Corporate Finance Study Set 12

Business

Quiz 18 :

Valuation and Capital Budgeting for the Levered Firm

Quiz 18 :

Valuation and Capital Budgeting for the Levered Firm

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Although the three capital budgeting methods are equivalent, they all can have difficulties making computation impossible at times. The most useful methods or tools from a practical standpoint are:
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E

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The Webster Corp. is planning construction of a new shipping depot for its single manufacturing plant. The initial cost of the investment is $1 million. Efficiencies from the new depot are expected to reduce costs by $100,000 forever. The corporation has a total value of $60 million and has outstanding debt of $40 million. What is the NPV of the project if the firm has an after tax cost of debt of 6% and a cost equity of 9%?
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A

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The FTE approach has been used by the firm to value their capital budgeting projects. The total investment cost at time 0 is $640,000. The company uses the FTE approach because they maintain a target debt to value ratio over project lives. The company has a debt to equity ratio of .5. The present value of the project including debt financing is $810,994. What is the relevant initial investment cost to use in determining the value of the project?
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D

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The Felix Filter Corp. maintains a debt-equity ratio of .6. The cost of equity for Richardson Corp. is 16%, the cost of debt is 11% and the marginal tax rate is 30%. What is the weighted average cost of capital? (Round your answer to two decimal places.)
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The APV method to value a project should be used when the:
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A key difference between the APV, WACC, and FTE approaches to valuation is:
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The weighted average cost of capital is determined by:
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The acceptance of a capital budgeting project is usually evaluated on its own merits. That is, capital budgeting decisions are treated separately from capital structure decisions. In reality, these decisions may be highly interwoven. This may result in:
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A firm has a total value of $500,000 and debt valued at $300,000. What is the weighted average cost of capital if the after tax cost of debt is 9% and the cost of equity is 14%?
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The term B x rb gives:
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The flow-to-equity approach to capital budgeting is a three step process of:
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The value of a project to a levered firm is equal to the unlevered firm project value plus the:
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An appropriate guideline to adopt when determining the valuation formula to use is:
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In calculating the NPV using the Flow-To-Equity approach the discount rate:
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Which of the following are guidelines for the three methods of capital budgeting with leverage?
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In order to value a project which is not scale enhancing you need to:
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The flow-to-equity (FTE) approach in capital budgeting is defined to be the:
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Discounting the unlevered after tax cashflows by the _____ minus the ______ yields the _______.
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The appropriate cost of debt to the firm is:
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The APV method is comprised of the all equity NPV of a project and the NPV of financing effects. The four side effects are:
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