Business 508 Managerial Analytics ( Multiple Choice Questions only 6 questions)

Exam

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Use the following information to answer the question(s) below.

You are considering investing in a start-up project at a cost of $100,000. You expect the project to return $500,000 to you in seven years. Given the risk of this project, your cost of capital is 20%.

1) The NPV for this project is closest to: 1) A) $39,500. B) $139,500. C) $29,200. D) $129,200.

2) The decision you should take regarding this project is: 2) A) accept the project since the IRR > 20%. B) reject the project since the NPV is negative. C) reject the project since the NPV is positive. D) accept the project since the IRR < 20%.

3) You are considering adding a microbrewery on to one of your firm's existing restaurants. This will entail an increase in inventory of $8000, an increase in accounts payable of $2500, and an increase in property, plant, and equipment of $40,000. All other accounts will remain unchanged. The change in net working capital resulting from the addition of the microbrewery is:

3)

A) $6500. B) $10,500. C) $45,500. D) $5500.

4) You are considering adding a microbrewery on to one of your firm's existing restaurants. This will entail an investment of $40,000 in new equipment. This equipment will be depreciated straight line over five years. If your firm's marginal corporate tax rate is 21%, then what is the value of the microbrewery's depreciation tax shield in the first year of operation?

4)

A) $14,000 B) $26,000 C) $5200 D) $1680

Use the information for the question(s) below.

Shepard Industries is evaluating a proposal to expand its current distribution facilities. Management has projected the project will produce the following cash flows for the first two years (in $millions).

Year 1 2 Revenues 1200 1400 Operating Expense 450 525 Depreciation 240 280 Increase in working capital 60 70 Capital expenditures 300 350 Marginal corporate tax rate 21% 21%

5) The incremental EBIT for the Shepard Industries project in year one is closest to: 5) A) $750 million. B) $510 million. C) $360 million. D) $595 million.

6) The free cash flow from the Shepard Industries project in year one is closest to: 6) A) $283 million. B) $390 million. C) $300 million. D) -$5 million.

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