Fina361Exam3
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University of Nebraska Medical Center *
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Course
361
Subject
Finance
Date
Jun 4, 2024
Type
Pages
11
Uploaded by CorporalPencil10038
Unit Test 3 Results for Trenton Sedlacek
Score for this quiz: 240 out of 280
Submitted Dec 8, 2023 at 1:16pm
This attempt took 68 minutes.
Question 1
12 / 12 pts
Correct!
8.03
Correct Answer
8.03 margin of error +/- 0.1
Question 2
12 / 12 pts
Correct!
2.27
Correct Answer
2.27 margin of error +/- 0.1
Question 3
10 / 10 pts
You are evaluating a project with the following cash flows: initial investment is $-22, and the expected
cash flows for years 1 - 3 are $17, $10 and $11 (all cash flows are in millions of dollars). What is this
projects NPV? The company's WACC is 14%.
Express your answer in millions of dollars, rounded to 2 decimals and without the dollar sign. So, if your
answer is 23.5678, just enter 23.57.
You are evaluating a project with an initial investment of $15.9 million dollars, and expected cash flows
of $7 million dollars each for years 1-3. What is the project's simple payback? The corporate WACC is
7%.
Express your answer in years, rounded to 2 decimals. So, if your answer is 2.7654, then just enter 2.77.
Which of the following statements is CORRECT? Assume that all projects being considered have normal
cash flows and are equally risky.
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1/11
If a project's IRR is equal to its WACC, then, under all reasonable conditions, the project's NPV must be negative.
If a project's IRR is equal to its WACC, then under all reasonable conditions, the project's IRR must be negative.
Correct!
If a project's IRR is equal to its WACC, then under all reasonable conditions the project's NPV must be zero.
There is no necessary relationship between a project's IRR, its WACC, and its NPV.
When evaluating mutually exclusive projects, those projects with relatively long lives will tend to have relatively high
NPVs when the cost of capital is relatively high.
The definition of IRR is the discount rate at which NPV is zero. Thus, this statement is true, all others are
not.
Question 4
10 / 10 pts
The new NPV will be lower than $100
Correct!
The new NPV will be higher than $100
Since taxes affect many things, it is not possible to tell.
The NPV will not change. Taxes do not affect the value of a project.
There is too little information to make a forecast.
Question 5
14 / 14 pts
Correct!
12.25
Suppose that you calculate the NPV of a project, and obtain a value of $100 million dollars. After
completing your analysis, you find out that the corporate tax rate will change from 40% to 30%. If nothing
else changes, what is the effect of this tax change on the NPV you had calculated? Assume that your
company has no debt.
You're evaluating a project with the following cash flows: initial investment is $119 million dollars, and
cash flows for years 1-3 are $14, $60 and $89 million dollars, respectively. The firm's WACC is 6%. What
is this project's MIRR?
Enter your answer as a percentage, rounded to 2 decimals, without the percentage sign. So, if your
answer is 0.115678, just enter 11.57.
5/2/24, 6:28 PM
Trenton Sedlacek's Quiz History: Unit Test 3
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2/11
Correct Answer
12.25 margin of error +/- 0.1
Question 6
10 / 10 pts
Correct!
The firm should reject the project, as the IRR is lower than the WACC.
The firm should accept the project, as the IRR is higher than the WACC.
The firm should accept the project, as the NPV is positive.
The firm should accept the project, as the NPV is negative.
None of these statements are true.
Question 7
10 / 10 pts
The firm should accept the project, as the IRR is lower than the WACC.
The firm should reject the project, as the IRR is higher than the WACC.
Correct!
The firm should accept the project, as the NPV is positive.
The firm should reject the project, as the NPV is negative.
None of these statements are true.
Question 8
10 / 10 pts
Assume a new project requires an initial investment of $10 million dollars, with ensuing cash flows of $2,
$4 and $5 million in years 1, 2 and 3. Assuming the company's WACC is 10%, which of the following
statements is true?
