Corbin's Grocery Chain is small five-store regional chain that is contemplating investing in a store with a new format. The new store would focus on upscale products and better customer service. Sales are expected to be $14,750,000, gross margins should be about 28.00%, EBIT is expected to be $5,600,000 per year and the initial investment would require an outlay of $28,000,000. The firm's weighted cost of capital is 13.00%. The firm's tax rate is 40.00%. Assuming that there are no competing investment proposals, should the firm go ahead with this investment (given this information provided)?

options:

	Yes, it should proceed with this investment because the gross profit margin exceeds the weighted cost of capital.
	Yes it should proceed with this project because the BEP exceeds the weighted cost of capital.
	Yes it should proceed with this project because the return on invested capital exceeds the weighed cost of capital.
	Yes it should proceed with this project because the after tax operating margin exceeds the weighted cost of capital.
	No, it should not proceed with the project

Suri Foods Inc. in a New Jersey based manufacturer of prepared, heat and serve Indian dishes for both the North American and European markets. It currently is earning an EBIT of $135 million. Its tax rate is 40.00% and it has a Weighted Cost of Capital of 18.00%. What is Suri Food's enterprise value?

Question 2 options:

Question 3 (1 point)

The above data describes certain features of Orfendi Ice Cream Inc., a small company that has developed a cult following as a sort of local Ben and Jerrys that supplies non-chain grocery stores and convenience stores with exotic ice cream flavors that can not be purchased elsewhere. It is a family owned company that has assets of $5.6 million and enjoys profits of around $362,000 per year. The core source of employment in the area is based on the aero space business which is highly cyclical but they have always managed to eke out a profit even in the worst of times. Recently a business consultant has advised them they are not getting the return on equity that might be expected from a firm of this kind and recommends that they increase their leverage. Below are data describing their current situation under different economic conditions. The scenario analysis follows. In the tables above, the cell named 'A' should be,

Question 3 options:

Question 4 (1 point)

In the table above, the cell labeled 'D' should be,

Question 4 options:

Question 5 (1 point)

Above is a table that provides forecasts of Orfendi's performance under different economic scenarios if the accountant's recommendations are accepted. The cell labeled 'I' should have,

Question 5 options:

Question 6 (1 point)

In the table above the cell labeled 'L' should have the value,

Question 6 options:

Question 7 (1 point)

Assuming that each economic scenario, (Bad, O.K., Good) , can occur with equal probability. Check the alternative that gives the best reason for rejecting the accountant's recommendation.

Question 7 options:

	Reject the accountant's proposal because firms should never be in a position where they might lose money.
	Reject the accountant's proposal because the cost of debt exceeds the BEP in the bad case scenario.
	Reject the accountant's proposal because the expected return is not sufficient to justify the added risk.

Question 8 (1 point)

Assuming that each economic scenario, (Bad, O.K., Good) , can occur with equal probability. Check the alternative that gives the best reason for accepting the accountant's recommendation.

Question 8 options:

	Accept the accountant's proposal because under his proposal the O.K. scenario's ROE exceeds the O.K. scenario ROE currently.
	Accept the accountant's proposal because the expected profit is sufficiently greater to justify the additional risk.
	Accept the proposal because in the existing structure the BEP exceeds the ROE in all three scenarios.

Question 9 (4 points)

Check all four of the characteristics of optimal capital structure from the list below,

Question 9 options:

	The weighted cost of capital is at a minimum.
	The weighted cost of capital is at a maximum
	The market value of the firm's equity is at a maximum.
	The return on equity is at a maximum
	The market value of the firm's equity plus the market value of the firm's debt is at a maximum
	Bankruptcy costs are at a minimum
	The enterprise value of the firm is a maximum

Question 10 (2 points)

The current US$/A$ (Australian dollar) rate is 0.95. While the ten year Australian Treasury Bond is currently 6.00%, the ten year U.S. Treasury Note is only 4.00%. What is the expected US$/A$ spot rate ten years from now?

Question 10 options:

Question 11 (2 points)

The table above shows the spot and forward market for Swiss Francs (CHF) in terms of US dollars (USD)$. Swiss francs are abbreviated CHF so this table shows the ratio of USD/CHF.

According to these data (which does not reflect actual rates at this time), 90-day CHF LIBOR is___________ relative to USD LIBOR.

$5,600 in thous ands) Current Assets Cost of Debt Current Debt Rati o ProposedDebt Rati o Annual EBIT in 1,000's) 11.00% 20,00% 20.00% Bad Economy OK. Economy Good Econ S392 $728 $1,064 omy Present Debt Level: 20.00% Ec State Bad O.K Good EBIT 392,000 123,200 268,800 107,520 161,280 726,000 123,200 604 ,800 241 920 362 880 1 064,000 123,200 940,800 376,320 564,480 Int Exp EBT Taxes (40 %) NI BEP ROE Proposed Debt Level: 80.00% Ec State O.K Good EBIT 392,000 492,800 100,800 40,320 -60,480 728,000 492,800 235,200 94,080 141,120 1,064,000 492,800 571,200 228,480 342,720 Int Exp EBT Taxes (40%) NI BEP ROE Spot 30 days 90 days 180 days 0.9812 0.9788 0.9763 0.9714