Which of the following would decrease the NPV of a project being considered, other things held constant?
A. A decrease in the cost of capital for the project
B. A decrease in net working capital in year 1
C. Making the initial investment in the first year rather than spreading it over the first 3 years
D. All of the above would increase the NPV of a project
E. A shift from straight line to MACRS depreciation method
Your company is considering a new project whose data are shown below. The required equipment has a 3-year tax life, and the MACRS rates for such property are 33%, 45%, 15%, and 7% for Years 1 through 4. Revenues and other operating costs are expected to be constant over the project’s 10-year expected operating life. What is the project’s Year 4 cash flow?
Equipment cost (depreciable basis) $70,000
Sales revenues, each year $42,500
Operating costs (excluding depreciation) $25,000
Tax rate 35.0%
A. $14,432
B. $13,090
C. $11,814
D. $12,436
E. $13,745
Falcon Ski Corp.has the following data, in thousands. Assuming a 365-day year, what is the firm’s cash conversion cycle?
Annual sales $45,000
Annual cost of goods sold $31,500
Inventory $4,000
Accounts receivable $2,000
Accounts payable $2,400
A. 31 days
B. 35 days
C. 38 days
D. 28 days
E. 25 days
Firms U and L each have the same amount of assets, investor-supplied capital, and both have a return on investors’ capital (ROIC) of 12%. Firm U is unleveraged, i.e., it is 100% equity financed, while Firm L is financed with 50% debt and 50% equity. Firm L’s debt has an after-tax cost of 8%. Both firms have positive net income and a 35% tax rate. Which of the following statements is CORRECT?
A. Firm L has a lower ROE than FIrm U.
B. Firm L has a lower ROA than Firm U.
C. Firm L has a higher times interest earned ratio.
D. Firm L has a higher EBIT than Firm U.
E. The two companies have the same times interest earned ratio.
