty Ben’. Mighty Ben is a character who has recently appeared in a film which was broadcastaround the world. The cake is expected to have a minimum market life of one year although the marketing departmentconsider that this might extend to eighteen months.The management accountant of GWCC has collated the following estimated information in respect of the Mighty Bencake:(1) Superstores plc has decided on a launch price of ￡20·25 for the Mighty Ben cake and it is expected that thisprice will be maintained for the duration of the product’s life. Superstores plc will apply a 35% mark-up on thepurchase price of each cake from GWCC.(2) Sales of the Mighty Ben cake are expected to be 100,000 units per month during the first twelve months.Thereafter sales of the Mighty Ben cake are expected to decrease by 10,000 units in each subsequent month.(3) Due to the relatively short shelf-life of the Mighty Ben cake, management has decided to manufacture the cakeson a ‘just-in-time’ basis for delivery in accordance with agreed schedules. The cakes will be manufactured inbatches of 1,000. Direct materials input into the baking process will cost ￡7,000 per batch for each of the firstthree months’ production. The material cost of the next three months’ production is expected to be 95% of thecost of the first three months’ production. All batches manufactured thereafter will cost 90% of the cost of thesecond three months’ production.(4) Packaging costs will amount to ￡0·75 per cake. The original costs of the artwork and design of the packagingwill amount to ￡24,000. Superstores plc will reimburse GWCC ￡8,000 in the event that the product iswithdrawn from sale after twelve months.(5) The design of the Mighty Ben cake is such that it is required to be hand-finished. A 75% learning curve willapply to the total labour time requirement until the end of month five. Thereafter a steady state will apply withlabour time required per batch stabilising at that of the final batch in month five. The labour requirement for thefirst batch of Mighty Ben cakes to be manufactured is expected to be 6,000 hours at ￡10 per hour.(6) A royalty of 5% of sales revenue (subject to a maximum royalty of ￡1·1 million) will be payable by GWCC to theowners of the Mighty Ben copyright.(7) Variable overheads are estimated at ￡3·50 per direct labour hour.(8) The manufacture of the Mighty Ben cake will increase fixed overheads by ￡75,000 per month.(9) In order to provide a production facility dedicated to the Mighty Ben cake, an investment of ￡1,900,000 will berequired and this will be fully depreciated over twelve months.(10) The directors of GWCC require an average annual return of 35% on their investment over 12 months and18 months.(11) Ignore taxation and the present value of cash flows.Note: Learning curve formula:y = axbwhere y = average cost per batcha = the cost of the initial batchx = the total number of batchesb = learning index (= –0·415 for 75% learning rate)Required:(a) Prepare detailed calculations to show whether the manufacture of Mighty Ben cakes will provide the requiredrate of return for GWCC over periods of twelve months and eighteen months. (20 marks)
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(b) (i) Advise the directors of GWCC on specific actions which may be considered in order to improve theestimated return on their investment of ￡1,900,000. (8 marks)
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2 Ice-Time Ltd (ITL) manufactures a range of sports equipment used in a variety of winter-sports in Snowland.Development engineers within ITL have recently developed a prototype of a small engine-propelled bobsleigh namedthe ‘Snowballer’, which has been designed for use by young children. The directors of ITL recently spent ￡200,000on market research, the findings of which led them to believe that a market exists for the Snowballer.The marketing director has suggested that ITL should use the ‘Olympic’ brand in order to market the Snowballer.The finance director of ITL has gathered relevant information and prepared the following evaluation relating to theproposed manufacture and sale of the Snowballer.(1) Sales are expected to be 3,200 units per annum at a selling price of ￡2,500 per unit.(2) Variable material, labour, and overhead costs are estimated at ￡1,490 per unit.(3) In addition, a royalty of ￡150 per unit would be payable to Olympic plc, for the use of their brand name.(4) Fixed overheads are estimated at ￡900,000 per annum. These overheads cannot be avoided until the end of theyear in which the Snowballer is withdrawn from the market.(5) An initial investment of ￡5 million would be required. A government grant equal to 50% of the initial investmentwould be received on the date the investment is made. However, because the Snowballer would be classified asa luxury good, no tax allowances would be available on this initial investment. The estimated life cycle of theSnowballer is six years.(6) Corporation tax at the rate of 30% per annum is payable in the year in which profit occurs.(7) All cash flows are stated in current prices and, with the exception of the initial investment and the governmentgrant, will occur at the end of each year.(8) The nominal cost of capital is 15·44%. Annual inflation during the period is expected to amount to 4%.Required:(a) Calculate the net present value (NPV) of the Snowballer proposal and recommend whether it should beundertaken by the directors of ITL. (4 marks)
