management
Corporate Finance
金融学代考 Multiple choice questions 1.Forever, Inc is going to implement a perpetual project with an initial CAPEX of 1,000,000€,
Part 1 (10v)
Multiple choice questions
(please, identify the answer that you consider to be the most correct)
1.
Forever, Inc is going to implement a perpetual project with an initial CAPEX of 1,000,000€, which should generate a constant annual perpetual cash flow, leading to a Profitability Index of 1.25, assuming NPV was determined with a 10% discount rate, what should be the respective IRR?
a) 15%
b) 5%
c) 10%
d) <0%
2. 金融学代考
Undecide, Inc is considering two alternative technologies for making the same project. The first has a useful life of 2 years and an annual equivalent cash flow of 25,000 €, while the second has a useful life of 3 years and an annual cash flow of 40,000€. Which should be the maximum initial CAPEX of this second alternative so that it becomes indifferent to choose between any of them, considering an opportunity cost of capital of 10%?
a) 5 thousand Euros
b) 1 thousand de Euros
c) 3 thousand de Euros
d) 8 thousand de Euros
3.
Consider a leasing contract with a proncipal of 100,000€, a 5% residual value, a 6 quarters term, paid through an initial upfront instalment of 10,000€, followed by the payment of a constant quaterly rent, calculated at an annual nominal rate of 6% (with quarterly capitalization). Please determine that quarterly constant payment?
a) 3 thousand Euros
b) 9 thousand Euros
c) 2 thousand Euros
d) 1 thousand Euros
4. 金融学代考
M&M is an Unlevered company with an annual constant and perpetual net income of 10,000€, it has a total market value of 100,000€ sub-divided into 20,000 shares with a market price of 5€ each. The CFO is considering to repurchase one half of these shares, financing that operation through the issue of a perpetual loan with an annual interest rate of 4% (an on-going market rate). Assuming an income tax rate of 20% which should be the expected market value of each of the remaining shares after this operation?
a) 5 Euros
b) 5 Euros
c) 5 Euros
d) 6 Euros
5.
Still the Same, Inc has a D/E ratio of 1 at market value, the Unlevered Industry Beta is 0.9, while the company’s Levered Beta is 1.25. The company’s Debt bears an average interest rate of 4%, which is equal to the risk-free rate, the market risk premium is 6% and the income tax rate 20%. Please, determine the WACC of this company.
a) 45%
b) 8%
c) 35%
d) 15%
6. 金融学代考
Allways Investing, Inc has a project with NPV (assuming all equity financing) of -50,000€, with an useful life of five years. Assume this company wants to make this project profitable through the issue of a loan at an interest rate of 5%, with annual interest payments and bullet redemption of principal at the end of the five years. Assuming a 20% income tax rate, which is the minimum amount to be borrowed so that APV is zero?
a) 50 mil Euros
b) 200,15 mil Euros
c) 1,150 mil Euros
d) 1,500 mil Euros
7.
CVD-19 intends to grow perpetually at a rate of 2% and had last year an EBIT(1-t) of 10,000€ (t=20%), with an Invested Capital by the end of the year amounting to 100,000€. Considering that: a WACC of 7%, the company had Debt at the same year amounting to 50,000€; and Non-operating Assets of 6,000€ (also at market value), determine the company´s Equity Value?
a) 164 mil Euros
b) 140 mil Euros
c) 120 mil Euros
d) 56 mil Euros
8. 金融学代考
Your average payment period is usually 45 days; however, you are granted a 0.5% discount if you pay your bills within 15 days of the invoice date, which is then the annual effective interest rate when you decide to pay your bill at the end of the 15-day period (assume 30/360 calendar basis)?
a) 4%
b) 6%
c) 2%
d) 12%
Part 2 (10v)
Theoretical questions
1. 金融学代考
Whether each of the following projects is likely to have risk similar to the average risk of the firm. Justify your answer.
a) A dot-com firm plans to purchase a building for its headquarters.
b) A European car manufacturer decides to establish a plant in India assuming this investment has risk equal to the average risk of the firm.
2.
The shares of a listed hot tech firm have a volatility of 30% and the market as whole has an expected return of 10% and a volatility of 20%. Given the higher volatility of tech firm, should we expect to have an equity cost of capital that is higher than 10%? Justify your answer.
3. 金融学代考
A firm that owns a global virtual connectivity platform has currently no debt. By issuing debt it can generate a very large tax shield potentially in excess of a billion euros. Given its popularity and success, one would be hard pressed to argue that its management are naïve and unaware of this huge potential to create value by issuing debt and repurchasing its own shares. What might be the likely reasons why the firm may not be issuing debt?
4.
Which of the following industries have low/high optimal debt levels according to the trade-off theory? Justify your answer.
a) Tobacco producers
b) Vaccine producers