Assume a new project requires an initial investment of $6 million dollars, with ensuing cash flows of $1,
$3 and $5 million in years 1, 2 and 3. Assuming the company's WACC is 10%, which of the following
statements is true?
From a WACC calculation prepared for you by a consultant, you find that their estimation of the after tax
cost of debt is 6%. Given a tax rate of 40% and a WACC of 15%, what must have been the cost of debt
before adjusting for taxes?
5/2/24, 6:28 PM
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Correct!
10%
6%
2.4%
15%
3.6%
Question 9
10 / 10 pts
About 50% of equity and 35% of debt
About 35% of equity and 50% of debt
Correct!
About 59% of equity and 41% of debt
About 41% of equity and 59% of debt
None of these describe the capital structure of the company.
Question 10
14 / 14 pts
9.29%
9.68%
10.08%
Correct!
10.50%
10.92%
D
$0.90
P
$27.50
Suppose you decide to start your own company. You have $50,000 of your own money to use as equity,
and on top of that you borrow $35,000 from a bank. Which of the following best describes the
composition of the capital structure of your firm?
Assume that Kish Inc. hired you as a consultant to help estimate its cost of capital. You have obtained
the following data: D
= $0.90; P
= $27.50; and g = 7.00% (constant). Based on the DCF approach,
what is the cost of equity from retained earnings?
0
0
0
0
5/2/24, 6:28 PM
Trenton Sedlacek's Quiz History: Unit Test 3
https://canvas.unl.edu/courses/159814/quizzes/336340/history?version=1
4/11
g
7.00%
D
= D
´ (1 + g)
$0.963
r
= D
/P
+ g
10.50%
Question 11
14 / 14 pts
7.81%
8.22%
8.65%
Correct!
9.10%
9.56%
Preferred stock price
$92.50
Preferred dividend
$8.00
Flotation cost
5.00%
r
= D
/(P
(1 - F))
9.10%
Question 12
10 / 10 pts
1
0
s
1
0
A company's perpetual preferred stock currently sells for $92.50 per share, and it pays an $8.00 annual
dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 5.00% of the
issue price. What is the firm's cost of preferred stock?
Note: when flotation costs are given as a percentage instead of in dollar terms, the denominator in the
formula changes from (P-F) to P*(1-F).
Hint: remember that for preferred stock the growth rate of the dividend is zero.
p
p
p
Which of the following statements is not true, when describing the concept of free cash-flow?
"Free cash-flow is the cash that is available after...
5/2/24, 6:28 PM
Trenton Sedlacek's Quiz History: Unit Test 3
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5/11
Paying variable costs
Paying fixed costs
Paying taxes
Investing in corporate projects
Correct!
Paying a dividend to stock holders
Question 13
10 / 10 pts
It is not. Both sources of capital are the same, and represent owner's equity.
Because new common stock is riskier than retained earnings, and therefore more expensive.
Actually, since retained earnings are real money, while stock is only shares of the company, retained using earnings is
more expensive.
Correct!
Because of flotation, i.e.: the added cost of selling the new shares of stock.
Because stock gains pay higher taxes than retained earnings.
Question 14
14 / 14 pts
Correct!
13.14
Correct Answer
13.14 margin of error +/- 0.1
Why is issuing common stock more expensive than using retained earnings?
A firm wishes to issue new shares of its stock, which already trades in the market. The current stock
price is $29, the most recent dividend was $2 per share, and the dividend is expected to grow at a rate
of 5% forever. Flotation costs for this issue are expected to be 11%. What is the required rate of return
(or financing cost) in this new issue?
Note: when flotation costs are given as a percentage instead of in dollar terms, the denominator in the
formula changes from (P-F) to P*(1-F).
Enter your answer as a percentage, without the percentage sign ('%'), and rounded to two decimals. So,
if your answer is 0.123456, enter 12.34.