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2 Alpha Division, which is part of the Delta Group, is considering an investment opportunity to which the followingestimated information relates:(1) An initial investment of $45m in equipment at the beginning of year 1 will be depreciated on a straight-line basisover a three-year period with a nil residual value at the end of year 3.(2) Net operating cash inflows in each of years 1 to 3 will be $12·5m, $18·5m and $27m respectively.(3) The management accountant of Alpha Division has estimated that the NPV of the investment would be$1·937m using a cost of capital of 10%.(4) A bonus scheme which is based on short-term performance evaluation is in operation in all divisions within theDelta Group.Required:(a) (i) Calculate the residual income of the proposed investment and comment briefly (using ONLY the aboveinformation) on the values obtained in reconciling the short-term and long-term decision views likely tobe adopted by divisional management regarding the viability of the proposed investment. (6 marks)
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(b) The marketing director of CTC has suggested the introduction of a new toy ‘Nellie the Elephant’ for which thefollowing estimated information is available:1. Sales volumes and selling prices per unitYear ending, 31 May 2009 2010 2011Sales units (000) 80 180 100Selling price per unit ($) 50 50 502. Nellie will generate a contribution to sales ratio of 50% throughout the three year period.3. Product specific fixed overheads during the year ending 31 May 2009 are estimated to be $1·6 million. Itis anticipated that these fixed overheads would decrease by 10% per annum during each of the years ending31 May 2010 and 31 May 2011.4. Capital investment amounting to $3·9 million would be required in June 2008. The investment would haveno residual value at 31 May 2011.5. Additional working capital of $500,000 would be required in June 2008. A further $200,000 would berequired on 31 May 2009. These amounts would be recovered in full at the end of the three year period.6. The cost of capital is expected to be 12% per annum.Assume all cash flows (other than where stated) arise at the end of the year.Required:(i) Determine whether the new product is viable purely on financial grounds. (4 marks)
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6 Alasdair, aged 42, is single. He is considering investing in property, as he has heard that this represents a goodinvestment. In order to raise the funds to buy the property, he wants to extract cash from his personal company, BeezerLimited, whose year end is 31 December.Beezer Limited was formed on 1 May 1998 with ￡1,000 of capital issued as 1,000 ￡1 ordinary shares, and tradeduntil 1 January 2005 when Alasdair sold the trade and related assets. The company’s only asset is cash of￡120,000. Alasdair wants to extract this cash from the company with the minimum amount of tax payable. He isconsidering either, paying himself a dividend of ￡120,000, on 31 March 2006, after which the company would haveno assets and be wound up or, leaving the cash in the company and then liquidating the company. Costs of liquidationof ￡5,000 would then be incurred.Since Beezer Limited ceased trading, Alasdair has been taken on as a partner at a marketing firm, Gallus Co. Heestimates his profit share for the year of assessment 2005/06 will be ￡30,000. He has not made any capital disposalsin the current tax year.Alasdair wishes to reinvest the cash extracted from Beezer Limited in property but is not sure whether he should investdirectly in residential or commercial property, or do so via some form. of collective investment. He is aware that Gallus Co are looking to rent a new warehouse which could be bought for ￡200,000. Alasdair thinks that he may be ableto buy the warehouse himself and lease it to his firm, but only if he can borrow the additional money to buy theproperty.Alasdair has a 25% shareholding in another company, Glaikit Limited, whose year end is 31 March. The remainingshares in this company are held by his friend, Gill. Alasdair is considering borrowing ￡15,000 from Glaikit Limitedon 1 January 2006. He does not intend to pay any interest on the loan, which is likely to be written off some timein 2007. Alasdair does not have any connection with Glaikit Limited other than his shareholding.Required:(a) Advise Alasdair whether or not a dividend payment will result in a higher after-tax cash sum than theliquidation of Beezer Limited. Assume that either the dividend would be paid on 31 March 2006 or theliquidation would take place on 31 March 2006. (9 marks)Assume that Beezer Limited has always paid corporation tax at or above the small companies rate of 19%and that the tax rates and allowances for 2004/05 apply throughout this part.
