Question 1

Perhaps the most important decisions that confront the financial manager are

Accepted Answer

A)  which capital projects to select.
B)  the correct capital structure for the firm.
C)  the correct capital structure for projects.
D)  none of the aboveE) All of the above
F) C) and D)

Question 2

The financial manager's responsibility involves

Accepted Answer

A)  increasing the per share price of the company's stock at any cost and by any means, ways and fashion that is possible.
B)  the shareholder wealth maximization.
C)  which capital projects to select.
D)  both b and cE) B) and D)
F) A) and D)

Question 3

Assume that the firm will partially finance the project with a subsidized $3,000,000 interest only 30-year loan at 8.0 percent APR with annual payments. Note that eight percent is less than the 10 percent that they normally borrow at. What is the NPV of the loan?

Accepted Answer

A)  $198,469
B)  $53,979.83
C)  $102,727.55
D)  $1,334,851.09
E)  None of the aboveF) None of the above
G) B) and C)

Question 4

In the APV model

Accepted Answer

A)  interest tax shields are discounted at i.
B)  operating cash flows are discounted at Ku.
C)  depreciation tax shields are discounted at i.
D)  all of the aboveE) B) and D)
F) None of the above

Question 5

Your firm's existing bonds trade with a yield to maturity of eight percent. The state of Missouri has offered to loan your firm $10,000,000 at zero percent for five years. Repayment will be of the form of $2,000,000 per year for five years the first payment is due in one year. What is the value of this offer?

Accepted Answer

A)  $4,729,622.75
B)  $2,014,579.93
C)  $0
D)  $196,929.88
E)  None of the aboveF) A) and D)
G) D) and E)

Question 6

Which of the following statements is false about "borrowing capacity"?

Accepted Answer

A)  it is an especially important point in international capital budgeting analysis because of the frequency of large concessionary loans.
B)  it creates tax shields for APV analysis regardless of how the project is actually financed.
C)  is synonymous to the "project debt".
D)  is based on the firm's optimal capital structure.E) A) and D)
F) A) and C)

Question 7

As of today, the spot exchange rate is €1.00 = $1.25 and the rates of inflation expected to prevail for the next year in the U.S. is 2% and 3% in the euro zone. What is the one-year forward rate that should prevail?

Accepted Answer

A)  €1.00 = $1.2379
B)  €1.00 = $1.2139
C)  €1.00 = $0.9903
D)  $1.00 = €1.2623E) None of the above
F) A) and B)

Question 8

Using the flow to equity methodology, what is the value of the equity claim?

Accepted Answer

A)  -$1,540,000
B)  $446,570,866.00
C)  $36,580,767.55
D)  $470,953,393.70
E)  $30,716,236.13F) B) and D)
G) None of the above

Question 9

Find the NPV in euro for the French firm if they wait one year to undertake the project after the exchange rate rises to S1(€|£) = €2.20 per £.

Accepted Answer

Question 10

The CFO who has a CFA notices the optionality in starting this project today. He asks you to comment and outline your valuation strategy.

Accepted Answer

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Question 11

Find the NPV in euro for the American firm if they wait one year to undertake the project after the exchange rate falls to S1($|€) = $1.40 per €. Assume that i€ doesn't change.

Accepted Answer

Question 12

Using the APV method, what is the value of the debt side effects?

Accepted Answer

A)  $239,072,652.70
B)  $66,891,713.66
C)  $59,459,301.03
D)  $660,000,000
E)  None of the aboveF) A) and D)
G) C) and E)

Question 13

When using the APV methodology, what is the NPV of the depreciation tax shield?

Accepted Answer

A)  $32,051.52
B)  $25,777.35
C)  $22,794.65
D)  $97,152.98
E)  None of the aboveF) B) and E)
G) All of the above

Question 14

What is CF1 in dollars?

Accepted Answer

The answer of What is CF1 in dollars?...

Question 15

What is the NPV of the project using the WACC methodology?

Accepted Answer

A)  $58,028.68
B)  $49,613.03
C)  $48,300.47
D)  $102,727.55
E)  None of the above Using the cash flow menu of a financial calculator: CF0 = -$100,000; C01 = $39,800; F01 = 4; C02 = $43,100; I = rWACC = 11.20; NPV = $48,300.47F) A) and B)
G) B) and C)

Question 16

Some of the factors (with selected explanations)  used in calculating the basic "net present value" and the "incremental" cash flows of a capital project are: (i)  - expected after-tax terminal value, including recapture of working capital
(ii)  - net income, which belongs to the equity holders of the firm
(iii)  - initial investment at inception
(iv)  - depreciation, and the fact that depreciation is a noncash expense (i.e. it is removed from the calculation of net income, for tax purposes, but added back because it did not actually flow out of the firm) 
(v)  - weighted-average cost of capital
(vi)  - the firm's after-tax payment of interest to debtholders
(vii)  - economic life of the capital project in years
The "incremental" cash flows of a capital project is calculated by using:

Accepted Answer

A)  (i) , (ii) , and (iii) 
B)  (ii) , (iv) , and (vi) 
C)  (i) , (iii) , (v) , and (vii) 
D)  (iv) , (v) , (vi) , and (vii) E) A) and D)
F) A) and C)

Question 17

Using the APV method, what is the value of this project to an all-equity firm?

Accepted Answer

A)  -$46,502,288.10
B)  $12,494,643.75
C)  $36,580,767.55
D)  -$67,163,445.12
E)  $59,459,301.03F) C) and D)
G) A) and D)

Question 18

Using the APV method, what is the value of the debt side effects?

