Q12. A firm is considering a $200,000 project that will last 3 years and has the following financial data:

• Annual after-tax cash flows are expected to be $90,000.

• Target debt/equity ratio is 0.4.

• Cost of equity is 14%.

• Cost of debt is 7%.

• Tax rate is 34%.

Determine the project's payback period and net present value (NPV).

          Payback Period                     NPV

A)      2.43 years                       $18,716

B)      2.22 years                      $18,716

C)      2.22 years                      $21,872

Q13. The process of evaluating and selecting profitable long-term investments consistent with the firm’s goal of shareholder wealth maximization is known as:

A)   financial restructuring.

B)   monitoring.

C)   capital budgeting.

Q14. A company is considering the purchase of a copier that costs $5,000. Assume a cost of capital of 10 percent and the following cash flow schedule:

• Year 1: $3,000

• Year 2: $2,000

• Year 3: $2,000

Determine the project's NPV and IRR.

          NPV                                          IRR

A)   $883                                      20%

B)   $243                                      20%

C)   $883                                      15%

Q15. Which of the following statements about the payback period is FALSE?

A)   The payback period provides a rough measure of a project's liquidity and risk.

B)   The payback method considers all cash flows throughout the entire life of a project.

C)   The payback period is the number of years it takes to recover the original cost of the investment.

答案和详解如下：

Q12. A firm is considering a $200,000 project that will last 3 years and has the following financial data:

• Annual after-tax cash flows are expected to be $90,000.

• Target debt/equity ratio is 0.4.

• Cost of equity is 14%.

• Cost of debt is 7%.

• Tax rate is 34%.

Determine the project's payback period and net present value (NPV).

          Payback Period                     NPV

A)      2.43 years                       $18,716

B)      2.22 years                      $18,716

C)      2.22 years                      $21,872

Correct answer is B)

Payback Period

$200,000 / $90,000 = 2.22 years

NPV Method

First, calculate the weights for debt and equity

w_d + w_e = 1
w_e = 1 − w_d
w_d / w_e = 0.40
w_d = 0.40 × (1 − w_d)
w_d = 0.40 − 0.40w_d
1.40w_d = 0.40
w_d = 0.286, w_e = 0.714

Second, calculate WACC

WACC = (w_d × k_d) × (1 − t) + (w_e × k_e) = (0.286 × 0.07 × 0.66) + (0.714 × 0.14) = 0.0132 + 0.100 = 0.1132

Third, calculate the PV of the project cash flows

90 / (1 + 0.1132)¹ + 90 / (1 + 0.1132)² + 90 / (1 + 0.1132)³ = $218,716

And finally, calculate the project NPV by subtracting out the initial cash flow

NPV = $218,716 − $200,000 = $18,716

Q13. The process of evaluating and selecting profitable long-term investments consistent with the firm’s goal of shareholder wealth maximization is known as:

A)   financial restructuring.

B)   monitoring.

C)   capital budgeting.

Correct answer is C)

In the process of capital budgeting, a manager is making decisions about a firm’s earning assets, which provide the basis for the firm’s profit and value. Capital budgeting refers to investments expected to produce benefits for a period of time greater than one year. Financial restructuring is done as a result of bankruptcy and monitoring is a critical assessment aspect of capital budgeting.

Q14. A company is considering the purchase of a copier that costs $5,000. Assume a cost of capital of 10 percent and the following cash flow schedule:

• Year 1: $3,000

• Year 2: $2,000

• Year 3: $2,000

Determine the project's NPV and IRR.

          NPV                                          IRR

A)   $883                                      20%

B)   $243                                      20%

C)   $883                                      15%

Correct answer is A)

To determine the NPV, enter the following:
PV of $3,000 in year 1 = $2,727, PV of $2,000 in year 2 = $1,653, PV of $2,000 in year 3 = $1,503. NPV = ($2,727 + $1,653 + $1,503) − $5,000 = 883.
You know the NPV is positive, so the IRR must be greater than 10%. You only have two choices, 15% and 20%. Pick one and solve the NPV. If it is not close to zero, then you guessed wrong; select the other one.

[3000 ÷ (1 + 0.2)1 + 2000 ÷ (1 + 0.2)2 + 2000 ÷ (1 + 0.2)3] − 5000 = 46 This result is closer to zero (approximation) than the $436 result at 15%. Therefore, the approximate IRR is 20%.

Q15. Which of the following statements about the payback period is FALSE?

A)   The payback period provides a rough measure of a project's liquidity and risk.

B)   The payback method considers all cash flows throughout the entire life of a project.

C)   The payback period is the number of years it takes to recover the original cost of the investment.

Correct answer is B)

The payback period does not take any cash flows after the payback point into consideration.

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Statement 2: Cash flows should be analyzed on an after-tax basis.

Should DeWalt agree or disagree with Webb’s statements

B