Fina361Exam3

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University of Nebraska Medical Center *

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361

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Finance

Date

Jun 4, 2024

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pdf

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11

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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. 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 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 https://canvas.unl.edu/courses/159814/quizzes/336340/history?version=1 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 Trenton Sedlacek's Quiz History: Unit Test 3 https://canvas.unl.edu/courses/159814/quizzes/336340/history?version=1 3/11
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
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