PracticeFinalExam

PracticeFinalExam - Business Finance 620 Practice Final...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Business Finance 620 Practice Final Exam ____ 1. Your firm has a portrait of the company founder that originally cost $250, has an undepreciated book value of zero, and is worth an estimated $175,000 because the artist is famous. Last week, the Ann Arbor Museum of Art offered your firm $150,000 for the portrait. Ignoring taxes, what opportunity cost should be used for this work of art in capital budgeting decisions? A. $25,000 B. $175,000 C. $150,000 D. Zero ____ 2. At current prices and a 13.7% hurdle rate, a seven-year R&D project's NPV is $187,460. By what minimum amount must the initial cost of the project change before management can justify waiting three years to invest? Assume the project’s annual after-tax cash flows will remain unchanged in the future, and the firm’s marginal income tax rate is 35%. A. The initial cost must increase by $81,685. B. The initial cost must decrease by $77,046. C. The initial cost must decrease by $88,083. D. The initial cost must decrease by $59,926. ____ 3. A five-year investment project has fixed costs of $800, depreciation expense of $900, a 60% variable cost ratio, a 35% marginal tax rate, and a 15% cost of capital. Project assets are depreciated straight line over the life of the project to a zero tax basis. What is the project’s economic break-even revenue? A. $3,960 B. $4,380 C. $5,952 D. $4,250 ____ 4. All the following statements concerning the cost of capital are correct EXCEPT: A. Two firms with the same capital structure may not have the same WACC. B. To reflect the true after-tax cost of capital for the firm, the WACC must include an adjustment for the tax savings associated with interest payments. C. If the NPV calculated at a firm’s WACC is zero for every project the firm operates, common shareholders will not earn their required return. D. Two firms with the same cost of debt may have different costs of common equity. ____ 5. An investment project will give a firm a one-time after-tax profit of $247,500 today. How much should management be willing to pay for this project? Assume the firm's marginal tax bracket is 35%, and its WACC is 12.85%. A. $416,000 B. $247,500 C. $447,000 D. The answer cannot be determined from the information provided.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Business Finance 620 Practice Final Exam 2 ____ 6. A three-year R&D investment project has the following annual after-tax cash flows (realized at the end of the year): > $67,500 the first year, > $82,300 the second year, and > $77,400 the third year. If the project’s cost of capital is 12.5%, and its payback period is 2.4 years, how much can managers afford to spend on the initial investment and still justify launching the project? A. $227,200 B. $187,610 C. $179,388 D. The answer cannot be determined from the information provided. ____ 7.
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.

This note was uploaded on 03/10/2012 for the course BUS-FIN 620 taught by Professor Busfin620 during the Spring '12 term at Ohio State.

Page1 / 8

PracticeFinalExam - Business Finance 620 Practice Final...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online