1.

Project G costs $125,000 and generates cash inflows of $15,000 per

annum forever (i.e., $15,000 at t=1, t=2, t=3, etc.). Looking at the
following possible discount rates (i.e., required rates of return), which
is the highest discount rate for which the project is accepted by the
IRR rule?

Answer: 11%

2. You have $20,000 invested in a share portfolio, made up of $10,000 of

shares in D company and $5,000 of shares in each of E and F
companies. The expected return on D shares is 10%, the expected
return on E shares is 12% and the expected return on F shares is 14%.
What is the expected return on your share portfolio?

3. The Sisyphean Company is planning on investing in a new

project. This will involve the purchase of some new machinery
costing $450,000. The Sisyphean Company expects cash inflows
from this project as detailed below:
The payback period for this project is closest to:

Answer: 2.24%

4. Which of the following is NOT a diversifiable risk?

Answer: The risk that the CEO is killed in a plane crash

5. You are considering adding a microbrewery on to one of your firm's

existing restaurants. This will entail an investment of $40,000 in new
equipment. This equipment will be depreciated straight line over five
years. If your firm's marginal corporate tax rate is 21%, then what is
the value of the microbrewery's depreciation tax shield in the first year
of operation?
 Answer: $1680

DEPRECIATION IN 1ST YEAR = INVESTMENT COST / NO OF YEARS OF LIFE

= 40000 / 5

= $ 8000

DEPRECIATION TAX SHIELD = DEPRECIATION * TAX RATE

= $ 8000 * 21%

= $ 1680

6. Rearden Metals is considering opening a strip-mining operation to

provide some of the raw materials needed in producing Rearden metal.
The initial purchase of the land and the associated costs of opening up
mining operations will cost $100 million today. The mine is expected to
generate $16 million worth of ore per year for the next 12 years. At the
end of the 12th year Rearden will need to spend $20 million to restore
the land to its original pristine nature appearance. The payback period
for Rearden's mining operation is closest to?

Answer: 6.25 years

7. f the current market rate of interest is 9%, then the present value
of the cash flows on this timeline as of year 0 is closest to:

Answer: $491.73 làm tròn lên $492

8. Temporary Housing Services Incorporated (THSI) is considering a
project that involves setting up a temporary housing facility in an
area recently damaged by a hurricane. THSI will lease space in
this facility to various agencies and groups providing relief
services to the area. THSI estimates that this project will initially
cost $5 million to set up and will generate $20 million in
revenues during its first and only year in operation (paid in one
year). Operating expenses are expected to total $12 million
during this year and depreciation expense will be another $3
million. THSI will require no working capital for this investment.
THSI's marginal tax rate is 21%.

Ignoring the original investment of $5 million, what is THSI's free

cash flow for the first and only year of operation?

Answer: $6.95 millions

Net income= (Revenue – operating expense- depriciation)*(1-tax rate)
= (20m-12m-3m)*(1-21%)
= 3950000
FCF = OCF +CAPEX= Net incone+ depriciation + CAPEX( mà CAPEX =0)
=3950000+ 3000000=$6.95m

9. You are saving for retirement. To live comfortably, you decide that you
will need $2.5 million by the time you are 65. If you assume you are
able to do that, and will live 20 more years (until age 85), the amount
you can withdraw at the end of each of those years at an interest rate
of 5% before your retirement fund is empty is closest to

Answer:
10. The NPV for this project is closest to:
*

Answer: $176,270.