5/2/24, 6:28 PM
Trenton Sedlacek's Quiz History: Unit Test 3
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Question 15
10 / 10 pts
Correct!
Interest paid on debt is tax-deductible
Debt is less risky than stock
Debt has a residual claim on firm cash flows
Dividends are not taxable
Debt is more expensive than equity
Question 16
10 / 10 pts
6.89%
7.26%
7.64%
Correct!
8.04%
8.44%
YTM
7.75%
Tax rate
40%
D
$0.65
Which of the following is the reason why we deduct taxes to the cost of debt when calculating the
WACC?
Assume that you are on the financial staff of Vanderheiden Inc., and you have collected the following
data: The company's cost of debt (YTM) is 7.75%, its tax rate is 40%, the next expected dividend is
$0.65 a share, the dividend is expected to grow at a constant rate of 6.00% a year, the price of the stock
is $15.00 per share, the flotation cost for selling new shares is F = 10%, and the target capital structure
is 45% debt and 55% common equity. What is the firm's WACC, assuming it must issue new stock to
finance its capital budget?
Note: when flotation costs are given as a percentage instead of in dollar terms, the denominator in the
formula changes from (P-F) to P*(1-F).
1
5/2/24, 6:28 PM
Trenton Sedlacek's Quiz History: Unit Test 3
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7/11
g
6.00%
P
$15.00
F
10.0%
Weight debt
45%
Weight equity
55%
After-tax cost of debt = r
(1 - T)
4.65%
r
= D
/(P
´ (1 - F)) + g
10.81%
WACC = w
(r
)(1 - T) + w
(r
) =
8.04%
Question 17
14 / 14 pts
Correct!
21.76
21.76 (with margin: 0)
Question 18
14 / 14 pts
0
d
e
1
0
d
d
c
s
You are considering two competing (mutually exclusive) projects. The cash flows for years 0, 1, 2 and 3 are:
Project A: -100, 20, 50, 90
Project B: -80, 70, 40, 20
What is the IRR of the worst project? The corporate WACC is 10%.
Enter your answer as a percentage, rounded to 2 decimals, without the percentage sign. So, if your
answer is 0.123456, then just enter 12.35.
Assume the economy can only be in two states. It can either be booming or in recession. The probability
that the economy will boom is 62%. You are considering investing in either Stock A or Stock B. If the
economy booms, then the return of Stock A would be -3.2%, and the return of Stock B would be 19.2%.
In a recession, the return of Stock A would be 4.4%, and the return of Stock B would be 24.5%. What is
5/2/24, 6:28 PM
Trenton Sedlacek's Quiz History: Unit Test 3
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8/11
Correct!
-21.53
Correct Answer
-21.53 margin of error +/- 0.1
Question 19
12 / 12 pts
Correct!
1.27
Correct Answer
1.27 margin of error +/- 0.1
Question 20
0 / 14 pts
the difference between the expected returns of these stocks? Your answer must be the result of the
expected return of Stock A minus the expected return of Stock B.
Enter your answer as a percentage, without the percentage sign ('%'), and rounded to 2 decimals. If your
answer is negative, use the minus sign ('-').
Over the previous year you observed that a certain company's stock price had a return of 19.5%. During
that same year the risk-free rate was 4.5%, and the Market Risk Premium was 11.8%. What would be
your estimate of that company's beta?
Enter your answer as a number (not a percentage), rounded to 2 decimals. If the answer is negative, use
the minus sign ('-').
An investor is analyzing four stocks as potential investments to add to their portfolio. The investor has
analyzed each stock, and has strong beliefs about the return that each could offer, calling those
'anticipated returns'. Given the information in the table below, and assuming the anticipated returns are
accurate, which stock seems like the best investment?
The risk-free rate is 5% and the expected return of the market is 8%.
