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FIN 302- Exam #2 Old - Exam 2 Form 1 Your Name 302 Exam II...

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Exam 2 Form 1 Your Name:___________________________________________________________ 302 Exam II Dr. Brunarski Registered in Section (circle one): 3:30 5:00 6:30 Formulas: 29 NWC = 29 Current Assets - 29 Current Liabilities After-tax proceeds from asset sale = Sale Price – [T c (Sale Price – Book Value)] Depreciation tax shield = T c ($Depreciation) PV = FV/(1+i) n E[R i ] = R f + β i (R m – R f ) After-tax revenues or expense = (1- T c ) ($revenues or expense) 1
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2)______ Which of the following changes would generally decrease a firm’s agency costs? a) Decrease in debt/asset ratio b) Decrease in the dividend payout ratio (dividends / net income) c) An increase in stockholdings by activist shareholders d) Two strict outside directors are replaced by two affiliated (grey) directors e) In fact, none of the above should decrease a firm’s agency costs 3)______ What is one benefit to non-manager stockholders when the firm awards long- term stock options to managers? 4)_____ The Economic Value Added (EVA) for a project of average risk can best be defined as: Data for question 9 : You are evaluating two mutually exclusive projects to lease new weight machines for your gym. The equipment will require only one lease payment at the beginning of the lease, and, because the machines are leased, they will not be depreciated. You have the choice of Nautilus weight machines or Fit4Life weight machines. You expect that, whichever equipment you choose, the lease will be renewed, in perpetuity. The Nautilus equipment is more expensive; however it has a longer life expectancy. The Nautilus machines will also generate more gym memberships than the Fit4Life equipment. You are provided with the following data: 2
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Equipment Cost (outlay) After-tax membership revenues Lease Period Nautilus $1,700,000 $600,000 4 years Fit4Life $ 750,000 $500,000 2 years 9)_____ Which of the following spreadsheets BOTH employs the correct methodolgy and reaches the proper decision for these mutually-exclusive weight machine projects? All excel analyses use the correct discount rate of 12%. All cash flows are net end-of-period cash flows.
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