Corporate fin

A project requires an initial investment of $200,000 and expects to produce a cash flow before taxes of $120,000 per year for two years (i.e., cash flows will occur at t = 1 and t = 2). The corporate tax rate is 21 percent. The assets will depreciate using the MACRS 3-year schedule: ( t = 1, 33%); ( t = 2: 45%); ( t = 3: 15%); ( t = 4: 7%). The company's tax situation is such that it can use all applicable tax shields. The opportunity cost of capital is 12 percent. Assume that the asset can sell for book value at the end of the project. Calculate the NPV of the project (approximately). Group of answer choices

$22,735

If the present value of a cash flow generated by an initial investment of $200,000 is $250,000, what is the NPV of the project? Group of answer choices

$50,000

What is the net present value of the following cash flow sequence at a discount rate of 11 percent? t = 0t = 1t = 2-120,000300,000-100,000

$69,108.03

Mr. Thomas has $100 income this year and zero income next year. The market interest rate is 10 percent per year. Mr. Thomas also has an investment opportunity in which he can invest $50 this year and receive $80 next year. Suppose Mr. Thomas consumes $50 this year and invests in the project. What will be his consumption next year?

$80

Your boss asked you to evaluate a project with an infinite life. Sales and costs project to $1,000 and $500 per year, respectively. (Assume sales and costs occur at the end of the year [i.e., profit of $500 at the end of year one]). There is no depreciation and the tax rate is 21 percent. The real required rate of return is 10 percent. The inflation rate is 4 percent and is expected to be 4 percent forever. Sales and costs will increase at the rate of inflation. If the project costs $3,000, what is the NPV? Group of answer choices

$950.00

The dividend yield reported on finance.yahoo.com is calculated as follows:

(dividend/closing stock price).

The manufacture of folic acid is a competitive business. A new plant costs $100,000 and lasts for three years. The cash flow from the plant is as follows: year 1: +$43,300; year 2: +$43,300; and year 3: +$58,300. (Assume no taxes.) If the discount rate is 20 percent, what is the value of the plant at the end of year 1? Group of answer choices

+$76,569

If the correlation coefficient between Stock A and Stock B is +0.6, what is the correlation coefficient between Stock B with Stock A? Group of answer choices

+0.6

The market value of Charcoal Corporation's common stock is $20 million, and the market value of its risk-free debt is $5 million. The beta of the company's common stock is 1.25, and the market risk premium is 8 percent. If the Treasury bill rate is 5 percent, what is the company's cost of capital? (Assume no taxes.) Group of answer choices

13.0 percent

Mass Company is investing in a giant crane. It is expected to cost $6 million in initial investment, and it is expected to generate an end-of-year cash flow of $3 million each year for three years. At the end of the fourth year, there will be a $1 million disposal cost. Calculate the MIRR for the project if the cost of capital is 12 percent.

15.3 percent

Stock A has an expected return of 10 percent per year and stock B has an expected return of 20 percent. If 40 percent of a portfolio's funds are invested in stock A and the rest in stock B, what is the expected return on the portfolio of stock A and stock B? Group of answer choices

16 percent

If the net present value (NPV) of project A is +$100 and that of project B is +$60, then the net present value of the combined projects is

160=100+60

Super Computer Company's stock is selling for $100 per share today. It is expected that-at the end of one year-it will pay a dividend of $6 per share and then be sold for $114 per share. Calculate the expected rate of return for the shareholders.

20 percent

The Financial Calculator Company proposes to invest $12 million in a new calculator-making plant that will depreciate on a straight-line basis. Fixed costs are $3 million per year. A financial calculator costs $10 per unit to manufacture and sells for $30 per unit. If the plant lasts for four years and the cost of capital is 20 percent, what is the accounting break-even level of annual sales? (Assume no taxes.)

300,000 units

A firm has an average investment of $1,000 during the year. During the same time, the firm generates after-tax earnings of $150. If the cost of capital is 10 percent, what is the net return on investment?

5 percent

If the nominal interest rate per year is 10 percent and the inflation rate is 4 percent, what is the real rate of interest?

5.8 percent

The Hammer Company proposes to invest $6 million in a new type of hammer-making equipment. The fixed costs are $0.5 million per year. The equipment will last for five years. The manufacturing cost per hammer is $1 and each hammer sells for $6. The cost of capital is 20 percent. Calculate the break-even (i.e., NPV = 0) sales volume per year. (Ignore taxes. Round to the nearest 1,000.)

500,000 units

The different forms of market efficiency are I) weak form; II) semistrong form; III) strong form

I, II, and III

The capital asset pricing model (CAPM) states which of the following? Group of answer choices

The expected risk premium on an investment is proportional to its beta.

Which of the following statements about the relationship between interest rates and bond prices is true?

There is an inverse relationship between bond prices and interest rates, and the price of long-term bonds fluctuates more than the price of short-term bonds for a given change in interest rates (assuming that the coupon rate is the same for both).

In large public companies, monitoring is the primary responsibility of the

board of directors only.

By combining lending and borrowing at the risk-free rate with efficient portfolios, we can Group of answer choices

extend the range of investment possibilities, change the set of efficient portfolios from being curvilinear to a straight line, and provide a higher expected return for any level of risk, except for the tangential portfolio and the risk-free asset

As CFO of your corporation, you would prefer (all else equal) to see the price of your corporation's bonds

increase, indicating that bond investors view your firm as less risky.

The ultimate financial goal of a corporation is to:

maximize the value of the corporation to the stockholders.

Stock price cycles or patterns tend to self-destruct as soon as investors recognize them through

trading by investors.

In order to generate a positive NPV project, a firm must have an economic advantage over its competitors.

true

If the correlation coefficient between the returns on stock C and stock D is +1.0, the standard deviation of return for stock C is 15 percent, and that for stock D is 30 percent, calculate the covariance between stock C and stock D. Group of answer choices

+450

The beta of Treasury bills is

0.0.