Stock
Anticipated return
Beta
A
10%
1.6
B
10%
1.7
C
7%
0.5
D
6%
0.3
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You Answered
Stock A
Stock B
Correct Answer
Stock C
Stock D
This can't be determined with the information given
Question 21
0 / 12 pts
You Answered
5.34
Correct Answer
5.7 margin of error +/- 0.1
Question 22
10 / 10 pts
Correct!
When salvage value is greater than book value
When salvage value is less than book value
When salvage value is equal to book value
You always pay taxes on salvage value
You never pay taxes on salvage value
Question 23
10 / 10 pts
A firm is considering the purchase of a machine which would represent an investment of $21 million, and
would be depreciated in a straight-line basis over 5 years. Sales are expected to be $11 million per year,
and operating costs 39% of sales. The company has a tax rate of 40%, and a WACC of 10%. What is
the company’s free cash flow for year 1 of this project?
Enter your answer in millions of dollars, rounded to 1 decimal, and without the dollar sign. For example,
if your answer is 10.5678, enter 10.6. Use the minus sign ('-') if cash flow is negative.
When do you have to pay taxes on salvage value?
5/2/24, 6:28 PM
Trenton Sedlacek's Quiz History: Unit Test 3
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10/11
Correct!
0%
7%
15%
33%
45%
Question 24
0 / 14 pts
You Answered
49,089
Correct Answer
64,496 margin of error +/- 0.1
Quiz Score: 240 out of 280
A machine classified by the IRS so that it's depreciation can be calculated with the following
percentages: 33%, 45%, 15% and 7%, for years 1 to 4, respectively. After being used for 5 years, what is
the percentage of the value still left to be depreciated?
Your company is considering the purchase of a new machine. After 4 years of operation, you would sell
the machine for a salvage value of $41,347. However, at that time the machine would not have been
depreciated to a value of 0, but have a remnant book value of $15,407. The operation of the machine
requires additional NOWC of $33,525, which would not change throughout the project. The firm's
corporate tax rate is 40%. What is the project's Terminal Cash Flow?
Enter your answer in dollars, rounded to 2 decimals, without the dollar sing. So, if your answer is
12,345.6789, just enter 12345.68.
5/2/24, 6:28 PM
Trenton Sedlacek's Quiz History: Unit Test 3
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- about:blank Blackboard Learn sc.edu/webapps/assessment/take/launch isp?course assessment_id=_114 Remaining Time: 1 hour, 23 minutes, 35 seconds. Question Completion Status: A Moving to the next question prevents changes to this answer. Question 1 What is the Payback Period for the following investment? Year 1 2 3 4 5 O a. 3.77 Ob. 3.73 Oc. 3.89 Od. 3.96 Cash Out $ (1,600,000) (710,000) Cash In 550,000 580,000 610,000 640,000 670,000 A Moving to the next question prevents changes to this answer. 000 900 F2 F3 F4 MacBookarrow_forwardType equation here.Homework 5: Chapter 17 2020 Oct 13, D. 7.28% 4. The standard deviation for the S&P S00 is A. 9.38% BUS 202 Dr. Fausti Please fill out the table below. Use your estimates from the table to answer the multiple-choice questions below. When answering the questions below remember that rounding may result in your answer being slightly different that the answers provided, so pick the answer closet to your calculation. B. 7.28% C. 0.88% D. 5.51% Date S&P IBM RR-S&P RR-IBM 5. If we use the standard deviation as a measure of financial risk which financial asset would be ranked as having the greatest financial risk? 1/1/2020 2/1/2020 3/1/2020 4/1/2020 5/1/2020 6/1/2020 7/1/2020 3226 120 NA NA 2954 125 A. S&P 500 B. IBM 2585 108 2912 122 6. If we use the coefficient of variation as a measure of financial risk which financial asset would be ranked as having the greatest financial risk? C S&P 500 D. IBM 3044 122 3100 119 3271 121 Expected RR variance RR std. dev RR Cof. VAR Yr. RR…arrow_forwardAssignment: Chapter 12 Homework Time Remaining: 0:58:20 Questions Problem 12.08 (New Project Analysis) 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 0 eBook Assignment Score: 78.57% Save Submit Assignment for Grading Question 4 of 14 ► Check My Work You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price of the spectrometer including modifications is $140,000, and the equipment will be fully depreciated at the time of purchase. The equipment would be sold after 3 years for $32,000. The equipment would require an $8,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $43,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 25%. a. What is the initial investment outlay for the spectrometer after bonus depreciation is considered, that is, what is the Year 0 project cash flow? Enter your answer as a positive value.…arrow_forward
