The market value of Delaware East’s assets is $100 mn. The firm has one issue of pure-discount debt outstanding which promises to pay $60 mn. in 5 years. If the standard deviation of the firm’s assets is 22% and the risk-free rate is 5%, what are the values of the firm’s equity and debt, based […]
Date: September 19th, 2020
Find the Modified Internal Rate of Return (MIRR) for the following series of future cash flows, given a discount rate of 11%: Year 0: -$22,000; Year 1: $5,000; Year 2: $6,000; Year 3: $7,000; Year 4: $7,500; and, Year 5: $8,000. A) About 12.13% B) About 12.88% C) About 13.04% D) About 13.12% […]
Date: September 19th, 2020
Due to its secondary position relative to equity, suppliers of debt capital face greater risk and therefore must be compensated with higher expected returns than suppliers of equity capital. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
Rogue River, Inc. is considering a project that has an initial outlay or cost of $220,000. The respective future cash inflows from its four-year project for years 1 through 4 are: $50,000, $60,000, $70,000, and $80,000, respectively. Rogue River uses the internal rate of return method to evaluate projects. Will Rogue River accept the project […]
Date: September 19th, 2020
Simpson, Inc. is considering a five-year project that has an initial outlay or cost of $80,000. The respective future cash inflows from its project for years 1, 2, 3, 4 and 5 are: $15,000, $25,000, $35,000, $45,000, and $55,000. Simpson uses the internal rate of return method to evaluate projects. What is the project’s IRR? […]
Date: September 19th, 2020
Meyer, Inc. is considering a very risky five-year project that has an initial outlay or cost of $70,000. The future cash inflows from its project for years 1, 2, 3, 4, and 5 are all the same at $35,000. Meyer uses the internal rate of return method to evaluate projects. Will Meyer accept the project […]
Date: September 19th, 2020
________ involves the sale of accounts receivable. A) Trust receipt loan B) Factoring C) Field warehouse arrangement D) Pledging of accounts receivable ANSWER B
Date: September 19th, 2020
Washington Industries Inc. is considering a project that has an initial after-tax outlay or after-tax cost of $350,000. The respective future cash inflows from its five-year project for years 1 through 5 are $75,000 each year. Washington expects an additional cash flow of $50,000 in the fifth year. The firm uses the IRR method and […]
Date: September 19th, 2020
The most popular alternative to NPV for capital budgeting decisions is the ________ method. A) internal rate of return (IRR) B) payback period C) discounted payback period D) profitability index ANSWER Answer: A
Date: September 19th, 2020
Two projects intersect, in terms of NPV, at a discount rate labeled the ________. A) crossover rate B) internal rate of return C) discount rate D) yield to maturity ANSWER Answer: A
Date: September 19th, 2020
