FIN5063 Week 8 Quizzes

 

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FIN--5063-OL1--OL-FA-2021 - Corporate Finance

Started on	Saturday, October 16, 2021, 10:36 AM
State	Finished
Completed on	Saturday, October 16, 2021, 11:00 AM
Time taken	24 mins 21 secs
Grade	6.00 out of 10.00 (60%)

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Question 1

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What is the interpretation of the net present value of a project?

Select one:

a.

It measures the net value generated by the project, and thus the increase in wealth of the shareholders as a result of the project.

b.

It measures the rate of the profitability of a project per $1 of the initial investment.

c.

It measures the sum of the future positive cash flows of a project.

d.

It measures the amount of cash generated by a project that will be paid out to the investors.

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The correct answer is: It measures the net value generated by the project, and thus the increase in wealth of the shareholders as a result of the project.

Question 2

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These are sets of cash flows where all the initial cash flows are negative and all the subsequent ones are either zero or positive.

Select one:

a.

normal cash flows

b.

time line cash flows

c.

expected cash flows

d.

non-normal cash flows

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The correct answer is: normal cash flows

Question 3

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Which of these is a capital budgeting technique that generates a decision rule and associated metric for choosing projects based on the total discounted value of their cash flows?

Select one:

a.

Internal rate of return

b.

Net present value

c.

Payback

d.

None of these.

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The correct answer is: Net present value

Question 4

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If the cost of capital declines, and the projected cash flows remain the same

Select one:

a.

the internal rate of return of the project will increase.

b.

the internal rate of return of the project will decrease.

c.

the internal rate of return of the project will remain unchanged.

d.

the impact on the internal rate of return will depend on the size of the decline in the cost of capital rate.

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The correct answer is: the internal rate of return of the project will remain unchanged.

Question 5

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Consider the two mutually exclusive projects below. What is the appropriate investment decision?

	Project A	Project B
Payback	3.5	3.9
NPV	22.56	15.67
IRR	13.68	16.79

Select one:

a.

Accept A because of the lower IRR.

b.

Accept A because of the higher NPV.

c.

Accept B because of the higher IRR.

d.

Accept A because of the shorter payback.

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The correct answer is: Accept A because of the higher NPV.

Question 6

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On the net present value profile diagram, the horizontal axis intercept where the net present value profile curve crosses the horizontal axis is equal to

Select one:

a.

The cost of capital rate of the project.

b.

The average of the two internal rates of return of two mutually exclusive projects.

c.

The internal rate of return of the project.

d.

The crossover rate between two mutually exclusive projects.

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The correct answer is: The internal rate of return of the project.

Question 7

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If a project has a net present value greater than zero

Select one:

a.

The project should be rejected regardless of whether it is a stand-alone project or a mutually exclusive project.

b.

The project should be accepted regardless of whether it is a stand-alone project or a mutually exclusive project.

c.

The project should be accepted if it is a stand-alone project or if its net present value is higher than for all other mutually exclusive projects.

d.

The project should be rejected only if its net present value is higher than for all other mutually exclusive projects.

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The correct answer is: The project should be accepted if it is a stand-alone project or if its net present value is higher than for all other mutually exclusive projects.

Question 8

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Which of the following best describes the NPV profile?

Select one:

a.

A graph of a project's NPV as a function of possible capital costs.

b.

A graph of a project's NPV over time.

c.

A graph of a project's NPV as a function of possible IRRs.

d.

None of these statements is correct.

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The correct answer is: A graph of a project's NPV as a function of possible capital costs.

Question 9

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If the cost of capital remains unchanged, and the projected cash flows remain the same except year 3 cash flow changes from $400 to $200

Select one:

a.

the net present value of the project will increase.

b.

the directional impact on the net present value of the project is uncertain without knowing the entire set of cash flows.

c.

the net present value of the project will remain unchanged.

d.

the net present value of the project will decrease.

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The correct answer is: the net present value of the project will decrease.

Question 10

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If the internal rate of return is greater than the cost of capital rate on a project the project should be

Select one:

a.

accepted regardless of whether it is a stand-alone project or a mutually exclusive project.

b.

rejected only if the internal rate of return is smaller than the internal rate of return on at least one other mutually exclusive project.

c.

accepted if it is a stand-alone project. If it is a mutually exclusive project, we are certain to accept only if the other mutually exclusive projects all have internal rates of return smaller than their capital cost rates.

d.

rejected regardless of whether it is a stand-alone project or a mutually exclusive project.

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The correct answer is: accepted if it is a stand-alone project. If it is a mutually exclusive project, we are certain to accept only if the other mutually exclusive projects all have internal rates of return smaller than their capital cost rates.

 

 

 

 

 

 

 

 

 

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FIN--5063-OL1--OL-FA-2021 - Corporate Finance

Started on	Saturday, October 16, 2021, 11:21 AM
State	Finished
Completed on	Saturday, October 16, 2021, 11:46 AM
Time taken	25 mins 1 sec
Grade	9.00 out of 10.00 (90%)

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Question 1

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The payback period calculation makes use of

Select one:

a.

time value of money.

b.

required rates of return.

c.

cash flows that occur after payback.

d.

cash flows that occur during payback.

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The correct answer is: cash flows that occur during payback.

Question 2

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Which of the below is NOT a weakness of the internal rate of return criterion for evaluating capital budgeting projects?

Select one:

a.

It doesn’t provide a valid accept/reject rule for mutually exclusive projects.

b.

It could lead to multiple solutions leaving it unclear which value to use.

c.

It doesn’t provide a valid accept/reject rule for stand-alone projects.

d.

It doesn’t provide a dollar measure of the value created by the project so it is difficult to use it to measure a project’s impact on the value of the company.

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The correct answer is: It doesn’t provide a valid accept/reject rule for stand-alone projects.

Question 3

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If the cost of capital remains unchanged, and the projected cash flows remain the same except year 3 cash flow changes from $400 to $200

Select one:

a.

the directional impact on the internal rate of return of the project is uncertain without knowing the entire set of cash flows.

b.

the internal rate of return of the project will decrease.

c.

the internal rate of return of the project will increase.

d.

the internal rate of return of the project will remain unchanged.

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The correct answer is: the internal rate of return of the project will decrease.

Question 4

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Project A has a net present value equal to $30,500. Therefore

Select one:

a.

its internal rate of return could be smaller or larger, but not equal to its cost of capital rate.

b.

its internal rate of return is smaller than its cost of capital rate.

c.

its internal rate of return is greater than its cost of capital rate.

d.

its internal rate of return must be negative

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The correct answer is: its internal rate of return is greater than its cost of capital rate.

Question 5

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Project A has an internal rate of return of 13%, and the cost of capital rate appropriate for this project is 15%. Therefore

Select one:

a.

The net present value of the project is smaller than zero.

b.

The absolute value of the net present value of the project is equal to 2% of the initial investment.

c.

The net present value of the project could be either greater than zero or smaller than zero, or equal to zero.

d.

The net present value of the project is greater than zero.

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The correct answer is: The net present value of the project is smaller than zero.

Question 6

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If the payback measure for a particular project is shorter than the life of the project then

Select one:

a.

The NPV measure could be smaller than zero, greater than zero, or equal to zero.

b.

The NPV measure must be smaller than zero.

c.

The NPV measure must be greater than zero.

d.

The NPV measure cannot be equal to zero.

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The correct answer is: The NPV measure could be smaller than zero, greater than zero, or equal to zero.

Question 7

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Project A has a negative net present value. Therefore

Select one:

a.

its internal rate of return is greater than its cost of capital rate.

b.

its internal rate of return is smaller than its cost of capital rate.

c.

its internal rate of return must be negative

d.

its internal rate of return could be smaller or larger, but not equal to its cost of capital rate.

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The correct answer is: its internal rate of return is smaller than its cost of capital rate.

Question 8

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Project A has an internal rate of return of 13%, and the cost of capital rate appropriate for this project is 10%. Therefore

Select one:

a.

The net present value of the project could be either greater than zero, smaller than zero, or equal to zero.

b.

The net present value of the project is smaller than zero.

c.

The net present value of the project is greater than zero.

d.

The absolute value of the net present value of the project is equal to 3% of the initial investment.

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The correct answer is: The net present value of the project is greater than zero.

Question 9

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Which of the below is a weakness of the internal rate of return criterion for evaluating capital budgeting projects?

Select one:

a.

All of these are weaknesses of the internal rate of return criterion.

b.

It doesn’t provide a valid accept/reject rule for mutually exclusive projects.

c.

It doesn’t provide a dollar measure of the value created by the project so it is difficult to use it to measure a project’s impact on the value of the company.

d.

It could lead to multiple solutions leaving it unclear which value to use.

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The correct answer is:               .

Question 10

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For two projects A and B that have similar internal rates of return, similar size, and last the same number of years, if project A’s cash flows are concentrated more toward the beginning of the project and project B's cash flows are concentrated more toward the end of the project then we would most likely expect

Select one:

a.

The internal rate of return of project B to change more than the internal rate of return of project A.

b.

That an increase in the cost of capital rate would lower the net present value of project A less than the net present value of project B.

c.

That an increase in the cost of capital rate would lower the net present value of project A more than the net present value of project B.

d.

The internal rate of return of project A to change more than the internal rate of return of project B.

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The correct answer is: That an increase in the cost of capital rate would lower the net present value of project A less than the net present value of project B.

 

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FIN--5063-OL1--OL-FA-2021 - Corporate Finance

Started on	Saturday, October 16, 2021, 1:19 PM
State	Finished
Completed on	Saturday, October 16, 2021, 1:44 PM
Time taken	24 mins 50 secs
Points	2.00/3.00
Grade	6.67 out of 10.00 (67%)

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Question 1

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Consider the project described in the table below. What is the project's internal rate of return?