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4 (a) For this part, assume today’s date is 1 March 2006.Bill and Ben each own 50% of the ordinary share capital in Flower Limited, an unquoted UK trading companythat makes electronic toys. Flower Limited was incorporated on 1 August 2005 with 1,000 ￡1 ordinary shares,and commenced trading on the same day. The business has been successful, and the company has accumulateda large cash balance of ￡180,000, which is to be used to purchase a new factory. However, Bill and Ben havereceived an offer from a rival company, which they are considering. The offer provides Bill and Ben with twoalternative methods of payment for the purchase of their shares:(i) ￡480,000 for the company, inclusive of the ￡180,000 cash balance.(ii) ￡300,000 for the company assuming the cash available for the factory purchase is extracted prior to sale.Bill and Ben each currently receive a gross salary of ￡3,750 per month from Flower Limited. Part of the offerterms is that Bill and Ben would be retained as employees of the company on the same salary.Neither Bill nor Ben has used any of their capital gains tax annual exemption for the tax year 2005/06.Required:(i) Calculate which of the following means of extracting the ￡180,000 from Flower Limited on 31 March2006 will result in the highest after tax cash amount for Bill and Ben:(1) payment of a dividend, or(2) payment of a salary bonus.You are not required to consider the corporation tax (CT) implications for Flower Limited in youranswer. (5 marks)
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6 Andrew is aged 38 and is single. He is employed as a consultant by Bestadvice Co and pays income tax at thehigher rate.Andrew is considering investing in a new business, and to provide funds for this investment he has recently disposedof the following assets:(1) A short leasehold interest in a residential property. Andrew originally paid ￡50,000 for a 47 year lease of theproperty in May 1995, and assigned the lease in May 2006 for ￡90,000.(2) His holding of ￡10,000 7% Government Stock, on which interest is payable half-yearly on 20 April and20 October. Andrew originally purchased this holding on 1 June 1999 for ￡9,980 and he sold it for ￡11,250on 14 March 2005.Andrew intends to subscribe for ordinary shares in a new company, Scalar Limited, which will be a UK basedmanufacturing company. Three investors (including Andrew) have been identified, but a fourth investor may also beinvited to subscribe for shares. The investors are all unconnected, and would subscribe for shares in equal measure.The intention is to raise ￡450,000 in this manner. The company will also raise a further ￡50,000 from the investorsin the form. of loans. Andrew has been told that he can take advantage of some tax reliefs on his investment in ScalarLimited, but does not know anything about the details of these reliefsAndrew’s employer, Bestadvice Co, is proposing to change the staff pension scheme from a defined benefit schemeto which the firm and the employees each contribute 6% of their annual salary, to a defined contribution scheme, towhich the employees will continue to contribute 6%, but the firm will contribute 8% of their annual salary. Themajority of Andrew’s colleagues are opposed to this move, but, given the increase in the firm’s contribution rateAndrew himself is less sure that the proposal is without merit.Required:(a) (i) Calculate the chargeable gain arising on the assignment of the residential property lease in May 2006.(2 marks)
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2 Assume that today’s date is 1 July 2005.Jan is aged 45 and single. He is of Danish domicile but has been working in the United Kingdom since 1 May 2004and intends to remain in the UK for the medium to long term. Although Jan worked briefly in the UK in 1986, hehas forgotten how UK taxation works and needs some assistance before preparing his UK income tax return.Jan’s salary from 1 May 2004 was ￡74,760 per annum. Jan also has a company car – a Jaguar XJ8 with a list priceof ￡42,550 including extras, and CO2 emissions of 242g/km. The car was available to him from 1 July 2004. Freepetrol is provided by the company. Jan has other taxable benefits amounting to ￡3,965.Jan’s other 2004/05 income comprises:￡Dividend income from UK companies (cash received) 3,240Interest received on an ISA