1.Which of the following statements is FALSE?

A.Unlevered Net Income = (Revenue - Costs - Depreciation) (1 - c).

B.To the extent that overhead costs are fixed and will be incurred in any case, they are incremental to the project and should be included in the capital budgeting analysis.

C.Earnings are not cash flows.

D.The ultimate goal in capital budgeting is to determine the effect of the decision to take a particular project on the firm's cash flows.

2.Suppose a ten-year bond with quarterly coupons has a price of $1,071.061., a face value of 1000 and a yield to maturity of 7% (expressed as an APR with semiannual compounding). This bond's coupon rate is closest to:

A.3.50%

B.9.00%

C.8.00%

D.7.91%

3.Epiphany Industries is considering a new capital budgeting project that will last for two years. The revenue for the first year is 200,000 and revenues grow at an annual rate of 10%. The cost of goods sold is 50% of the revenue. The capital expenditure is 120,000. The tax rate is 35%. Epiphany plans on using a cost of capital of 12% to evaluate this project. The depreciation is straight-line depreciation. Please fill in the following blanks: 15 points (3 points each)

Time (the end of the year)	0	1	2
Free Cash Flow	( )	( )	( )
NPV = ( )
IRR = ( )

FCF at time period 2 ______ rounded to the nearest $1