Cost of Capital Rate	8%
Time	0	1	2	3	4
Cash Flows	($2,100)	$700	$600	$800	$900

Select one:

a.

15.07%

b.

15.22%

c.

14.92%

d.

14.61%

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The correct answer is: 15.07%

Question 2

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Consider the project described in the table below. What is the project's net present value?

Cost of Capital Rate	14%
Time	0	1	2	3	4
Cash Flows	($4,000)	$3,000	$2,000	$1,000	$500

Select one:

a.

$1,073

b.

$1,142

c.

$1,256

d.

$1,050

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The correct answer is: $1,142

Question 3

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Consider the project described in the table below. What is the project's payback period?

Cost of Capital Rate	11%
Time	0	1	2	3	4
Cash Flows	($3,700)	$2,100	$2,000	$1,900	$1,800

Select one:

a.

2.2

b.

1.8

c.

1.2

d.

0.8

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The correct answer is: 1.8

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FIN--5063-OL1--OL-FA-2021 - Corporate Finance

Started on	Saturday, October 16, 2021, 1:45 PM
State	Finished
Completed on	Saturday, October 16, 2021, 1:59 PM
Time taken	14 mins 31 secs
Points	3.00/3.00
Grade	10.00 out of 10.00 (100%)

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Question 1

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Consider the project described in the table below. What is the project's internal rate of return?

Cost of Capital Rate	10%
Time	0	1	2	3	4
Cash Flows	($5,300)	$2,200	$4,400	$3,500	$2,500

Select one:

a.

45.30%

b.

47.11%

c.

46.21%

d.

43.94%

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The correct answer is: 45.30%

Question 2

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Consider the project described in the table below. What is the project's payback period?

Cost of Capital Rate	8%
Time	0	1	2	3	4
Cash Flows	($2,100)	$700	$600	$800	$900

Select one:

a.

3.00

b.

2.50

c.

2.00

d.

3.50

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The correct answer is: 3.00

Question 3

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Consider the project described in the table below. What is the project's net present value?

Cost of Capital Rate	7%
Time	0	1	2	3	4
Cash Flows	($1,800)	$350	$550	$750	$950

Select one:

a.

$351

b.

$362

c.

$365

d.

$344

Feedback

The correct answer is: $344

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FIN--5063-OL1--OL-FA-2021 - Corporate Finance

Started on	Saturday, October 16, 2021, 2:41 PM
State	Finished
Completed on	Saturday, October 16, 2021, 2:52 PM
Time taken	10 mins 47 secs
Points	6.00/6.00
Grade	10.00 out of 10.00 (100%)

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Question 1

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Consider the project described in the table below. What is the project's internal rate of return?

Cost of Capital Rate	10%
Time	0	1	2	3	4
Cash Flows	($5,300)	$2,200	$4,400	$3,500	$2,500

Select one:

a.

43.94%

b.

47.11%

c.

46.21%

d.

45.30%

Feedback

The correct answer is: 45.30%

Question 2

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KADS, Inc., has spent $300,000 on research to develop a new computer game. The firm is planning to spend $150,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $20,000. The machine has an expected life of five years, a $60,000 estimated resale value, and falls under the MACRS seven-year class life (depreciation of 14.29%, 24.49%, 17.49%, 12.49%, and 8.93% in years 1, 2, 3, 4, and 5 respectively). Revenue from the new game is expected to be $700,000 per year, with costs of $350,000 per year. The firm has a tax rate of 40 percent, an opportunity cost of capital of 12 percent, and it expects net working capital to increase by $50,000 at the beginning of the project. What will the YEAR 4 (ONLY YEAR 4!) estimated after-tax cash flow for this project be?

Select one:

a.

$131,507

b.

$197,260

c.

$218,493

d.

$152,740

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The correct answer is: $218,493

Question 3

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Pumpkin Pie Industries has 7 million shares of common stock outstanding, 2 million shares of preferred stock outstanding, and 50 thousand bonds. If the common shares are selling for $80 per share, the preferred shares are selling for $25 per share, and the bonds are selling for 110 percent of par ($1,000), what would be the weights used in the calculation of Pumpkin Pie's WACC for common stock, preferred stock, and bonds, respectively?

Select one:

a.

84.85 percent, 7.58 percent, 7.58 percent

b.

84.21 percent, 7.52 percent, 8.27 percent

c.

44.87 percent, 41.03 percent, 14.10 percent

d.

45.45 percent, 41.56 percent, 12.99 percent

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The correct answer is: 84.21 percent, 7.52 percent, 8.27 percent

Question 4

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FlavR Co. stock has a beta of 1.5, the current risk-free rate is 3, and the expected return on the market is 12 percent. What is FlavR Co's cost of equity?

Select one:

a.

18 percent

b.

21 percent

c.

25.5 percent

d.

16.5 percent

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The correct answer is: 16.5 percent

Question 5

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Suppose you sell a fixed asset for $80,000 when its book value is $120,000. If your company's marginal tax rate is 35 percent, what will be the effect on cash flows of this sale (i.e., what will be the after-tax cash flow of this sale)?

Select one:

a.

$66,000

b.

$54,000

c.

$106,000

d.

$94,000

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The correct answer is: $94,000

Question 6

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Consider the project described in the table below. What is the project's net present value?

Cost of Capital Rate	10%
Time	0	1	2	3	4
Cash Flows	($5,300)	$2,200	$4,400	$3,500	$2,500

Select one:

a.

$4,673

b.

$4,440

c.

$4,206

d.

$4,487

Feedback

The correct answer is: $4,673

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FIN--5063-OL1--OL-FA-2021 - Corporate Finance

Started on	Saturday, October 16, 2021, 3:02 PM
State	Finished
Completed on	Saturday, October 16, 2021, 3:20 PM
Time taken	18 mins 15 secs
Grade	10.00 out of 10.00 (100%)

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Question 1

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The net present value decision technique uses a statistic denominated in:

Select one:

a.

dollars or some other currency.

b.

time lines.

c.

a percentage.

d.

years.

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The correct answer is: dollars or some other currency.

Question 2

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Which of these is a capital budgeting technique that generates decision rules and associated metrics for choosing projects based upon the implicit expected project's rate of return?

Select one:

a.

Payback

b.

Internal rate of return

c.

None of these.

d.

Net present value

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The correct answer is: Internal rate of return

Question 3

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Which of the below is a weakness of the net present value criterion for evaluating capital budgeting projects?

Select one:

a.

It doesn’t provide a dollar measure of the value created by the project so it is difficult to use to measure a project’s impact on the value of the company.

b.

It doesn’t provide the rate of return on the initial investment.

c.

It doesn’tprovide a valid accept/reject rule for mutually exclusive projects.

d.

It could lead to multiple solutions leaving it unclear which value to use.

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The correct answer is: It doesn’t provide the rate of return on the initial investment.

Question 4

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Which of the below is NOT a weakness of the net present value criterion for evaluating capital budgeting projects?

Select one:

a.

It doesn’t provide a dollar measure of the value created by the project so it is difficult to use to measure a project’s impact on the value of the company.

b.

None of these are weaknesses of the net present value criterion.

c.

It could lead to multiple solutions leaving it unclear which value to use.

d.

It doesn’tprovide a valid accept/reject rule for mutually exclusive projects.

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The correct answer is: None of these are weaknesses of the net present value criterion.

Question 5

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If the cost of capital remains unchanged, and the projected cash flows remain the same except year 3 cash flow changes from $400 to $600

Select one:

a.

the internal rate of return of the project will increase.

b.

the internal rate of return of the project will remain unchanged.

c.

the internal rate of return of the project will decrease.

d.

the directional impact on the internal rate of return of the project is uncertain without knowing the entire set of cash flows.

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The correct answer is: the internal rate of return of the project will increase.

Question 6

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Which of the following tools is best suitable for choosing between mutually exclusive projects?

Select one:

a.

None are suitable

b.

NPV

c.

Payback

d.

IRR

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The correct answer is: NPV

Question 7

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If the cost of capital remains unchanged, and the projected cash flows remain the same except year 3 cash flow changes from $400 to $600

Select one:

a.

the directional impact on the net present value of the project is uncertain without knowing the entire set of cash flows.

b.

the net present value of the project will increase.

c.

the net present value of the project will decrease.

d.

the net present value of the project will remain unchanged.

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The correct answer is: the net present value of the project will increase.

Question 8

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Which of the below is NOT a weakness of the payback criterion for evaluating capital budgeting projects?

Select one:

a.

It doesn’t discount future cash flows.

b.

It ignores cash flows that occur after the payback date.

c.

It doesn’t provide a finance theory based decision rule for accepting or rejecting a project.

d.

It is difficult to calculate.

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The correct answer is: It is difficult to calculate.

Question 9

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Which of the below is indicated by the crossover point where two NPV profiles intersect?

Select one:

a.

The payback period

b.

The IRR

c.

The net present value that would lead us to accept both projects

d.

The cost of capital that would make us indifferent between the two projects

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The correct answer is: The cost of capital that would make us indifferent between the two projects

Question 10

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What is the interpretation of the payback of a project?

Select one:

a.

It measures the discounted value of all future positive cash flows of the project.

b.

It measures the amount of cash generated from the project that can be distributed to investors.

c.

It measures the number of years in which the initial investment amount in the project is recovered.

d.

It gives the amount of cash investors receive from a project in return for their investment.

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The correct answer is: It measures the number of years in which the initial investment amount in the project is recovered.

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FIN--5063-OL1--OL-FA-2021 - Corporate Finance

Started on	Saturday, October 16, 2021, 3:23 PM
State	Finished
Completed on	Saturday, October 16, 2021, 3:33 PM
Time taken	9 mins 14 secs
Points	3.00/3.00
Grade	10.00 out of 10.00 (100%)

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Question 1

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Consider the project described in the table below. What is the project's internal rate of return?

