FI 6315 NEC Managerial Finance NPV Capital Budgeting & Bond Prices Exam Practice

FI 6315

New England College

FI

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New England College FI6315 Managerial Finance Fall I 2019 Problem Set 2/Exam 2 Name: Date: Part 1 (19 points) ________ Part 2 (15 points) ________ Part 3 (19 points) ________ Part 4 (19 points) ________ Part 5 (14 points) ________ Part 6 (14 points) ________ Total ======= 20200327000457fi6315_problem_set_2_fall_i_2019 Part 1: Calculate the NPV for the following capital budgeting proposal: \$100,000 initial cost for equipment, straight-line depreciation over 5 years to a zero book value, \$5,000 pre-tax salvage value of equipment, 35% tax rate, \$45,000 additional annual revenues, \$15,000 additional annual cash expenses, \$8,000 initial investment in working capital to be recouped at project end, and a cost of capital of 11%. Should the project be accepted or rejected? (Show your work computing the NPV.) Part 2: Essay Explain why bond prices fluctuate in response to changing interest rates. What adverse effect might occur if bond prices remain fixed prior to their maturity? Part 3: A stock offers an expected dividend of \$3.50, has a required return of 14%, and has historically exhibited a growth rate of 6%. Its current price is \$35.00 and shows no tendency to change. How can you explain this price based on the constant-growth dividend discount model? 20200327000457fi6315_problem_set_2_fall_i_2019 Part 4: Calculate the expected rate of return for the following portfolio, based on a Treasury bill yield of 4% and an expected market return of 13%: (Show your work) Part 5: Essay 20200327000457fi6315_problem_set_2_fall_i_2019 Discuss the capital asset pricing model in general, the CAPM method of determining expected returns, and how the SML can be used to help predict the movement of a stock's price. Part 6: Essay Contrast the Dow Jones Industrial Average and the Standard and Poor's Composite Index. 20200327000457fi6315_problem_set_2_fall_i_2019 ...
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New England College
FI6315 Managerial Finance
Fall I 2019
Problem Set 2/Exam 2

Name:
Date:

Part 1 (19 points)

________

Part 2 (15 points)

________

Part 3 (19 points)

________

Part 4 (19 points)

________

Part 5 (14 points)

________

Part 6 (14 points)

________

Total

Part 1:
document1

=======

Calculate the NPV for the following capital budgeting proposal: \$100,000 initial cost
for equipment, straight-line depreciation over 5 years to a zero book value, \$5,000
pre-tax salvage value of equipment, 35% tax rate, \$45,000 additional annual
revenues, \$15,000 additional annual cash expenses, \$8,000 initial investment in
working capital to be recouped at project end, and a cost of capital of 11%. Should
the project be accepted or rejected? (Show your work computing the NPV.)
Net Present Value (NPV) simply highlights the difference between the initial
investment and the present cash inflows value. While calculating the NPV basing on the
capital budgeting proposal, the first step would be finding the cash outflow computation.
In this case, the cash outflow remains equivalent to the additional working capital plus
the initial cost. The formulae below demonstrates how it can be calculated;
ie;
Additional working capital + Initial Cost = Cash Outflow

chemtai (23927)
UCLA
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