Question
1. UPC, Inc., is considering an investment project that generates a cash flow of $3,000 next year if the economy is favorable but generates only
1. UPC, Inc., is considering an investment project that generates a cash flow of $3,000 next year if the economy is favorable but generates only $1,500 if the economy is unfavorable. The probability of favorable economy is 70% and of unfavorable economy is 30%. The project will last only one year and be closed after that. The cost of investment is $2,200 and UPC plans to finance the project with $500 of equity and $1,700 of debt. Assuming the discount rates of both equity and debt are 0%. What is the expected cash flow to UPC's creditors if the company invests in the project?
a. $0
b. $1,640
c. $780
d. $1,020
e. $1,500
2. At the beginning of the year, a firm had current assets of $2,500 and current liabilities of $2,250. At the end of the year, the current assets are $3,750 and the current liabilities are $2,640. What is the change in net working capital?
a. $1,100
b. $150
c. $860
d. $640
e. -$250
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