Project A has an NPV of $20,000 and a PI of 1.2. Project B has an NPV of $10,000 and a PI of 1.3. Both projects have equal lives. Which project should be preferred if we are NOT concerned with capital rationing (that is, we are NOT concerned with being short of funds)? A) We […]
Date: September 19th, 2020
The present value of the benefits and costs needed to calculate Profitability Index (PI) is the same information one finds when computing the NPV. Indicate whether the statement is true or false. ANSWER Answer: TRUE
Date: September 19th, 2020
The stated cost of a pledge of accounts receivable is normally ________ above the prime rate. A) 6 to 8 percent B) 2 to 5 percent C) 4 to 9 percent D) 6 to 10 percent ANSWER B
Date: September 19th, 2020
Using the Binomial Model, find the values of a firm’s levered equity (EL), and the expected return on the equity, rLE, given the following values: V=100, u=1.3, d=1/u, p=0.7, rf=5%, X=100, and T=3. EL rLE a. 32.34 6.92% b. 32.34 10.74% c. 18.96 6.92% d. 18.96 10.74% FORMULAS: ; EL = ; ; […]
Date: September 19th, 2020
Suppose you have an investment that costs $80,000 at the beginning of the project, and it generates $30,000 a year for four years in positive cash flows. The cost of capital is 12%. The IRR of the project is 18.45% and the NPV is about $11,120. The IRR model assumes that at the end of […]
Date: September 19th, 2020
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
Generally, the greater a firm’s times interest earned ratio, the less able it is to meet payments as they come due. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
Corbett and Sullivan Enterprises (CSE) use the Modified Internal Rate of Return (MIRR) when evaluating projects. CSE’s cost of capital is 9.5%. What is the MIRR of a project if the initial costs are $10,200,000 and the project lasts seven years, with each year producing the same after-tax cash inflows of $1,900,000? A) About 7.95% […]
Date: September 19th, 2020
Find the Modified Internal Rate of Return (MIRR) for the following annual series of cash flows, given a discount rate of 10.50%: Year 0: -$75,000; Year 1: $15,000; Year 2: $16,000; Year 3: $17,000; Year 4: $17,500; and, Year 5: $18,000. A) About 6.35% B) About 6.88% C) About 7.35% D) About 7.88% […]
Date: September 19th, 2020