Cost of Capital Rate	8%
Time	0	1	2	3	4
Cash Flows	($2,100)	$700	$600	$800	$900

Select one:

a.

15.07%

b.

14.92%

c.

14.61%

d.

15.22%

Feedback

The correct answer is: 15.07%

Question 2

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Consider the project described in the table below. What is the project's net present value?

Cost of Capital Rate	10%
Time	0	1	2	3	4
Cash Flows	($5,300)	$2,200	$4,400	$3,500	$2,500

Select one:

a.

$4,673

b.

$4,487

c.

$4,440

d.

$4,206

Feedback

The correct answer is: $4,673

Question 3

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Question text

Consider the project described in the table below. What is the project's payback period?

Cost of Capital Rate	9%
Time	0	1	2	3	4
Cash Flows	($11,500)	$3,000	$3,500	$4,000	$4,500

Select one:

a.

2.78

b.

3.78

c.

2.22

d.

3.22

Feedback

The correct answer is: 3.22

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FIN--5063-OL1--OL-FA-2021 - Corporate Finance

Started on	Sunday, October 10, 2021, 8:53 PM
State	Finished
Completed on	Sunday, October 10, 2021, 9:15 PM
Time taken	21 mins 16 secs
Grade	7.00 out of 10.00 (70%)

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Question 1

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Which of the following statements is correct?

Select one:

a.

The weights of debt and equity should be based on values from the balance sheet because this is the most accurate assessment of the valuation.

b.

The weighted average cost of capital is calculated on a before-tax basis.

c.

All of these statements are correct.

d.

An increase in the market risk premium is likely to increase the weighted average cost of capital.

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The correct answer is: An increase in the market risk premium is likely to increase the weighted average cost of capital.

Question 2

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Which of the following makes this a true statement? Ideally, when searching for a beta for a new line of business:

Select one:

a.

two (or even one) proxies might represent a suitable sample if their line of business resembles the proposed new project closely enough.

b.

one could find other firms engaged in the proposed new line of business and use their betas as proxies to estimate the project's risk.

c.

All the answers make this a true statement.

d.

one would like to find more than one or two pure-play proxies.

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The correct answer is: All the answers make this a true statement.

Question 3

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Which of the following is most correct?

Select one:

a.

Firms should use historical costs rather than marginal costs of capital.

b.

An increase in the risk-free rate will increase the cost of equity.

c.

All of these statements are equally correct.

d.

When comparing two firms within the same industry, most analysts calculate the weighted average cost of capital on a before-tax basis to facilitate comparisons.

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The correct answer is: An increase in the risk-free rate will increase the cost of equity.

Question 4

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Which of the following statements is true?

Select one:

a.

The new project's risk is not a factor in determining its cost of capital.

b.

If the new project is riskier than the firm's existing projects, then it should be charged a higher cost of capital.

c.

If the new project is riskier than the firm's existing projects, then it should be charged the firm's cost of capital.

d.

If the new project is riskier than the firm's existing projects, then it should be charged a lower cost of capital.

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The correct answer is: If the new project is riskier than the firm's existing projects, then it should be charged a higher cost of capital.

Question 5

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When calculating the weighted average cost of capital, weights are based on:

Select one:

a.

market values.

b.

book weights.

c.

book values.

d.

market betas.

Feedback

The correct answer is: market values.

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Relative to a typical level of risk for Company Z’s projects, project A is twice as risky, project B is half as risky, and project C is of about the same risk. Thus firm WACC should be used to discount cash flows for project(s) _____ , and project-specific WACC should be used for project(s) _____ .

Select one:

a.

A and C; B

b.

C; A and B

c.

B; A and C

d.

A and B; C

Feedback

The correct answer is: C; A and B

Question 7

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Which of these statements is true regarding divisional WACC?

Select one:

a.

Using a firmwide WACC to evaluate new projects would have no impact on projects that present less risk than the firm's average beta.

b.

Using a simple firmwide WACC to evaluate new projects would give an unfair advantage to projects that present more risk than the firm's average beta.

c.

Using a divisional WACC versus a WACC for the firm's current operations will result in quite a few incorrect decisions.

d.

Using a simple firmwide WACC to evaluate new projects would give an unfair advantage to projects that present less risk than the firm's average beta.

Feedback

The correct answer is: Using a simple firmwide WACC to evaluate new projects would give an unfair advantage to projects that present more risk than the firm's average beta.

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Which of these makes this a true statement? The WACC formula

Select one:

a.

uses the pre-tax costs of capital to compute the firm's weighted cost of debt financing.

b.

All of these make it a true statement.

c.

uses market values to determine weights.

d.

uses costs (required rates of return) adjusted for inflation.

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The correct answer is: uses market values to determine weights.

Question 9

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Which of following is a situation in which we would most likely use the CAPM approach for estimating the component cost of equity?

Select one:

a.

When we are able to estimate the market risk premium with a high degree of confidence.

b.

When the firm pays a constant dividend.

c.

When we are able to estimate the firm's beta with a high degree of confidence.

d.

When we are able to estimate the risk-free rate with a high degree of confidence.

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The correct answer is: When we are able to estimate the firm's beta with a high degree of confidence.

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Which of the statements below is correct?

Select one:

a.

In theory (assuming no estimation errors), using divisional WACC eliminates the possibility of incorrectly accepting or rejecting a project.

b.

Using firm WACC for all projects leads to incorrect acceptance of high risk projects and thus to a decrease in the overall company risk.

c.

In theory, using project-specific WACC for all projects leads to incorrect decisions regarding projects with a typical level if risk.

d.

Using firm WACC for all projects leads to incorrect rejection of low risk projects and thus to an increase in the overall company risk.

Feedback

The correct answer is: Using firm WACC for all projects leads to incorrect rejection of low risk projects and thus to an increase in the overall company risk.

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FIN--5063-OL1--OL-FA-2021 - Corporate Finance

Started on	Sunday, October 10, 2021, 9:17 PM
State	Finished
Completed on	Sunday, October 10, 2021, 9:35 PM
Time taken	17 mins 23 secs
Points	4.00/4.00
Grade	10.00 out of 10.00 (100%)

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Question 1

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Pumpkin Pie Industries has 7 million shares of common stock outstanding, 2 million shares of preferred stock outstanding, and 50 thousand bonds. If the common shares are selling for $80 per share, the preferred shares are selling for $25 per share, and the bonds are selling for 110 percent of par ($1,000), what would be the weights used in the calculation of Pumpkin Pie's WACC for common stock, preferred stock, and bonds, respectively?

Select one:

a.

84.85 percent, 7.58 percent, 7.58 percent

b.

84.21 percent, 7.52 percent, 8.27 percent

c.

45.45 percent, 41.56 percent, 12.99 percent

d.

44.87 percent, 41.03 percent, 14.10 percent

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The correct answer is: 84.21 percent, 7.52 percent, 8.27 percent

Question 2

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An all-equity firm is considering the projects shown as follows. The T-bill rate is 3 percent and the market risk premium is 6 percent. If the firm uses its current WACC of 11 percent to evaluate these projects, which project(s) will be incorrectly accepted?

  

Select one:

a.

Projects B and C

b.

Project B

c.

Project D

d.

Project A

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The correct answer is: Project D

Question 3

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Suppose that TipsNToes, Inc.'s capital structure features 65 percent equity, 35 percent debt, and that its before-tax cost of debt is 8 percent, while its cost of equity is 13 percent. If the appropriate weighted average tax rate is 38 percent, what will be TipsNToes' WACC?

Select one:

a.

11.25 percent

b.

6.705 percent

c.

10.186 percent

d.

9.514 percent

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The correct answer is: 10.186 percent

Question 4

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IVY has preferred stock selling for 105 percent of par that pays a 6 percent annual coupon. What would be IVY's component cost of preferred stock?

Select one:

a.

6.30 percent

b.

1.11 percent

c.

99.00 percent

d.

5.71 percent

Feedback

The correct answer is: 5.71 percent

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FIN--5063-OL1--OL-FA-2021 - Corporate Finance

Started on	Sunday, October 10, 2021, 10:32 PM
State	Finished
Completed on	Sunday, October 10, 2021, 10:52 PM
Time taken	20 mins 17 secs
Grade	8.00 out of 10.00 (80%)

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Question 1

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A local bank is contemplating opening a new branch bank in a large superstore across town from their main office. It is estimated that the new branch will generate $20,000 after expenses each month. The manager wonders if all these revenues should be considered an incremental cash flow. Given this information, which of the following statements is correct?

Select one:

a.

We would first need to assess the opportunity cost of placing a branch in a different location to answer this question.

b.

$20,000 is generated by the new branch bank and therefore it is an incremental cash flow.

c.

Some amount less than the $20,000 is incremental because of complementary effects.

d.

Some amount less than the $20,000 is incremental because of substitutionary effects.

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The correct answer is: Some amount less than the $20,000 is incremental because of substitutionary effects.

Question 2

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In capital budgeting analysis, selling a machine at the end of the project for an amount lower than its book value

Select one:

a.

Results in an after-tax cash flow from the sale of the machine higher than the machine’s market value.

b.

Leads to an adjustment of the machine’s purchase price for the purposes of the project’s cash flow calculations.

c.

Is not possible.

d.

Results in an after-tax cash flow from the sale of the machine lower than the machine’s market value.

Feedback

The correct answer is: Results in an after-tax cash flow from the sale of the machine higher than the machine’s market value.

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In capital budgeting analysis, using accelerated depreciation (as opposed to straight-line depreciation) results in

Select one:

a.

