If a firms fixed assets are operating at less than full capacity, the percentage of sales approach to forecasting funding needs may overestimate the amount of required funding and potentially lead to the purchase of unneeded fixed assets.

Select one:

True

False

One problem with a pure Residual Dividend Policy is that dividends would be low when the firms growth opportunities are large, thus sending a potentially confusing signal to less informed investors.

Select one:

True

False

A reverse stock split is usually seen as a positive signal concerning the firms future prospects.

Select one:

True

False

Canady, Inc. is planning to purchase a punch press which has a 3-year class life. The depreciable basis of the device is $ 800,000. The company faces a marginal tax rate of 40%. If the company uses MACRS, and the equipment is sold after two years for $315,000, what will be the after-tax cash flow associated with the disposal?

MACRS for 3-Year Class Life

Year	1	2	3	4
Percentage	33.33%	44.45%	14.81%	7.41%

Select one:

a.

$ 177,760

b.

$ 82,344

c.

$ 106,656

d.

$ 260,104

e.

$ 600,000

Space Ventures Technology, Inc. is expected to have the following free cash flows during the next three years. After the third year, the firm is expected to experience constant growth into the foreseeable future. The horizon value at the end of the third year has already been calculated as $140,000,000. The firm has a WACC of 8%. The firm has no non-operating assets. What is the firms value?

Forecast Free Cash Flows

Year	1	2	3
Free Cash Flow	$6,000,000	$ 7,000,000	$ 8,000,000

Select one:

a.

$ 120,811,765

b.

$ 140,811,765

c.

$ 125,868,770

d.

$ 129,044,099

e.

None of the above

Which of the following is term used to describe the ability to discontinue a project if the operating cash flows turn out be lower than expected?

Select one:

a.

Abandonment option

b.

Growth option

c.

Flexibility option

d.

Investment timing option

e.

Bailout option

Big Valley Communications, Inc. has forecasted EBIT of $170 mil. and depreciation expense of $73 mil. for the coming year. The firm is expected to have gross capital expenditures of $110 mil., and net operating working capital is expected to increase by $ 35 mil. If the firms marginal tax rate is 40%, how much free cash flow is the firm expected to generate during the next year?

Select one:

a.

$ 50 mil.

b.

$ 30 mil.

c.

$ 2 mil.

d.

$ -28 mil.

e.

None of the above

In the context of capital budgeting, which of the following is the type of risk which accounts for the variability a project contributes to a corporations stock returns, considering that the project is only one of many.

Select one:

a.

Composite Risk

b.

Asset Risk

c.

Stand-alone Risk

d.

Market Risk

e.

Corporate Risk

Analysts generally assume that new technologies will enter the marketplace in a gradual fashion similar to patterns of the past - with prices of the new technology falling and its reliability increasing through time.

Select one:

True

False

It is important for analysts to scan the operating environment for factors, such as regulatory changes, which could cause the assumption of "business as usual" to be incorrect thus leading to errors from the strict application of the percentage of sales approach based on historical business operating patterns.

Select one:

True

False