This preview has intentionally blurred parts. Sign up to view the full document

View Full Document

Unformatted Document Excerpt

Chapter 18 International Capital Budgeting Chapter 18 International Capital Budgeting Multiple Choice Questions 1. The financial manager's responsibility involves: 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. b and c 2. Perhaps the most important decisions that confront the financial manager are 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 3. Capital budgeting analysis is very important, because it: 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 18-1 Chapter 18 International Capital Budgeting Before you pose these next seven questions to your students, give consideration to their finance backgrounds. At my school (University of Missouri at Columbia) capital budgeting questions in this level of detail would be "fair game" because the students have had plenty of capital budgeting before in a prior finance course. Just glancing at equations 18-1 through 18-2f is not preparation for these seven questions. There are plenty of easier questions in this test bank. 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 pretax $3 million; this expense will be depreciated straight-line over 30 years to zero salvage value; the 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. 4. What is the un levered after-tax incremental cash flow for year 0? A. -$3,660,000 B. -$5,100,000 C. -$4,000,000 D. -$4,010,000 E. None of the above 5. What is the un levered after-tax incremental cash flow for year 2? A. -$4,610 B. $102,300 C. $202,300 D. $255,000 E. None of the above 18-2 Chapter 18 International Capital Budgeting 6. What is the un levered after-tax incremental cash flow for year 30? A. $12,432,300 B. $12,225,390 C. $12,332,300 D. $12,485,000 E. None of the above 7. For the next 3 questions, assume that the firm will partially finance the project with a $3,000,000 interest-only 30-year loan at 10.0 percent APR with annual payments.... View Full Document

End of Preview

Sign up now to access the rest of the document