Higher taxes paid in the later years of the project.

b.

Lower total taxes paid, associated with the project.

c.

Higher taxes paid in the early years of the project.

d.

Higher total taxes paid, associated with the project.

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The correct answer is: Higher taxes paid in the later years of the project.

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A new project would require an immediate increase in raw materials in the amount of $10,000. The firm expects that accounts payable will automatically increase $7,500. What will be the impact of the resulting change in the firm's net working capital on the firm's cash flows?

Select one:

a.

+$2,500

b.

-$2,500

c.

-$17,500

d.

+$17,500

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The correct answer is: -$2,500

Question 5

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In capital budgeting analysis, using accelerated depreciation (as opposed to straight-line depreciation) results in

Select one:

a.

Higher net cash flows in the early years of the project.

b.

Higher total net cash flows for the project.

c.

Lower total net cash flows for the project.

d.

Lower net cash flows in the later years of the project.

Feedback

The correct answer is: Higher net cash flows in the early years of the project.

Question 6

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All of the following are incremental cash flows attributable to the project EXCEPT:

Select one:

a.

complementary effects.

b.

opportunity costs.

c.

substitutionary effects.

d.

financing costs.

Feedback

The correct answer is: financing costs.

Question 7

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If a firm has already paid an expense or is obligated to pay one in the future, regardless of whether a particular project is undertaken, that expense is a:

Select one:

a.

obligated cost.

b.

complementary cost.

c.

sunk cost.

d.

committed cost.

Feedback

The correct answer is: sunk cost.

Question 8

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In capital budgeting analysis, selling a machine at the end of the project for an amount higher than its book value

Select one:

a.

Results in an after-tax cash flow from the sale of the machine lower than the machine’s market value.

b.

Results in an after-tax cash flow from the sale of the machine higher than the machine’s market value.

c.

Leads to an adjustment of the machine’s purchase price for the purposes of the project’s cash flow calculations.

d.

Is not possible.

Feedback

The correct answer is: Results in an after-tax cash flow from the sale of the machine lower than the machine’s market value.

Question 9

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AB Mining Company just commissioned a firm to identify if an unused portion of their mine contains any silver or gold at a cost of $125,000. This is an example of

Select one:

a.

incremental cash flow.

b.

relevant cash flow.

c.

sunk cost.

d.

opportunity cost.

Feedback

The correct answer is: sunk cost.

Question 10

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Effects that arise from a new product or service that decrease sales of the firm's existing products or services are referred to as:

Select one:

a.

sunk effects.

b.

complementary effects.

c.

substitutionary effects.

d.

marginal effects.

Feedback

The correct answer is: substitutionary effects.

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FIN--5063-OL1--OL-FA-2021 - Corporate Finance

Started on	Sunday, October 10, 2021, 10:53 PM
State	Finished
Completed on	Sunday, October 10, 2021, 10:56 PM
Time taken	2 mins 34 secs
Points	4.00/4.00
Grade	10.00 out of 10.00 (100%)

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Question 1

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KADS, Inc., has spent $300,000 on research to develop a new computer game. The firm is planning to spend $150,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $20,000. The machine has an expected life of three years, a $60,000 estimated resale value, and falls under the MACRS seven-year class life (depreciation of 14.29%, 24.49%, and 17.49% in years 1, 2, and 3 respectively). Revenue from the new game is expected to be $800,000 per year, with costs of $350,000 per year. The firm has a tax rate of 30 percent, an opportunity cost of capital of 12 percent, and it expects net working capital to increase by $50,000 at the beginning of the project. What will the YEAR 0 (ONLY YEAR 0!) estimated after-tax cash flow for this project be?

Select one:

a.

-$220,000

b.

$102,288

c.

-$520,000

d.

$230,000

Feedback

The correct answer is: -$220,000

Question 2

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You are evaluating a project for your company. You estimate the sales price to be $300 per unit and sales volume to be 5000 units in year 1; 6000 units in year 2; and 4000 units in year 3. The project has a three-year life. Variable costs amount to $100 per unit and fixed costs are $150,000 per year. The project requires an initial investment of $240,000 in assets that will be depreciated straight-line to zero over the three-year project life. The actual market value of these assets at the end of year 3 is expected to be $60,000. An initial investment of $50,000 in NWC is required at the beginning of the project . The tax rate is 30 percent and the required return on the project is 13 percent. What is the after-tax operating cash flow for the project in YEAR 2 (YEAR 2 ONLY!)?

Select one:

a.

$679,000

b.

$735,000

c.

$759,000

d.

$815,000

Feedback

The correct answer is: $759,000

Question 3

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KADS, Inc., has spent $300,000 on research to develop a new computer game. The firm is planning to spend $150,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $20,000. The machine has an expected life of five years, a $60,000 estimated resale value, and falls under the MACRS seven-year class life (depreciation of 14.29%, 24.49%, 17.49%, 12.49%, and 8.93% in years 1, 2, 3, 4, and 5 respectively). Revenue from the new game is expected to be $700,000 per year, with costs of $350,000 per year. The firm has a tax rate of 40 percent, an opportunity cost of capital of 12 percent, and it expects net working capital to increase by $50,000 at the beginning of the project. What will the YEAR 4 (ONLY YEAR 4!) estimated after-tax cash flow for this project be?

Select one:

a.

$131,507

b.

$218,493

c.

$197,260

d.

$152,740

Feedback

The correct answer is: $218,493

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Your firm needs a computerized machine tool lathe that costs $75,000, requires $10,000 in installation, $10,000 in freight charges, and another $14,000 in maintenance for each year of its three-year life. After three years, this machine will be replaced. The machine falls into the MACRS three-year class life category (depreciation of 33.33%, 44.45%, and 14.81% in years 1, 2, and 3 respectively). Assume a tax rate of 30 percent and a discount rate of 12 percent. If the lathe can be sold for $10,000 at the end of year 3, what is the after-tax cash flow from selling it?

Select one:

a.

$13,000

b.

$9,112

c.

$10,888

d.

$7,000

Feedback

The correct answer is: $9,112

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FIN--5063-OL1--OL-FA-2021 - Corporate Finance

Started on	Saturday, October 16, 2021, 3:37 PM
State	Finished
Completed on	Saturday, October 16, 2021, 4:07 PM
Time taken	29 mins 29 secs
Points	18.00/20.00
Grade	9.00 out of 10.00 (90%)

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Question 1

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If the cost of capital rises, and the projected cash flows remain the same

Select one:

a.

the internal rate of return of the project will increase.

b.

the internal rate of return of the project will decrease.

c.

the net present value of the project will increase.

d.

the net present value of the project will decrease.

Feedback

The correct answer is: the net present value of the project will decrease.

Question 2

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A local bank is contemplating opening a new branch bank in a large superstore across town from their main office. It is estimated that the new branch will generate $20,000 after expenses each month. The manager wonders if all these revenues should be considered an incremental cash flow. Given this information, which of the following statements is correct?

Select one:

a.

Some amount less than the $20,000 is incremental because of complementary effects.

b.

$20,000 is generated by the new branch bank and therefore it is an incremental cash flow.

c.

We would first need to assess the opportunity cost of placing a branch in a different location to answer this question.

d.

Some amount less than the $20,000 is incremental because of substitutionary effects.

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The correct answer is: Some amount less than the $20,000 is incremental because of substitutionary effects.

Question 3

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Project A has an internal rate of return of 13%, and the cost of capital rate appropriate for this project is 10%. Therefore

Select one:

a.

The absolute value of the net present value of the project is equal to 3% of the initial investment.

b.

The net present value of the project is greater than zero.

c.

The net present value of the project is smaller than zero.

d.

The net present value of the project could be either greater than zero, smaller than zero, or equal to zero.

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The correct answer is: The net present value of the project is greater than zero.

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ABC Engineering is contemplating purchasing a new machine that was identified to work best with their unique production process. All of the following are examples of incremental cash flows, that should be included in the cash flow calculation, except _______________.

Select one:

a.

Developmental costs to determine which machine would best work with their unique process

b.

Increase in electric bill to run the machine

c.

All of these are incremental cash flows that should be included in the cash flow calculation.

d.

Freight charged to ship the machine

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The correct answer is: Developmental costs to determine which machine would best work with their unique process

Question 5

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Company A issued all of its outstanding bonds 4 years ago, all maturing in 21 years, with the same terms. The yield to maturity on the bonds was recorded equal to 5.5% 3 years ago, 4% 2 years ago, 4.5% 1 year ago, and 6% earlier today. What pre-tax cost of debt should be used in the WACC equation?

Select one:

a.

6%

b.

20%

c.

5.5%

d.

5%

Feedback

The correct answer is: 6%

Question 6

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Which of the following best describes the NPV profile?

Select one:

a.

None of these statements is correct.

b.

A graph of a project's NPV as a function of possible capital costs.

c.

A graph of a project's NPV as a function of possible IRRs.

d.

A graph of a project's NPV over time.

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The correct answer is: A graph of a project's NPV as a function of possible capital costs.

Question 7

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If a firm has already paid an expense or is obligated to pay one in the future, regardless of whether a particular project is undertaken, that expense is a:

Select one:

a.

complementary cost.

b.

obligated cost.

c.

committed cost.

d.

sunk cost.

Feedback

The correct answer is: sunk cost.

Question 8

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Which of the below is NOT a weakness of the payback criterion for evaluating capital budgeting projects?

Select one:

a.

It ignores cash flows that occur after the payback date.

b.

It doesn’t provide a finance theory based decision rule for accepting or rejecting a project.

c.

It is difficult to calculate.

d.

It doesn’t discount future cash flows.

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The correct answer is: It is difficult to calculate.

