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Operating cash flow is a concept that attempts to provide management and investors with a sense of the cash flow associated with operations of the firm.
If a company has a capital structure of 20% debt 80% equity. The D/E ratio of .25. The risk free rate of 6%. The market risk premium is 5%. Tax rate is 40%. Assume 0 growth and EBIT of $5,000,000. W
You were hired to advise the firm on the best procedure. If the wrong decision criterion is used, how much potential value would the firm lose?
You should recommend that the project be rejected because, although its NPV is positive, it has an IRR that is less than the WACC.
Suppose a firm relies exclusively on the payback method when making capital budgeting decisions, and it sets a 4-year payback regardless of economic conditions. Other things held constant, which of
If the number of cars washed declined by 40% from the expected level, by how much would the project's NPV decline? (Hint: Note that cash flows are constant at the Year 1 level, whatever that level i
All of Division A's projects are equally risky, as are all of Division B's projects. However, the projects of Division A are less risky than those of Division B. Which of the following projects shou
The company uses the CAPM to calculate its cost of equity, and its target capital structure consists of common stock, preferred stock, and debt. Which of the following events would REDUCE its WACC?
However, the projects of Division A are less risky than those of Division B. Which of the following projects should the firm accept?
The CEO disagrees, on the grounds that even though projects have different risks, the WACC used to evaluate each project should be the same because the company obtains capital for all projects from
Consolidated Freightways is financing a new truck with a loan of $60,000 to be repaid in six annual end-of-year installments of $13,375. What annual interest rate is Consolidated Freightways paying?
What stock split would be required to get to this price, assuming the transaction has no effect on the total market value? Put another way, how many new shares should be given per one old share?
If the company follows a residual dividend policy, how much dividends will it pay or, alternatively, how much new stock must it issue?
Fairchild Garden Supply expects $600 million of sales this year, and it forecasts a 15% increase for next year. The CFO uses this equation to forecast inventory requirements at different levels of s
Long Life Floors just paid an annual dividend of $0.82 a share and plans on increasing future dividends by 2 percent annually. The discount rate is 15 percent. What will the value of this stock be 5
Which of the following assumptions is embodied in the AFN formula?
If the firm follows the residual dividend policy, what is the maximum capital budget that is consistent with maintaining the target capital structure?
The company must have a minimum cash balance of 20,000 at the beginning of each month. What is Buster Enterprises' total cash receipts or total collections for April 2006. Round to nearest $100.
It is hard to believe a competitor is a stakeholder,isn't the goal of competition to win and perhaps even dominate the market? If so, how can a company have an interest in the on going health of the
The Garcia Company's bonds have a face value of $1,000, will mature in 10 years, and carry a coupon rate of 16 percent. Assume interest payments are made semiannually.
You have just won a lottery! You will receive $50,000 a year beginning one year from now for 20 years. If your required rate of return is 10%, what is the present value of your winning lottery ticke
Corporate financial plans are often used as a basis for judging subsequent performance. What can be learned from such comparisons? What problems might arise and how might you cope with sucj problems
Compute the combined projected operating gains/losses over the five-year horizon as the discounted present value of change in cash flows (using 14% as the discount rate), which is due to the pound
Which one of the following is the best example of a sunk cost?
Increasing financial leverage can increase both the cost of debt and the cost of equity. How can the overall cost of capital stay constant? (Assume the firm pays no taxes)