Accepted Answer

A)  $239,072,652.70
B)  $66,891,713.66
C)  $59,459,301.03
D)  $660,000,000
E)  None of the aboveF) A) and D)
G) A) and C)

Question 19

Find the euro-zone cost of capital to compute is the dollar-denominated NPV of this project.

Accepted Answer

The answer of Find the euro-zone cost of capital to...

Question 20

What is the levered after-tax incremental cash flow for year 2?

Accepted Answer

A)  $185,796,000
B)  $215,152,000
C)  $267,952,000
D)  $284,848,000
E)  None of the aboveF) A) and E)
G) C) and D)

Exam 18: International Capital Budgeting

Using the APV method, what is the value of the debt side effects?

Correct Answer
verified

When using the APV methodology, what is the NPV of the depreciation tax shield?

Correct Answer
verified

Using the APV method, what is the value of the debt side effects?

Correct Answer
verified

Using the APV method, what is the value of this project to an all-equity firm?

Correct Answer
verified

What is the levered after-tax incremental cash flow for year 2?

Correct Answer
verified

In the APV model

Correct Answer
verified

As of today, the spot exchange rate is €1.00 = $1.25 and the rates of inflation expected to prevail for the next year in the U.S. is 2% and 3% in the euro zone. What is the one-year forward rate that should prevail?

Correct Answer
verified

Correct Answer
verified

Using the flow to equity methodology, what is the value of the equity claim?

Correct Answer
verified

What is CF1 in dollars?

Correct Answer
verified

Correct Answer
verified

What is the NPV of the project using the WACC methodology?

Correct Answer
verified

Perhaps the most important decisions that confront the financial manager are

Correct Answer
verified

Find the euro-zone cost of capital to compute is the dollar-denominated NPV of this project.

Correct Answer
verified

Which of the following statements is false about "borrowing capacity"?

Correct Answer
verified

Find the NPV in euro for the French firm if they wait one year to undertake the project after the exchange rate rises to S₁(€|£) = €2.20 per £.

Correct Answer
verified

Find the NPV in euro for the American firm if they wait one year to undertake the project after the exchange rate falls to S₁($|€) = $1.40 per €. Assume that i€ doesn't change.

Correct Answer
verified

Assume that the firm will partially finance the project with a subsidized $3,000,000 interest only 30-year loan at 8.0 percent APR with annual payments. Note that eight percent is less than the 10 percent that they normally borrow at. What is the NPV of the loan?

Correct Answer
verified

The financial manager's responsibility involves

Correct Answer
verified

The CFO who has a CFA notices the optionality in starting this project today. He asks you to comment and outline your valuation strategy.

Correct Answer
verified
_TB2454_00...
View Answer

Exam 18: International Capital Budgeting

Using the APV method, what is the value of the debt side effects?

Correct AnswerverifiedShow Answer

When using the APV methodology, what is the NPV of the depreciation tax shield?

Correct AnswerverifiedShow Answer

Using the APV method, what is the value of the debt side effects?

Correct AnswerverifiedShow Answer

Using the APV method, what is the value of this project to an all-equity firm?

Correct AnswerverifiedShow Answer

What is the levered after-tax incremental cash flow for year 2?

Correct AnswerverifiedShow Answer

In the APV model

Correct AnswerverifiedShow Answer

As of today, the spot exchange rate is €1.00 = $1.25 and the rates of inflation expected to prevail for the next year in the U.S. is 2% and 3% in the euro zone. What is the one-year forward rate that should prevail?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Using the flow to equity methodology, what is the value of the equity claim?

Correct AnswerverifiedShow Answer

What is CF1 in dollars?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What is the NPV of the project using the WACC methodology?

Correct AnswerverifiedShow Answer

Perhaps the most important decisions that confront the financial manager are

Correct AnswerverifiedShow Answer

Find the euro-zone cost of capital to compute is the dollar-denominated NPV of this project.

Correct AnswerverifiedShow Answer

Which of the following statements is false about "borrowing capacity"?

Correct AnswerverifiedShow Answer

Find the NPV in euro for the French firm if they wait one year to undertake the project after the exchange rate rises to S1(€|£) = €2.20 per £.

Correct AnswerverifiedShow Answer

Find the NPV in euro for the American firm if they wait one year to undertake the project after the exchange rate falls to S1($|€) = $1.40 per €. Assume that i€ doesn't change.

Correct AnswerverifiedShow Answer

Assume that the firm will partially finance the project with a subsidized $3,000,000 interest only 30-year loan at 8.0 percent APR with annual payments. Note that eight percent is less than the 10 percent that they normally borrow at. What is the NPV of the loan?

Correct AnswerverifiedShow Answer

The financial manager's responsibility involves

Correct AnswerverifiedShow Answer

The CFO who has a CFA notices the optionality in starting this project today. He asks you to comment and outline your valuation strategy.

Correct Answerverified_TB2454_00...View AnswerShow Answer

Correct Answer
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Correct Answer
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Correct Answer
verified

Find the NPV in euro for the French firm if they wait one year to undertake the project after the exchange rate rises to S₁(€|£) = €2.20 per £.

Correct Answer
verified

Find the NPV in euro for the American firm if they wait one year to undertake the project after the exchange rate falls to S₁($|€) = $1.40 per €. Assume that i€ doesn't change.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
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