Question 9

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When firms use multiple sources of capital, they need to calculate the appropriate discount rate for valuing their firm's cash flows as:

Select one:

a.

a sum of the capital components costs.

b.

a weighted average of the capital components costs.

c.

a simple average of the capital components costs.

d.

they apply to each asset as they are purchased with their respective forms of debt or equity.

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The correct answer is: a weighted average of the capital components costs.

Question 10

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Which of the following is a situation in which you would want to use the constant growth model approach for estimating the component cost of equity?

Select one:

a.

When the firm has a high level of financial leverage.

b.

When the firm has multiple divisions.

c.

When the firm's stock is expected to experience constant dividend growth.

d.

When the firm has a low beta.

Feedback

The correct answer is: When the firm's stock is expected to experience constant dividend growth.

Question 11

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Which of the statements below is correct?

Select one:

a.

In theory, using project-specific WACC for all projects leads to incorrect decisions regarding projects with a typical level if risk.

b.

Using firm WACC for all projects leads to incorrect acceptance of high risk projects and thus to a decrease in the overall company risk.

c.

Using firm WACC for all projects leads to incorrect rejection of low risk projects and thus to an increase in the overall company risk.

d.

In theory (assuming no estimation errors), using divisional WACC eliminates the possibility of incorrectly accepting or rejecting a project.

Feedback

The correct answer is: Using firm WACC for all projects leads to incorrect rejection of low risk projects and thus to an increase in the overall company risk.

Question 12

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Project A has a net present value equal to $30,500. Therefore

Select one:

a.

its internal rate of return could be smaller or larger, but not equal to its cost of capital rate.

b.

its internal rate of return is smaller than its cost of capital rate.

c.

its internal rate of return must be negative

d.

its internal rate of return is greater than its cost of capital rate.

Feedback

The correct answer is: its internal rate of return is greater than its cost of capital rate.

Question 13

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Question text

A local bank is contemplating adding a new ATM to their lobby. They will need to add another communication line to connect the new ATM machine to the network, resulting in an additional monthly cost of $50. This is an example of:

Select one:

a.

none of these.

b.

incremental cash flow.

c.

complementary costs.

d.

sunk cost.

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The correct answer is: incremental cash flow.

Question 14

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Question text

Using accelerated depreciation as opposed to straight line depreciation will result in

Select one:

a.

a lower total depreciation expense over the life of the project.

b.

a lower net present value of the project.

c.

a higher net present value of the project.

d.

a higher total depreciation expense over the life of the project.

Feedback

The correct answer is: a higher net present value of the project.

Question 15

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Which of the following statements is true regarding the calculation of component costs for the WACC formula?

Select one:

a.

Common stock represents a special case of the constant growth model, wherein the g equals zero.

b.

Preferred stock cannot use the constant growth model.

c.

Common stock and preferred stock are treated the same when using the constant growth model.

d.

Preferred stock represents a special case of the constant growth model, wherein the g equals zero.

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The correct answer is: Preferred stock represents a special case of the constant growth model, wherein the g equals zero.

Question 16

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Which of the below is a weakness of the net present value criterion for evaluating capital budgeting projects?

Select one:

a.

It doesn’t provide the rate of return on the initial investment.

b.

It could lead to multiple solutions leaving it unclear which value to use.

c.

It doesn’tprovide a valid accept/reject rule for mutually exclusive projects.

d.

It doesn’t provide a dollar measure of the value created by the project so it is difficult to use to measure a project’s impact on the value of the company.

Feedback

The correct answer is: It doesn’t provide the rate of return on the initial investment.

Question 17

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In capital budgeting analysis, using accelerated depreciation (as opposed to straight-line depreciation) results in

Select one:

a.

Lower net cash flows in the later years of the project.

b.

Higher net cash flows in the early years of the project.

c.

Higher total net cash flows for the project.

d.

Lower total net cash flows for the project.

Feedback

The correct answer is: Higher net cash flows in the early years of the project.

Question 18

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Question text

Effects that arise from a new product or service that increase sales of the firm's existing products or services are referred to as:

Select one:

a.

substitutionary effects.

b.

marginal effects.

c.

complementary effects.

d.

sunk effects.

Feedback

The correct answer is: complementary effects.

Question 19

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Which of the following would likely reduce the weighted average cost of capital for a company?

Select one:

a.

An increase in the company’s equity beta.

b.

An increase in the market risk premium.

c.

A higher marginal tax rate faced by the company.

d.

Less debt in the company’s capital structure relative to the amount of equity.

Feedback

The correct answer is: A higher marginal tax rate faced by the company.

Question 20

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Question text

If the payback measure for a particular project is shorter than the life of the project then

Select one:

a.

The NPV measure must be greater than zero.

b.

The NPV measure could be smaller than zero, greater than zero, or equal to zero.

c.

The NPV measure must be smaller than zero.

d.

The NPV measure cannot be equal to zero.

Feedback

The correct answer is: The NPV measure could be smaller than zero, greater than zero, or equal to zero.

 

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FIN--5063-OL1--OL-FA-2021 - Corporate Finance

Started on	Saturday, October 16, 2021, 4:10 PM
State	Finished
Completed on	Saturday, October 16, 2021, 4:36 PM
Time taken	26 mins 11 secs
Points	6.00/6.00
Grade	10.00 out of 10.00 (100%)

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Question 1

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IVY has preferred stock selling for 105 percent of par that pays a 6 percent annual coupon. What would be IVY's component cost of preferred stock?

Select one:

a.

6.30 percent

b.

5.71 percent

c.

99.00 percent

d.

1.11 percent

Feedback

The correct answer is: 5.71 percent

Question 2

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KADS, Inc., has spent $300,000 on research to develop a new computer game. The firm is planning to spend $150,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $20,000. The machine has an expected life of five years, a $60,000 estimated resale value, and falls under the MACRS seven-year class life (depreciation of 14.29%, 24.49%, 17.49%, 12.49%, and 8.93% in years 1, 2, 3, 4, and 5 respectively). Revenue from the new game is expected to be $800,000 per year, with costs of $350,000 per year. The firm has a tax rate of 30 percent, an opportunity cost of capital of 12 percent, and it expects net working capital to increase by $50,000 at the beginning of the project. What will the YEAR 2 (ONLY YEAR 2!) estimated after-tax cash flow for this project be?

Select one:

a.

$285,857

b.

$122,510

c.

$327,490

d.

$164,143

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The correct answer is: $327,490

Question 3

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Consider the project described in the table below. What is the project's net present value?

Cost of Capital Rate	11%
Time	0	1	2	3	4
Cash Flows	($3,700)	$2,100	$2,000	$1,900	$1,800

Select one:

a.

$2,510

b.

$2,295

c.

$2,151

d.

$2,390

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The correct answer is: $2,390

Question 4

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Suppose you sell a fixed asset for $80,000 when its book value is $120,000. If your company's marginal tax rate is 35 percent, what will be the effect on cash flows of this sale (i.e., what will be the after-tax cash flow of this sale)?

Select one:

a.

$54,000

b.

$106,000

c.

$66,000

d.

$94,000

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The correct answer is: $94,000

Question 5

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WC Inc. has a $10 million (face value), 10-year bond issue selling for 97 percent of par that pays an annual coupon of 6 percent. What would be WC's before-tax component cost of debt?

Select one:

a.

6.18 percent

b.

5.82 percent

c.

6.41 percent

d.

16.17 percent

Feedback

The correct answer is: 6.41 percent

Question 6

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Consider the project described in the table below. What is the project's internal rate of return?

Cost of Capital Rate	9%
Time	0	1	2	3	4
Cash Flows	($11,500)	$3,000	$3,500	$4,000	$4,500

Select one:

a.

11.07%

b.

11.17%

c.

10.96%

d.

10.74%

Feedback

The correct answer is: 10.74%

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Started on	Saturday, December 18, 2021, 9:42 PM
State	Finished
Completed on	Saturday, December 18, 2021, 9:50 PM
Time taken	8 mins 37 secs
Grade	9.00 out of 10.00 (90%)

Question 1

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Project A has a net present value equal to $30,500. Therefore

Select one:

a.

its internal rate of return must be negative

b.

its internal rate of return is smaller than its cost of capital rate.

c.

its internal rate of return could be smaller or larger, but not equal to its cost of capital rate.

d.

its internal rate of return is greater than its cost of capital rate.

Feedback

The correct answer is: its internal rate of return is greater than its cost of capital rate.

Question 2

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Consider the two mutually exclusive projects below. What is the appropriate investment decision?

	Project A	Project B
Payback	3.5	3.9
NPV	13.40	18.30
IRR	21.86	18.92

Select one:

a.

Accept A because of the higher IRR.

b.

Accept B because of the higher NPV.

c.

Accept B because of the lower IRR.

d.

Accept A because of the shorter payback.

Feedback

The correct answer is: Accept B because of the higher NPV.

Question 3

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Which of the below is NOT a weakness of the net present value criterion for evaluating capital budgeting projects?

Select one:

a.

It doesn’tprovide a valid accept/reject rule for mutually exclusive projects.

b.

It doesn’t provide a dollar measure of the value created by the project so it is difficult to use to measure a project’s impact on the value of the company.

c.

It could lead to multiple solutions leaving it unclear which value to use.

d.

None of these are weaknesses of the net present value criterion.

Feedback

The correct answer is: None of these are weaknesses of the net present value criterion.

Question 4

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Which of the following best describes the NPV profile?

Select one:

a.

A graph of a project's NPV as a function of possible IRRs.

b.

A graph of a project's NPV over time.

c.

A graph of a project's NPV as a function of possible capital costs.

d.

None of these statements is correct.

Feedback

The correct answer is: A graph of a project's NPV as a function of possible capital costs.

Question 5

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Which of the following statements is correct regarding the NPV profile?

