 # Corporate Finance Exam Mba

User| Long Yang| Submitted| 9/8/11 6:45 PM| Name| Midterm Exam I| Status| Completed| Score| 69 out of 75 points  | Time Elapsed| 3 hours, 28 minutes, and 53 seconds out of 3 hours and 30 minutes allowed. | Instructions| Good luck! | | * Question 1 1 out of 1 points | | | Both New York Stock Exchange and NASDAQ are examples of secondary markets. Answer| | | | | Selected Answer:|  True| Correct Answer:|  True| | | | | * Question 2 1 out of 1 points | | | Financial manger can create value for a firm by creating more cash flow for it than it uses.

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These figures do not include depreciation. Abel also had notes payable of \$1,000,000. These notes carried an interest rate of 10 percent. Depreciation was \$100,000. Abel’s tax rate in 2004 was 35%. What was Abel’s net income? Answer| | | | | Selected Answer:|    \$32,500| Correct Answer:|    \$32,500| | | | | * Question 31 1 out of 1 points | | | In the above question, what was Abel’s operating cash flow? Answer| | | | | Selected Answer:|    \$232,500| Correct Answer:|    \$232,500| | | | | * Question 32 1 out of 1 points | | | For the next 4 questions suppose the following data holds: Sales| 45000| COGS| 25000|

The dealer has a lease program where you pay \$100 today and \$400 per month for the next three years. If you purchase the car, you will pay it off in monthly payments over the next three years at a 7 percent APR. You believe that you will be able to sell the car for \$18000 in three years. |  What is present value of leasing including the initial payment of \$100? Answer| | | | | Selected Answer:|    \$13,054. 59| Correct Answer:|    \$13,054. 59| | | | | * Question 54 1 out of 1 points | | | What is the cost of keeping the car for three years by purchasing it? Answer| | | | | Selected Answer:|    \$15,400. 58|

Answer| | | | | Selected Answer:|    Y| Correct Answer:|    Y| | | | | * Question 66 1 out of 1 points | | | For the next 8 questions suppose the following data holds: IBC, Inc. is considering the purchase of a \$300,000 computer that has an economic life of 5 years. The computer will be depreciated according to 5-year MACRS schedule (20%, 32%, 19. 2%, 11. 52%, 11. 52%, and 5. 76%). The market value of the computer will be \$60,000 in 5 years. The use of computer will save annual costs of \$120,000 for the next five years. For simplicity, these cost savings are assumed to occur at the end of these years.

As a result of this project, the net working capital will increase by \$60,000 immediately, and it will be recovered at the end of year 5. The firm’s tax rate is 40% and its cost of capital is 12%. | What is the initial investment requirement (t=0)? Answer| | | | | Selected Answer:|    \$360,000| Correct Answer:|    \$360,000| | | | | * Question 67 1 out of 1 points | | | What is the operating cash flow one year from today (t=1)? Answer| | | | | Selected Answer:|    \$96,000| Correct Answer:|    \$96,000| | | | | * Question 68 1 out of 1 points | | | What is the operating cash flow two years from today (t=2)?

Correct Answer:|    \$17,088| | | | | * Question 72 1 out of 1 points | | | What is the total cash flow five year from today (t=5)? Answer| | | | | Selected Answer:|    \$188,736| Correct Answer:|    \$188,736| | | | | * Question 73 1 out of 1 points | | | What is the project’s NPV? Answer| | | | | Selected Answer:|    \$43,009| Correct Answer:|    \$43,009| | | | | * Question 74 1 out of 1 points | | | For the next 2 questions suppose the following data holds:   You have been asked to evaluate two pollution devices. The wet scrub costs \$500 to set up and \$100 per year to operate.

It must be completely replaced every 4 years, and it has no salvage value. The dry scrub device costs \$800 to set up and \$75 per year to operate. It lasts for 5 years and has no salvage value. Assume the pollution control equipment is replaced as it wears out, and the cost of capital is 12%. | What is the EAC of the wet scrub device? Answer| | | | | Selected Answer:|    \$264. 62| Correct Answer:|    \$264. 62| | | | | * Question 75 1 out of 1 points | | | What is the EAC of the dry scrub device? Answer| | | | | Selected Answer:|    \$296. 93| Correct Answer:|    \$296. 93| | | | |

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