Unformatted text preview: 10) The incremental unlevered net income in the first year for the Sisyphean Corporation's project is closest to:
D) $11,700 11) The depreciation tax shield for the Sisyphean lCorporation's project in the first year is closest to:
D) $5,200 12) Which of the following statements is false?
A) Depreciation expenses have a positive impact on free cash flow.
B) Free Cash Flow 2 (Revenues — Costs — Depreciation) x (1 — Tc) — lCapital Expenditures — ANWC + rc x Depreciation. C) The firm cannot use its earnings to buy goods, pay employees, fund new investments, or pay dividends
to shareholders. D) The depreciation tax shield is the tax savings that results from the ability to deduct depreciation. 13) Your firm is considering building a new office complex. Your firm already owns land suitable for the new
complex. The current book value of the land is $100,000, however a commercial real estate again has
informed you that an outside buyer is interested in purchasing this land and would be willing to pay
$650,000 for it. When calculating the NPV of your new office complex, ignoring taxes, the appropriate
incremental cash ﬂow for the use of this land is A) $650,000
B} $0 C} $100,000
D) $750,000 14) The Sisyphean Company is considering a new project that will have an annual depreciation expense of $25
million. If Sisyphean's marginal corporate tax rate is 40% and their average corporate tax rate is 30%, then
what is the value of the depreciation tax shield on their new project? A) $750,000 E) $1,000,000
D) $1,750,000 15) Bubba Ho—Tep Company reported net income of $300 million for the most recent fiscal year. The firm had
depreciation expenses of $125 million and capital expenditures of $150 million. Although they had no
interest expense, the firm did have an increase in net working capital of $20 million. What is Bubba Ho—Tep's
free cash flow? A) $170 million
B) $255 million
C) $150 million
D) $5 million ...
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- Spring '11