Exam3Spring09 - Midterm 3 Name-Section- Question 1: Given...

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Name------------------------------------------ Section--------- Question 1 : Given the following information and assuming straight-line depreciation to zero, what is the IRR of this project? Initial investment = $6,000; life = 4 years; cost savings = $2,500 per year; salvage value = $ 2,000 in year 4; tax rate = 35%; discount rate = 10%. a. 10.24% b. 13.51% c. 16.13% d. 21.56% e. 24.87% Question 2 : What is the WACC for a firm using 50% equity with required return of 15%, 30% debt with a required return of 9%, 20% preferred stock with a required return of 11%, and a tax rate of 35%. a. 10.44% b. 11.46% c. 12.40% d. 13.42% e. 14.43% Question 3 : A project costs $60,000, will be depreciated straight-line to zero over its 4 year life, and will require a net working capital investment of $5,000 up-front. The firm has a tax rate of 35% and required return of 10%. The project generates Operating Cash Flows of $22,000. What is the project’s NPV? a. $6,724 b. $8,152 c. $10,393 d. $12,485 e. $14,850 Question 4 : Consider a project with an initial investment and positive future cash flows. As the discount rate is decreased the a. IRR increases while NPV decreases b. IRR decreases while NPV increases c. IRR increases while NPV remain constant d. IRR remains constant while NPV increases Question 5 When the net present value is negative, the internal rate of return is ------------- the cost of capital. A) greater than or equal to
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This note was uploaded on 02/14/2011 for the course FIN 221 taught by Professor Dyer during the Spring '09 term at University of Illinois, Urbana Champaign.

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Exam3Spring09 - Midterm 3 Name-Section- Question 1: Given...

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