A an NPV 0 B an IRR the projects required rate of return C an IRR 0 D All of

A an npv 0 b an irr the projects required rate of

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A) an NPV > $0 B) an IRR > the project’s required rate of returnC) an IRR > $0 D) All of the above are correct indicators. Answer: C Question: Given a current spot rate of 8.10 Norwegian krone per U.S. dollar, expected inflation rates of 3% in Norway and 6% per annum in the U.S., use the formula for relative purchasing power parity to estimate the one-year spot rate of krone per dollar. A) 7.87 krone per dollar B) 8.10 krone per dollar C) 8.34 krone per dollar D) There is not enough information to answer this question. Answer: A Question: When determining a firm’s weighted average cost of capital (wacc) which of the following terms is NOT necessary? A) the firm’s tax rateB) the firm’s cost of debtC) the firm’s cost of equityD) All of the above are necessary. Answer: D Question: When determining a firm’s weighted average cost of capital (WACC) which of the following terms is NOT necessary? A) the firm’s weight of equity financingB) the risk-free rate of return C) the firm’s weight of debt financingD) All of the above are necessary to determine a firm’s WACC.Answer: A Question: also requires an increase in NWC of euro 100,000 (to be recovered at the sale of the equipment
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65 at the end of five years). The current spot rate is $0.95/euro , and the expected inflation rate in the U.S. is 4% per year and 3% per year in Europe. Question: Refer to Instruction 18.1. What is the initial investment for the Velo Rapid Revolutions project? A) $1,500,000 B) €1,600,000C) $1,600,000 D) €1,500,000Answer: D Question: Refer to Instruction 18.1. What are the annual after-tax cash flows for the Velo Rapid Revolutions project? A) €400,000B) €240,000C) €120,000D) €360,000Answer: D Question: Refer to Instruction 18.1. What is the NPV of the European expansion if Velo Rapid Revolutions first computes the NPV in euros and then converts that figure to dollars using the current spot rate? A) $1,520,000 B) $1,684,210 C) -$75,310 D) -$71,544 Answer: Question: Refer to Instruction 18.1. In euros, what is the NPV of the Velo Rapid Revolutions expansion? A) €1,524,690B) $1,611,317 C) -€75,310D) -€111,317Answer: Question: Refer to Instruction 18.1. What is the IRR of the Velo Rapid Revolutions expansion? A) 14.4% B) 10.3% C) 12.0% D) 8.6% Answer: Question: If a firm undertakes a project with ordinary cash flows and estimates that the firm has a positive NPV, then the IRR will be: A) less than the cost of capital. B) greater than the cost of capital. C) greater than the cost of the project. D) cannot be determined from this information
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66 Answer: B Question: When estimating a firm’s cost of equity capital using the CAPM, you need to estimate: A) the risk-free rate of return. B) the expected return on the market portfolio. C) the firm’s beta.D) all of the above Answer: D
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