Carlson Inc. is evaluating a project in India that would require a $6.2 million investment today (t=0). The after-tax cash flows would depend on whether India imposes a new property tax. There is a 50-50 chance that the tax will pass, in which case the project will produce after-tax cash flows of $1,350,000 at the end of each of the next 5 years. If the tax doesn't pass, the after-tax cash flows will be $2,000,000 for 5 years. The project has a WACC of 12.0%. The firm would have the option to abandon the project 1 year from now, and if it is abandoned, the firm would receive the expected $1.35 million cash flow at t=1 and would also sell the property for $4.75 million at t=1. If the project is abandoned, the company would receive no further cash inflows from it. What is the difference (in thousands) in the NPVs of this project with and without the abandonment option? a. $351 b. $235 c. $319 d. $290 e. $261 An increase in the debt ratio will generally have no effect on which of these items? a. Total risk. b. Business risk. c. Market risk. d. Financial risk. e. The firm's beta. Mulroney Corp. is considering two mutually exclusive projects. Both require an initial investment of $10,000 at t=0. Project X has an expected life of 2 years with after-tax cash inflows of $6,000 and $7,900 at the end of Years 1 and 2, respectively. Project Y has an expected life of 4 years with after-tax cash inflows of $4,300 at the end of each of the next 4 years. Each project has a WACC of 8%. Use the replacement chain approach to determine the NPV of the most profitable project. a. $4,325 b. $4,433 c. $4,246 d. $4,242 e. $4,286 Suppose Walker Publishing Company is considering bringing out a new finance text whose projected revenues include some revenues that will be taken away from another of Walker's books. The lost sales on the older book are a sunk cost and as such should not be considered in the analysis for the new book. Select one: True False