Question
1.) What is the NPV for a project whose cost of capital is 15 percent and initial after-tax cost is $5,000,000 and is expected to
1.) What is the NPV for a project whose cost of capital is 15 percent and initial after-tax cost is $5,000,000 and is expected to provide after-tax operating cash inflows of $1,800,00 in year 1, $1,900,000 in year 2, $1,700,000 in year 3, and $1,300,000 in year 4.
A. $1,700,000
B.) $371,764
C.)-$4,862,947
D.) -$137,053
2.) The Purpose of the restrictive debt covenant that imposes fixed assets restrictions is to _________.
A.) Protect the lender by controlling the risk and marketability of the borrower's security investment alternatives
B.) limit the amount of fixed-payment obligations.
C.) prevent the firm from liquidation and ensure its ability to repay the debt
D.) Ensure a cash shortage does not cause an inability to meet current obligations.
3.) Milton Glasses recently paid a dividend of $1.70 per share, is currently expected to grow at a constant rate of 5%, and has a required return of 11%. Milton Glasses has been approached to buy a new company. Milton estimates if it buys the company, it sconstant growth rate would increase to 6.5%, but the firm would also be riskier, therefore increasing hte required return of the company to 12%. should Milton go ahead with the purchase of the new company?
A.) Yes because the value of the Milton Co. will increase by $4.59 per share
B.) No, because the value of the Milton Co. will decrease by $3.17 per share
C.) Yes, because the value of the Milton co. will increase by $2.56 per share
D.) Yes, because the value of the Milton Co. will increase by $3.17 per share.
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