Select one:

a.

NPV profiles for independent projects with normal cash flows will never intersect.

b.

The IRR appears at the crossover point or where the two profiles intersect.

c.

None of these statements are correct.

d.

The IRR appears as the intersection of the NPV profile with the x-axis.

Feedback

The correct answer is: The IRR appears as the intersection of the NPV profile with the x-axis.

Question 6

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A graph of a project's ________ is a function of cost of capital.

Select one:

a.

net present value

b.

payback

c.

all choices are a function of cost of capital

d.

internal rate of return

Feedback

The correct answer is: net present value

Question 7

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Consider the two mutually exclusive projects below. What is the appropriate investment decision?

	Project A	Project B
Payback	3.5	3.9
NPV	22.56	15.67
IRR	13.68	16.79

Select one:

a.

Accept A because of the lower IRR.

b.

Accept A because of the higher NPV.

c.

Accept A because of the shorter payback.

d.

Accept B because of the higher IRR.

Feedback

The correct answer is: Accept A because of the higher NPV.

Question 8

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If the cost of capital remains unchanged, and the projected cash flows remain the same except year 3 cash flow changes from $400 to $200

Select one:

a.

the internal rate of return of the project will increase.

b.

the internal rate of return of the project will remain unchanged.

c.

the directional impact on the internal rate of return of the project is uncertain without knowing the entire set of cash flows.

d.

the internal rate of return of the project will decrease.

Feedback

The correct answer is: the internal rate of return of the project will decrease.

Question 9

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Project A has a negative net present value. Therefore

Select one:

a.

its internal rate of return is greater than its cost of capital rate.

b.

its internal rate of return must be negative

c.

its internal rate of return could be smaller or larger, but not equal to its cost of capital rate.

d.

its internal rate of return is smaller than its cost of capital rate.

Feedback

The correct answer is: its internal rate of return is smaller than its cost of capital rate.

Question 10

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If the cost of capital declines, and the projected cash flows remain the same

Select one:

a.

the net present value of the project will increase.

b.

the internal rate of return of the project will increase.

c.

the net present value of the project will decrease.

d.

the internal rate of return of the project will decrease.

Feedback

The correct answer is: the net present value of the project will increase.

Question 1

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Question text

Consider the project described in the table below. What is the project's internal rate of return?

Cost of Capital Rate	8%
Time	0	1	2	3	4
Cash Flows	($2,100)	$700	$600	$800	$900

Select one:

a.

15.22%

b.

14.92%

c.

15.07%

d.

14.61%

Feedback

The correct answer is: 15.07%

Question 2

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Consider the project described in the table below. What is the project's payback period?

Cost of Capital Rate	14%
Time	0	1	2	3	4
Cash Flows	($4,000)	$3,000	$2,000	$1,000	$500

Select one:

a.

1.25

b.

1.50

c.

2.50

d.

2.25

Feedback

The correct answer is: 1.50

Question 3

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Question text

Consider the project described in the table below. What is the project's net present value?

Cost of Capital Rate	7%
Time	0	1	2	3	4
Cash Flows	($1,800)	$350	$550	$750	$950

Select one:

a.

$344

b.

$362

c.

$351

d.

$365

Feedback

The correct answer is: $344

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FIN--5063-1D2-FA-2021 - Corporate Finance

1.    Home

2.    My courses

3.    2021-FA

4.    FIN--5063-1D2-FA-2021

5.    Week 8

6.    Quiz 13 Chapter 13 Part 2

Started on	Saturday, December 18, 2021, 10:10 PM
State	Finished
Completed on	Saturday, December 18, 2021, 10:16 PM
Time taken	6 mins 9 secs
Points	3.00/3.00
Grade	10.00 out of 10.00 (100%)

Question 1

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Question text

Consider the project described in the table below. What is the project's net present value?

Cost of Capital Rate	7%
Time	0	1	2	3	4
Cash Flows	($1,800)	$350	$550	$750	$950

Select one:

a.

$365

b.

$351

c.

$344

d.

$362

Feedback

The correct answer is: $344

Question 2

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Question text

Consider the project described in the table below. What is the project's payback period?

Cost of Capital Rate	10%
Time	0	1	2	3	4
Cash Flows	($5,300)	$2,200	$4,400	$3,500	$2,500

Select one:

a.

2.3

b.

1.7

c.

2.7

d.

1.3

Feedback

The correct answer is: 1.7

Question 3

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Consider the project described in the table below. What is the project's internal rate of return?

Cost of Capital Rate	14%
Time	0	1	2	3	4
Cash Flows	($4,000)	$3,000	$2,000	$1,000	$500

Select one:

a.

32.41%

b.

33.38%

c.

31.11%

d.

30.79%

Feedback

FIN--5063-1D2-FA-2021

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FIN--5063-1D2-FA-2021 - Corporate Finance

1.      Home

2.      My courses

3.      2021-FA

4.      FIN--5063-1D2-FA-2021

5.      Week 8

6.      Exam 3 Chapters 11-13 Part 1

Started on	Saturday, December 18, 2021, 10:18 PM
State	Finished
Completed on	Saturday, December 18, 2021, 10:33 PM
Time taken	15 mins 27 secs
Points	19.00/20.00
Grade	9.50 out of 10.00 (95%)

Question 1

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When calculating operating cash flow for a project, one would calculate it as being mathematically equal to which of the following?

Select one:

a.

EBIT - Interest - Taxes + Depreciation

b.

EBIT - Taxes

c.

EBIT - Taxes + Depreciation

d.

EBIT + Depreciation

Feedback

The correct answer is: EBIT - Taxes + Depreciation

Question 2

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Which of following is a situation in which we would most likely use the CAPM approach for estimating the component cost of equity?

Select one:

a.

When the firm pays a constant dividend.

b.

When we are able to estimate the firm's beta with a high degree of confidence.

c.

When we are able to estimate the risk-free rate with a high degree of confidence.

d.

When we are able to estimate the market risk premium with a high degree of confidence.

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The correct answer is: When we are able to estimate the firm's beta with a high degree of confidence.

Question 3

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ABC Engineering is contemplating purchasing a new machine that was identified to work best with their unique production process. All of the following are examples of incremental cash flows, that should be included in the cash flow calculation, except _______________.

Select one:

a.

Freight charged to ship the machine

b.

All of these are incremental cash flows that should be included in the cash flow calculation.

c.

Developmental costs to determine which machine would best work with their unique process

d.

Increase in electric bill to run the machine

Feedback

The correct answer is: Developmental costs to determine which machine would best work with their unique process

Question 4

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All capital budgeting techniques:

Select one:

a.

exclude some crucial information.

b.

include all crucial information.

c.

render the same investment decision.

d.

use the same measurement units.

Feedback

The correct answer is: exclude some crucial information.

Question 5

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Which of the following is a true statement?

Select one:

a.

To estimate the before-tax cost of debt, it would be best to use the coupon rate on the firm's existing debt.

b.

To estimate the before-tax cost of debt, it would be best to use the average rate on the firm's debt over the last five years.

c.

To estimate the before-tax cost of debt, it would be best to solve for the Yield to Maturity (YTM) on the firm's existing debt.

d.

To estimate the before-tax cost of debt, it would be best to solve for the Yield to Call (YTC) on the firm's existing debt.

Feedback

The correct answer is: To estimate the before-tax cost of debt, it would be best to solve for the Yield to Maturity (YTM) on the firm's existing debt.

Question 6

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Which of the following would likely increase the weighted average cost of capital for a company?

Select one:

a.

A higher marginal tax rate faced by the company.

b.

More debt in the company’s capital structure relative to the amount of equity.

c.

An increase in the market risk premium.

d.

A decline in the company’s equity beta.

Feedback

The correct answer is: An increase in the market risk premium.

Question 7

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Project A has a negative net present value. Therefore

Select one:

a.

its internal rate of return is smaller than its cost of capital rate.

b.

its internal rate of return could be smaller or larger, but not equal to its cost of capital rate.

c.

its internal rate of return must be negative

d.

its internal rate of return is greater than its cost of capital rate.

Feedback

The correct answer is: its internal rate of return is smaller than its cost of capital rate.

Question 8

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Which of the following statements is correct?

Select one:

a.

An example of an increase in a net working capital is to buy more machines or another plant.

b.

A decrease in NWC involves either a reduction in current assets, which generates cash, or an increase in current liabilities, thereby freeing up the shareholder's cash for other things.

c.

None of these statements is correct.

d.

A decrease in NWC involves either an increase in current assets, which generates cash, or a decrease in current liabilities, thereby freeing up the shareholder's cash for other things.

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The correct answer is: A decrease in NWC involves either a reduction in current assets, which generates cash, or an increase in current liabilities, thereby freeing up the shareholder's cash for other things.

Question 9

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Question text

On the net present value profile diagram, the horizontal axis intercept where the net present value profile curve crosses the horizontal axis is equal to

Select one:

a.

The internal rate of return of the project.

b.

The crossover rate between two mutually exclusive projects.

c.

The average of the two internal rates of return of two mutually exclusive projects.

d.

The cost of capital rate of the project.

Feedback

The correct answer is: The internal rate of return of the project.

Question 10

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On the net present value profile diagram showing two mutually exclusive projects with positive net present values, the mutually exclusive project with the curve that is _________ should be accepted.

Select one:

a.

Positioned higher on the diagram than the other project, at the appropriate cost of capital rate

b.

Positioned below the horizontal axis at the appropriate cost of capital rate

c.

Positioned above the horizontal axis at the appropriate cost of capital rate

d.