account 230Interest received on a UK bank account 740Interest remitted from an offshore account (net of 15% withholding tax) 5,100Income remitted from a villa in Portugal (net of 45% withholding tax) 4,598The total interest arising on the offshore account was ￡9,000 (gross). In addition, Jan has not remitted otherPortuguese rental income arising in the year, totalling a further ￡1,500 (gross).Jan informs you that his employer is thinking of providing him with rented accommodation while he looks for a houseto buy. The accommodation would be a two bedroom flat, valued at ￡155,000 with an annual value of ￡6,000. Itwould be made available from 6 August 2005. The company will pay the rent of ￡600 per month for the first sixmonths. All other bills will be paid by Jan.Jan also informs you that he has 25,000 ordinary shares in Gilet Ltd (‘Gilet’), an unquoted UK trading company. Hehas held these shares since August 1986 when he bought 2,500 shares at ￡4.07 per share. In January 1994, abonus issue gave each shareholder nine shares for each ordinary share held. In the last week all Gilet’s shareholdershave received an offer from Jumper plc (‘Jumper’) who wishes to acquire the shares. Jumper has offered the following:– 3 shares in Jumper (currently trading at ￡3.55 per share) for every 5 shares in Gilet, and– 25p cash per shareRequired:(a) Calculate Jan’s 2004/05 income tax (IT) payable. (11 marks)
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When mentioning “the $4 million to $10 million range” (Lines 3-4, Paragraph 3) the author is talking about.A gold market.B real estate.C stock exchange.D venture investment.
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According to a recent ( ), in Shanghai alone there are more than 2.5 million migrant workers.
A. researchB. pollC. surveyD. investment
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Sinking Fund Cash would be classified on the balance sheet as ( )A. a current assetB. a fixed assetC. an intangible assetD. an investment
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PV Co is evaluating an investment proposal to manufacture Product W33, which has performed well in test marketing trials conducted recently by the company’s research and development division. The following information relating to this investment proposal has now been prepared.Initial investment $2 millionSelling price (current price terms) $20 per unitExpected selling price inflation 3% per yearVariable operating costs (current price terms) $8 per unitFixed operating costs (current price terms) $170,000 per yearExpected operating cost inflation 4% per yearThe research and development division has prepared the following demand forecast as a result of its test marketing trials. The forecast reflects expected technological change and its effect on the anticipated life-cycle of Product W33.It is expected that all units of Product W33 produced will be sold, in line with the company’s policy of keeping no inventory of finished goods. No terminal value or machinery scrap value is expected at the end of four years, when production of Product W33 is planned to end. For investment appraisal purposes, PV Co uses a nominal (money) discount rate of 10% per year and a target return on capital employed of 30% per year. Ignore taxation.Required:(a) Identify and explain the key stages in the capital investment decision-making process, and the role ofinvestment appraisal in this process. (7 marks)(b) Calculate the following values for the investment proposal:(i) net present value;(ii) internal rate of return;(iii) return on capital employed (accounting rate of return) based on average investment; and(iv) discounted payback period. (13 marks)(c) Discuss your findings in each section of (b) above and advise whether the investment proposal is financially acceptable. (5 marks)
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With computer users linker to the Internet growing ( ) every year, business is trying to cash in on the worldwide network.
A. at million B. with a million
C. with one million D. by the million
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With Computer users linker to the internet growing ( ) every year,business is trying to Cash in on the worlD wide network.
A at million
B with a million
C with one million
D by million
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