Fall 2009 Exam 3 - FIN 221 Exam 3 Fall 2009 Multiple Choice...

Download Document
Showing pages : 1 - 2 of 12
This preview has blurred sections. Sign up to view the full version! View Full Document
FIN 221 Exam 3 Fall 2009 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Hindelang Inc. is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Note that a project's projected MIRR can be less than the WACC (and even negative), in which case it will be rejected. WACC: 13.25% Year 0 1 2 3 4 Cash flows -$850 $300 $320 $340 $360 A. 12.90% B. 14.43% C. 17.31% D. 16.97% E. 17.65% 2. Mayspring Corporation common stock is currently selling for $72.00 per share. A call option on Mayspring Corporation that expires in 2 months has an exercise price of $69. This call option is said to be ____________. A. Out-of-the-money B. At-the-money C. covered D. In-the-money 3. As a member of UA Corporation's financial staff, you must estimate the Year 1 cash flow for a proposed project with the following data. What is the Year 1 cash flow? Sales revenues, each year $40,500 Depreciation $10,000 Other operating costs $17,000 Interest expense $4,000 Tax rate 35.0% A. $15,959 B. $20,465 C. $18,024 D. $18,775 E. $14,457 4. To help finance a major expansion, Castro Chemical Company sold a noncallable bond several years ago that now has 20 years to maturity. This bond has a 9.25% annual coupon, paid semiannually, sells at a price of $875, and has a par value of $1,000. If the firm's tax rate is 40%, what is the component cost of debt for use in the WACC calculation? A. 6.15%
Background image of page 1
B. 5.95% C. 6.47% D. 5.31% E. 5.63% Use the following information to answer the next 2 questions. Willie’s Scottish Grease International is considering replacing their existing grease gouging equipment with new equipment that has a technology that will not only be less costly to operate but will gouge more grease. The original equipment was purchased 5 years ago at a cost of $280,000 and is being depreciated using 8-year straight-line depreciation to zero. The original equipment can be sold for $90,000 today. The new equipment cost is $600,000, qualifies for the 3-year MACRS depreciation class and has a 3-year useful life. The applicable MACRS rates are 33%, 45%, 15% and 7%, respectively. The new grease gouging equipment would increase revenues $50,000 annually and would decrease operating costs (other than depreciation) by $85,000 annually. At the end of the 3-year life of this replacement analysis, the old equipment has an estimated slavage value of zero and the new equipment’s salvage value is expected to be $100,000. The company’s tax rate is 40% and their WACC is 14%. Also, the company expects to have enough other taxable income to write off any losses that may occur as a result of the replacement project. 5.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Create a FREE account now to get started. Log In

The email address you entered is not valid. The email address you provided is already in use.
Your username must be at least 5 characters. Your username must consist of only alphanumeric characters. Your username must contain at least one letter. Your username contains inappropriate language. Another user has already claimed this username.
Your password must be at least 6 characters in length.
{[ $select.selected.label ]} Please select a valid school.
By creating an account you agree to our Privacy Policy, Terms of Use, and Honor Code.
Create my FREE account Processing...
Sign Up with Facebook

We will never post anything without your permission.

Already on Course Hero? Log In