Positioned lower on the diagram than the other project, at the appropriate cost of capital rate

Feedback

The correct answer is: Positioned higher on the diagram than the other project, at the appropriate cost of capital rate

Question 11

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Coke is planning on marketing a new drink called Very Berry Coke which is a mixture of raspberry and blackberry flavors blended to perfection and added to the highly secret Coca-Cola formula. This new product is expected to reduce the sales of their existing product, Cherry Coke, by $10 million dollars per year. This is an example of a:

Select one:

a.

complementary effect.

b.

opportunity effect.

c.

substitutionary effect.

d.

pro forma effect.

Feedback

The correct answer is: substitutionary effect.

Question 12

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What is the correct order of the following component costs of capital, from the highest to the lowest?

Select one:

a.

The cost of preferred equity (highest), the cost of common equity, the cost of debt (lowest)

b.

The cost of debt (highest), the cost of preferred equity, the cost of common equity (lowest)

c.

The cost of common equity (highest), the cost of preferred equity, the cost of debt (lowest)

d.

The cost of debt (highest), the cost of common equity, the cost of preferred equity (lowest)

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The correct answer is: The cost of common equity (highest), the cost of preferred equity, the cost of debt (lowest)

Question 13

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Consider the two mutually exclusive projects below. What is the appropriate investment decision?

	Project A	Project B
Payback	3.5	3.9
NPV	13.40	18.30
IRR	21.86	18.92

Select one:

a.

Accept A because of the shorter payback.

b.

Accept A because of the higher IRR.

c.

Accept B because of the higher NPV.

d.

Accept B because of the lower IRR.

Feedback

The correct answer is: Accept B because of the higher NPV.

Question 14

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These are sets of cash flows where all the initial cash flows are negative and all the subsequent ones are either zero or positive.

Select one:

a.

normal cash flows

b.

expected cash flows

c.

non-normal cash flows

d.

time line cash flows

Feedback

The correct answer is: normal cash flows

Question 15

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Which of the following is a situation in which you would want to use the constant growth model approach for estimating the component cost of equity?

Select one:

a.

When the firm's stock is expected to experience constant dividend growth.

b.

When the firm has a low beta.

c.

When the firm has a high level of financial leverage.

d.

When the firm has multiple divisions.

Feedback

The correct answer is: When the firm's stock is expected to experience constant dividend growth.

Question 16

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Which of the following makes this a true statement? Ideally, when searching for a beta for a new line of business:

Select one:

a.

one would like to find more than one or two pure-play proxies.

b.

two (or even one) proxies might represent a suitable sample if their line of business resembles the proposed new project closely enough.

c.

All the answers make this a true statement.

d.

one could find other firms engaged in the proposed new line of business and use their betas as proxies to estimate the project's risk.

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The correct answer is: All the answers make this a true statement.

Question 17

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If the cost of capital remains unchanged, and the projected cash flows remain the same except year 3 cash flow changes from $400 to $600

Select one:

a.

the internal rate of return of the project will decrease.

b.

the internal rate of return of the project will remain unchanged.

c.

the directional impact on the internal rate of return of the project is uncertain without knowing the entire set of cash flows.

d.

the internal rate of return of the project will increase.

Feedback

The correct answer is: the internal rate of return of the project will increase.

Question 18

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Question text

In capital budgeting analysis, using accelerated depreciation (as opposed to straight-line depreciation) results in

Select one:

a.

Lower total taxes paid, associated with the project.

b.

Higher taxes paid in the early years of the project.

c.

Higher taxes paid in the later years of the project.

d.

Higher total taxes paid, associated with the project.

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The correct answer is: Higher taxes paid in the later years of the project.

Question 19

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Question text

If the cost of capital declines, and the projected cash flows remain the same

Select one:

a.

the internal rate of return of the project will remain unchanged.

b.

the impact on the internal rate of return will depend on the size of the decline in the cost of capital rate.

c.

the internal rate of return of the project will decrease.

d.

the internal rate of return of the project will increase.

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The correct answer is: the internal rate of return of the project will remain unchanged.

Question 20

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Effects that arise from a new product or service that increase sales of the firm's existing products or services are referred to as:

Select one:

a.

marginal effects.

b.

complementary effects.

c.

substitutionary effects.

d.

sunk effects.

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The correct answer is: complementary effects.

 

 

 

 

 

FIN--5063-1D2-FA-2021 - Corporate Finance

1.      Home

2.      My courses

3.      2021-FA

4.      FIN--5063-1D2-FA-2021

5.      Week 8

6.      Exam 3 Chapters 11-13 Part 1

Started on	Saturday, December 18, 2021, 10:34 PM
State	Finished
Completed on	Saturday, December 18, 2021, 10:43 PM
Time taken	8 mins 26 secs
Points	19.00/20.00
Grade	9.50 out of 10.00 (95%)

Question 1

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On the net present value profile diagram showing two mutually exclusive projects with positive net present values, the mutually exclusive project with the curve that is _________ should be accepted.

Select one:

a.

Positioned below the horizontal axis at the appropriate cost of capital rate

b.

Positioned higher on the diagram than the other project, at the appropriate cost of capital rate

c.

Positioned above the horizontal axis at the appropriate cost of capital rate

d.

Positioned lower on the diagram than the other project, at the appropriate cost of capital rate

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The correct answer is: Positioned higher on the diagram than the other project, at the appropriate cost of capital rate

Question 2

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Which of the below is a weakness of the payback criterion for evaluating capital budgeting projects?

Select one:

a.

It ignores cash flows that occur after the payback date.

b.

All of these are weaknesses of the payback criterion.

c.

It doesn’t provide a finance theory based decision rule for accepting or rejecting a project.

d.

It doesn’t discount future cash flows.

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The correct answer is: All of these are weaknesses of the payback criterion.

Question 3

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With regard to depreciation, the time value of money concept tells us that:

Select one:

a.

taking the depreciation expense sooner is sometimes better.

b.

taking the depreciation expense sooner is always better.

c.

delaying the depreciation expense is always better.

d.

delaying the depreciation expense is sometimes better.

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The correct answer is: taking the depreciation expense sooner is always better.

Question 4

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Which of these is an estimated WACC computed using some sort of proxy for the average equity risk of the projects in a particular division?

Select one:

a.

Proxy WACC

b.

Average WACC

c.

Divisional WACC

d.

Pure-play WACC

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The correct answer is: Divisional WACC

Question 5

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Company A issued all of its outstanding bonds 4 years ago, all maturing in 21 years, with the same terms. The yield to maturity on the bonds was recorded equal to 5.5% 3 years ago, 4% 2 years ago, 4.5% 1 year ago, and 6% earlier today. What pre-tax cost of debt should be used in the WACC equation?

Select one:

a.

20%

b.

5.5%

c.

6%

d.

5%

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The correct answer is: 6%

Question 6

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A local bank is contemplating adding a new ATM to their lobby. They will need to add another communication line to connect the new ATM machine to the network, resulting in an additional monthly cost of $50. This is an example of:

Select one:

a.

sunk cost.

b.

none of these.

c.

incremental cash flow.

d.

complementary costs.

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The correct answer is: incremental cash flow.

Question 7

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If the cost of capital declines, and the projected cash flows remain the same

Select one:

a.

the internal rate of return of the project will remain unchanged.

b.

the internal rate of return of the project will increase.

c.

the impact on the internal rate of return will depend on the size of the decline in the cost of capital rate.

d.

the internal rate of return of the project will decrease.

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The correct answer is: the internal rate of return of the project will remain unchanged.

Question 8

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All of the following are incremental cash flows attributable to the project EXCEPT:

Select one:

a.

substitutionary effects.

b.

opportunity costs.

c.

complementary effects.

d.

financing costs.

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The correct answer is: financing costs.

Question 9

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Which of these statements is true regarding divisional WACC?

Select one:

a.

Using a simple firmwide WACC to evaluate new projects would give an unfair advantage to projects that present less risk than the firm's average beta.

b.

Using a simple firmwide WACC to evaluate new projects would give an unfair advantage to projects that present more risk than the firm's average beta.

c.

Using a divisional WACC versus a WACC for the firm's current operations will result in quite a few incorrect decisions.

d.

Using a firmwide WACC to evaluate new projects would have no impact on projects that present less risk than the firm's average beta.

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The correct answer is: Using a simple firmwide WACC to evaluate new projects would give an unfair advantage to projects that present more risk than the firm's average beta.

Question 10

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On the net present value profile diagram, the horizontal axis intercept where the net present value profile curve crosses the horizontal axis is equal to

Select one:

a.

The average of the two internal rates of return of two mutually exclusive projects.

b.

The internal rate of return of the project.

c.

The crossover rate between two mutually exclusive projects.

d.

The cost of capital rate of the project.

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The correct answer is: The internal rate of return of the project.

Question 11

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If the cost of capital remains unchanged, and the projected cash flows remain the same except year 3 cash flow changes from $400 to $200

Select one:

a.

the directional impact on the internal rate of return of the project is uncertain without knowing the entire set of cash flows.

b.

the internal rate of return of the project will decrease.

c.

the internal rate of return of the project will increase.

d.

the internal rate of return of the project will remain unchanged.

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The correct answer is: the internal rate of return of the project will decrease.

Question 12

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Effects that arise from a new product or service that decrease sales of the firm's existing products or services are referred to as:

Select one:

a.

marginal effects.

b.

substitutionary effects.

c.

sunk effects.

d.

complementary effects.

Feedback

The correct answer is: substitutionary effects.

Question 13

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Which of the following is most correct?

Select one:

a.

All of these statements are equally correct.

b.

Firms should use historical costs rather than marginal costs of capital.

c.

When comparing two firms within the same industry, most analysts calculate the weighted average cost of capital on a before-tax basis to facilitate comparisons.

d.

An increase in the risk-free rate will increase the cost of equity.

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The correct answer is: An increase in the risk-free rate will increase the cost of equity.

