Exam #3 Review

A VC firm is looking to fund only those projects which have a potential return of 10x their money within a 5-yr period.

Initial outlay is $850k, WACC is 7.5% & projected cash flows are Y1-Y2=$325k & Y3=$550k. What is the project's IRR?

An 20-yr useful life asset costs $7.1mm, installation=$400k & salvage value=$1.5mm. Use straight-line depreciation.

Use the SML for a firm with a beta of 0.70 & a P/E of 15. The expected market return is 8.50% & a 2.00% risk-free rate.

Which of the statements below is TRUE of the payback period method?

"Borrowing money at a preset rate from the bank at any time without seeking approval each time it needs funds"...

Starting a business with ________ is by far the most common start-up financing.

It is necessary to assign the appropriate cost of capital for each individual project that reflects that project's_____?

A preliminary prospectus is called a/an ________.

Bonds may be issued through either a ________ or a ________.

A $70k machine is sold after 2 yrs for $50k. Use 3-yr MACRS (%s=33.33%, 44.45%, 14.81% & 7.41%) & a tax rate of 20%.

Investment cost=$2.5m, completed feasibility study=$250k, installation=$125k, change in net working capital=$325.

Project investment is $1.1mm & expected cash flows Y1-2=$450k & Y3=$680k. What is the NPV of the project with a 8% WACC?

Investors ________ for estimating the WACC.

A firm will borrow $10mm. Bank1 will lend $2mm at 6% interest, Bank2 will lend $3mm at 7% & Bank3 will lend $5mm at 8%.

The process for selling stock for the very first time is known as ________.

A dividend of $2.00 was paid yesterday & you expect it to grow 2.5% annually. If the stock price is $32.35...

Market value of debt=$4.5m, preferred=$1.5m & common=$4.0m. Debt/pref/common have costs of 4%/6%/9% & a tax rate=20%.

In capital budgeting, the ________ is the appropriate rate to use when discounting the NPV of an average risk project.

Market values require multiplying the ________ of each component source of capital by the ________.

In the life cycle of a business, a stable life cycle stage is most closely identified with ________.

A 3-yr asset cost=$4.5 mm, with installation costs=$625k. The MACRS depreciation %s are 33.33%, 44.45%, 14.81% & 7.41%.

A project's initial after-tax cost of $2.38 mm. Future A-T cash flows are $680k per yr. What is the payback period?

Project cost is $1.2mm & cash inflows; Yr1= $650k, Yr2-Yr4=$375k. Disc rate=9%. What's the discounted payback period?

Where is AK Web Developers in its business life cycle? Choose the most reasonable option below.