International Capital Budgeting

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Question 1
Free
Multiple Choice

The financial manager's responsibility involves

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A

increasing the per share price of the company's stock at any cost and by any means, ways and fashion that is possible.

B

the shareholder wealth maximization.

C

which capital projects to select.

D

both b) and c)

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Question 2
Free
Multiple Choice

Perhaps the most important decisions that confront the financial manager are

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A

which capital projects to select.

B

the correct capital structure for the firm.

C

the correct capital structure for projects.

D

none of the above

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Question 3
Free
Multiple Choice

Capital budgeting analysis is very important,because it

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A

involves, usually expensive, investments in capital assets.

B

has to do with the productive capacity of a firm.

C

will determine how competitive and profitable a firm will be.

D

all of the above
Tiger Towers, Inc.is considering an expansion of their existing business, student apartments.The new project will be built on some vacant land that the firm has just contracted to buy.The land cost $1,000,000 and the payment is due today.Construction of a 20-unit office building will cost $3 million; this expense will be depreciated straight-line over 30 years to zero salvage value; the pretax value of the land and building in year 30 will be $18,000,000.The $3,000,000 construction cost is to be paid today.The project will not change the risk level of the firm.The firm will lease 20 offices suites at $20,000 per suite per year; payment is due at the start of the year; occupancy will begin in one year.Variable cost is $3,500 per suite.Fixed costs, excluding depreciation, are $75,000 per year.The project will require a $10,000 investment in net working capital. image

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Question 4
Free
Multiple Choice

What is the unlevered after-tax incremental cash flow for year 0?

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A

-$3,660,000

B

-$5,100,000

C

-$4,000,000

D

-$4,010,000

E

None of the above

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Question 5
Free
Multiple Choice

What is the unlevered after-tax incremental cash flow for year 30?

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A

$12,432,300

B

$12,225,390

C

$12,332,300

D

$12,485,000

E

None of the above

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Question 6
Multiple Choice

What is the levered after-tax incremental cash flow for year 0?

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A
-$1,010,000
B
-$1,000,000
C
-$660,000
D
-$2,100,000
E
None of the above
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Question 7
Multiple Choice

What is the levered after-tax incremental cash flow for year 1?

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A
$4,300
B
-$202,610
C
-$95,700
D
$57,000
E
None of the above
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Question 8
Multiple Choice

What is the levered after-tax incremental cash flow for year 30?

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A
$9,027,390
B
$9,234,300
C
$9,134,300
D
$9,287,000
E
None of the above
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Question 9
Multiple Choice

Assume that the firm will partially finance the project with a subsidized $3,000,000 interest only 30-year loan at 8.0 percent APR with annual payments.Note that eight percent is less than the 10 percent that they normally borrow at.What is the NPV of the loan?

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A
$198,469
B
$53,979.83
C
$102,727.55
D
$1,334,851.09
E
None of the above
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Question 10
Multiple Choice

The firm's tax rate is 34%.The firm's pre-tax cost of debt is 8%; the firm's debt-to-equity ratio is 3; the risk-free rate is 3%; the beta of the firm's common stock is 1.5; the market risk premium is 9%.What is the firm's cost of equity capital?

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A
33.33%
B
10.85%
C
13.12%
D
16.5%
E
None of the above
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Question 11
Multiple Choice

The firm's tax rate is 34%.The firm's pre-tax cost of debt is 8%; the firm's debt-to-equity ratio is 3; the risk-free rate is 3%; the beta of the firm's common stock is 1.5; the market risk premium is 9%.What is the required return on assets?

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A
33.33%
B
10.85%
C
13.12%
D
16.5%
E
None of the above
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Question 12
Multiple Choice

What is the NPV of the project using the WACC methodology?

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A
$49,613.03
B
$58,028.68
C
$102,727.55
D
$315,666.16
E
None of the above
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Question 13
Multiple Choice

What is the NPV of the project using the APV methodology?

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A
$49,613.03
B
$198,469
C
$102,727.55
D
$149,580.12
E
None of the above
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Question 14
Multiple Choice

What is the NPV of the project using the WACC methodology?

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A
$58,028.68
B
$49,613.03
C
$48,300.47
D
$102,727.55
E
None of the above Using the cash flow menu of a financial calculator: CF0 = -$100,000; C01 = $39,800; F01 = 4; C02 = $43,100; I = rWACC = 11.20; NPV = $48,300.47
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Question 15
Multiple Choice

When using the APV methodology,what is the NPV of the depreciation tax shield?

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A
$32,051.52
B
$25,777.35
C
$22,794.65
D
$97,152.98
E
None of the above
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Question 16
Multiple Choice

When using the APV methodology,what is the NPV of the interest tax shield?

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A
$9,666.51
B
$12,019.32
C
$9,377.31
D
$7,000.73
E
None of the above
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Question 17
Multiple Choice

Today is January 1,2009.The state of Iowa has offered your firm a subsidized loan.It will be in the amount of $10,000,000 at an interest rate of 5% and have ANNUAL (amortizing)payments over 3 years.The first payment is due today and your taxes are due January 1 of each year on the previous year's income.The yield to maturity on your firm's existing debt is 8%.What is the APV of this subsidized loan? If you rounded in your intermediate steps,the answer may be slightly different from what you got.Choose the closest.

Choose correct answer/s
A
-$3,497,224.43
B
$417,201.05
C
$840,797
D
None of the above
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Question 18
Multiple Choice

Today is January 1,2009.The state of Iowa has offered your firm a subsidized loan.It will be in the amount of $10,000,000 at an interest rate of 5% and have ANNUAL (amortizing)payments over 3 years.The first payment is due December 31,2009 and your taxes are due January 1 of each year on the previous year's income.The yield to maturity on your firm's existing debt is 8%.What is the APV of this subsidized loan? Note that I did not round my intermediate steps.If you did,your answer may be off by a bit.Select the answer closest to yours.

Choose correct answer/s
A
-$3,497,224.43
B
$417,201.05
C
$840,797
D
None of the above
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Question 19
Multiple Choice

The required return on assets is 18%.The firm can borrow at 12.5%; firm's target debt to value ratio is 3/5.The corporate tax rate is 34%,and the risk-free rate is 4% and the market risk premium is 9.2 percent.What is the weighted average cost of capital?

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A
12.15%
B
13.02%
C
14.33%
D
23.45%
E
None of the above
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Question 20
Multiple Choice

Your firm is in the 34% tax bracket.The yield to maturity on your existing bonds is 8%.The state of Georgia offers to loan your firm $1,000,000 with a TWO year AMORTIZING loan at a 5% rate of interest and ANNUAL payments due at the END OF THE YEAR. The interest will be deductible at the time that you pay.What is the APV of this below-market loan to your firm? I did not round any of my intermediate steps.You might be a little bit off.Pick the answer closest to yours.

Choose correct answer/s
A
$64,157.38
B
$417,201.05
C
$840,797
D
None of the above
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