Question 14

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Which of the following statements is correct?

Select one:

a.

A decrease in NWC involves either an increase in current assets, which generates cash, or a decrease in current liabilities, thereby freeing up the shareholder's cash for other things.

b.

A decrease in NWC involves either a reduction in current assets, which generates cash, or an increase in current liabilities, thereby freeing up the shareholder's cash for other things.

c.

None of these statements is correct.

d.

An example of an increase in a net working capital is to buy more machines or another plant.

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The correct answer is: A decrease in NWC involves either a reduction in current assets, which generates cash, or an increase in current liabilities, thereby freeing up the shareholder's cash for other things.

Question 15

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What is the interpretation of the payback of a project?

Select one:

a.

It measures the discounted value of all future positive cash flows of the project.

b.

It gives the amount of cash investors receive from a project in return for their investment.

c.

It measures the amount of cash generated from the project that can be distributed to investors.

d.

It measures the number of years in which the initial investment amount in the project is recovered.

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The correct answer is: It measures the number of years in which the initial investment amount in the project is recovered.

Question 16

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Which of these is a capital budgeting technique that generates a decision rule and associated metric for choosing projects based on the total discounted value of their cash flows?

Select one:

a.

Payback

b.

Net present value

c.

None of these.

d.

Internal rate of return

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The correct answer is: Net present value

Question 17

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Which of the below is a weakness of the internal rate of return criterion for evaluating capital budgeting projects?

Select one:

a.

It could lead to multiple solutions leaving it unclear which value to use.

b.

It doesn’t provide a dollar measure of the value created by the project so it is difficult to use it to measure a project’s impact on the value of the company.

c.

All of these are weaknesses of the internal rate of return criterion.

d.

It doesn’t provide a valid accept/reject rule for mutually exclusive projects.

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The correct answer is: All of these are weaknesses of the internal rate of return criterion.

Question 18

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In capital budgeting analysis, selling a machine at the end of the project for an amount lower than its book value

Select one:

a.

Is not possible.

b.

Results in an after-tax cash flow from the sale of the machine lower than the machine’s market value.

c.

Leads to an adjustment of the machine’s purchase price for the purposes of the project’s cash flow calculations.

d.

Results in an after-tax cash flow from the sale of the machine higher than the machine’s market value.

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The correct answer is: Results in an after-tax cash flow from the sale of the machine higher than the machine’s market value.

Question 19

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A proxy beta is:

Select one:

a.

the industry average beta that is used in lieu of the firm's beta because the firm has not existed long enough to have a beta calculated.

b.

None of these answers is correct.

c.

the average beta of firms that are only engaged in the proposed new line of business.

d.

the beta used when the firm has a great deal of business risk.

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The correct answer is: the average beta of firms that are only engaged in the proposed new line of business.

Question 20

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Which of following is a situation in which we would most likely use the CAPM approach for estimating the component cost of equity?

Select one:

a.

When we are able to estimate the firm's beta with a high degree of confidence.

b.

When we are able to estimate the risk-free rate with a high degree of confidence.

c.

When we are able to estimate the market risk premium with a high degree of confidence.

d.

When the firm pays a constant dividend.

Feedback

The correct answer is: When we are able to estimate the firm's beta with a high degree of confidence.

 

 

 

 

 

FIN--5063-1D2-FA-2021 - Corporate Finance

1.      Home

2.      My courses

3.      2021-FA

4.      FIN--5063-1D2-FA-2021

5.      Week 8

6.      Exam 3 Chapters 11-13 Part 2

Started on	Saturday, December 18, 2021, 10:44 PM
State	Finished
Completed on	Saturday, December 18, 2021, 10:46 PM
Time taken	2 mins 34 secs
Points	6.00/6.00
Grade	10.00 out of 10.00 (100%)

Question 1

Correct

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Question text

Consider the project described in the table below. What is the project's net present value?

Cost of Capital Rate	14%
Time	0	1	2	3	4
Cash Flows	($4,000)	$3,000	$2,000	$1,000	$500

Select one:

a.

$1,142

b.

$1,073

c.

$1,050

d.

$1,256

Feedback

The correct answer is: $1,142

Question 2

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FlavR Co. stock has a beta of 1.5, the current risk-free rate is 3, and the expected return on the market is 12 percent. What is FlavR Co's cost of equity?

Select one:

a.

21 percent

b.

18 percent

c.

16.5 percent

d.

25.5 percent

Feedback

The correct answer is: 16.5 percent

Question 3

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WC Inc. has a $10 million (face value), 10-year bond issue selling for 97 percent of par that pays an annual coupon of 6 percent. What would be WC's before-tax component cost of debt?

Select one:

a.

16.17 percent

b.

5.82 percent

c.

6.18 percent

d.

6.41 percent

Feedback

The correct answer is: 6.41 percent

Question 4

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Consider the project described in the table below. What is the project's internal rate of return?

Cost of Capital Rate	10%
Time	0	1	2	3	4
Cash Flows	($5,300)	$2,200	$4,400	$3,500	$2,500

Select one:

a.

47.11%

b.

43.94%

c.

45.30%

d.

46.21%

Feedback

The correct answer is: 45.30%

Question 5

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KADS, Inc., has spent $300,000 on research to develop a new computer game. The firm is planning to spend $150,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $20,000. The machine has an expected life of five years, a $60,000 estimated resale value, and falls under the MACRS seven-year class life (depreciation of 14.29%, 24.49%, 17.49%, 12.49%, and 8.93% in years 1, 2, 3, 4, and 5 respectively). Revenue from the new game is expected to be $700,000 per year, with costs of $350,000 per year. The firm has a tax rate of 40 percent, an opportunity cost of capital of 12 percent, and it expects net working capital to increase by $50,000 at the beginning of the project. What will the YEAR 4 (ONLY YEAR 4!) estimated after-tax cash flow for this project be?

Select one:

a.

$131,507

b.

$197,260

c.

$152,740

d.

$218,493

Feedback

The correct answer is: $218,493

Question 6

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Suppose you sell a fixed asset for $80,000 when its book value is $120,000. If your company's marginal tax rate is 35 percent, what will be the effect on cash flows of this sale (i.e., what will be the after-tax cash flow of this sale)?

Select one:

a.

$66,000

b.

$106,000

c.

$54,000

d.

$94,000

Feedback

The correct answer is: $94,000

FIN--5063-1D2-FA-2021 - Corporate Finance

1.      Home

2.      My courses

3.      2021-FA

4.      FIN--5063-1D2-FA-2021

5.      Week 8

6.      Exam 3 Chapters 11-13 Part 2

Started on	Saturday, December 18, 2021, 10:48 PM
State	Finished
Completed on	Saturday, December 18, 2021, 10:50 PM
Time taken	2 mins 31 secs
Points	6.00/6.00
Grade	10.00 out of 10.00 (100%)

Question 1

Correct

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Question text

WC Inc. has a $10 million (face value), 10-year bond issue selling for 97 percent of par that pays an annual coupon of 6 percent. What would be WC's before-tax component cost of debt?

Select one:

a.

16.17 percent

b.

6.41 percent

c.

6.18 percent

d.

5.82 percent

Feedback

The correct answer is: 6.41 percent

Question 2

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FlavR Co. stock has a beta of 1.5, the current risk-free rate is 3, and the expected return on the market is 12 percent. What is FlavR Co's cost of equity?

Select one:

a.

21 percent

b.

16.5 percent

c.

18 percent

d.

25.5 percent

Feedback

The correct answer is: 16.5 percent

Question 3

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Consider the project described in the table below. What is the project's net present value?

Cost of Capital Rate	4%
Time	0	1	2	3	4
Cash Flows	($3,500)	$1,000	$1,500	$1,000	$500

Select one:

a.

$148

b.

$163

c.

$165

d.

$155

Feedback

The correct answer is: $165

Question 4

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1.00 points out of 1.00

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Question text

KADS, Inc., has spent $300,000 on research to develop a new computer game. The firm is planning to spend $150,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $20,000. The machine has an expected life of five years, a $60,000 estimated resale value, and falls under the MACRS seven-year class life (depreciation of 14.29%, 24.49%, 17.49%, 12.49%, and 8.93% in years 1, 2, 3, 4, and 5 respectively). Revenue from the new game is expected to be $700,000 per year, with costs of $350,000 per year. The firm has a tax rate of 40 percent, an opportunity cost of capital of 12 percent, and it expects net working capital to increase by $50,000 at the beginning of the project. What will the YEAR 4 (ONLY YEAR 4!) estimated after-tax cash flow for this project be?

Select one:

a.

$152,740

b.

$131,507

c.

$218,493

d.

$197,260

Feedback

The correct answer is: $218,493

Question 5

Correct

1.00 points out of 1.00

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Consider the project described in the table below. What is the project's internal rate of return?

Cost of Capital Rate	13%
Time	0	1	2	3	4
Cash Flows	($6,600)	$2,400	$3,600	$2,000	$1,000

Select one:

a.

15.65%

b.

16.13%

c.

16.29%

d.

15.81%

Feedback

The correct answer is: 15.81%

Question 6

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Your firm needs a computerized machine tool lathe that costs $75,000, requires $10,000 in installation, $10,000 in freight charges, and another $14,000 in maintenance for each year of its three-year life. After three years, this machine will be replaced. The machine falls into the MACRS three-year class life category (depreciation of 33.33%, 44.45%, and 14.81% in years 1, 2, and 3 respectively). Assume a tax rate of 30 percent and a discount rate of 12 percent. If the lathe can be sold for $10,000 at the end of year 3, what is the after-tax cash flow from selling it?

Select one:

a.

$7,000

b.

$10,888

c.

$13,000

d.

$9,112

Feedback

The correct answer is: $9,112