- Nonearrow_forwardThe production department is proposing the purchase of an automatic insertion machine. It has identified three machines and has asked the accountant to analyze them to determine which one has the best average rate of return. Machine A $43,529.50 $80,697.00 Machine B Machine C $64,675.95 310,925.00 268,990.00 431,173.00 Estimated average income Average investment Oa. Machine B Ob. Machine A Oc. Machine C Od. Machines B and C have the same preferred average rate of return.arrow_forwardThe Elberta Fruit Farm of Ontario has always hired transient workers to pick its annual cherry crop. Janessa Wright, the farm manager, just received information on a cherry picking machine that is being purchased by many fruit farms. The machine is a motorized device that shakes the cherry tree, causing the cherries to fall onto plastic tarps that funnel the cherries into bins. Ms. Wright has gathered the following information to decide whether a cherry picker would be a profitable investment for the Elberta Fruit Farm: a. Currently, the farm is paying an average of $250,000 per year to transient workers to pick the cherries. b. The cherry picker would cost $540,000. It would be depreciated using the straight-line method and it would have no salvage value at the end of its 5-year useful life. c. Annual out-of-pocket costs associated with the cherry picker would be: cost of an operator and an assistant, $80,000 insurance, $4,000; fuel, $12,000, and a maintenance contract. $15,000. Click…arrow_forward
- myOpenMath Course Messages Forums Calendar | Gradebook Home > Math 173-4 Spring 2024> Assessment Quiz 2 (Sec. 1.5-1.7) 54 points possible 5/12 answered Question 6 The graph of the function y = f(x - 39) can be obtained from the graph of y = f(x) by one of the following actions: > Next Question Home | My Oshifting the graph of f(x) to the right 39 units shifting the graph of f(x) to the left 39 units shifting the graph of f(x) upwards 39 units shifting the graph of f(x) downwards 39 unitsarrow_forwardI need typing clear urjent no chatgpt use i will give 5 upvotes full explanationarrow_forwardAny experience with solutions experts available??arrow_forward
- I need answer typing clear urjent no chatgpt used pls i will give 5 Upvotes.Full answer plssarrow_forwardUnit VI Assignment Instructions: This assignment involves answering a series of questions, and each question provides you with an opportunity to accomplish the following course learning outcome: 8. Critique interview techniques. Be sure to answer each question, save all of your work in this template, and submit it in Blackboard for grading. 1. After answering the last question, Jason said thank you and the interview was over. Briefly describe one or more techniques that Jason could have used to improve the conclusion of his interview. Your response should be at least 75 words. 2. Danielle was interviewing for a position, and the interviewer asked for her salary requirements. As Danielle was not expecting to hear that question, she mumbled for a minute before eventually saying $40,000.00, which is low for someone with her experience. Briefly describe one or more techniques…arrow_forwardThe production department is proposing the purchase of an automatic insertion machine. It has identified three machines and has asked the accountant to analyze them to determine which one has the best average rate of return. Line Item Description Machine A Machine B Machine C Estimated average income $47,060.44 $72,961.50 $73,785.60 Average investment 336,146.00 243,205.00 491,904.00 a. Machine C b. Machine A c. Machines B and C have the same preferred average rate of return. d. Machine Barrow_forward
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