1. Provide one reason for foregoing value-added projects under capital rationing
2. What is the cash flow effect on asset purchases and depreciation
3. Describe negative within-firm externalities as they pertain to cash flow versus accounting income.
4. A project has an initial cost of $ 42,000, expected net cash inflows of $ 9,000 per year for 7 years, and a cost of capital of 12%. What is the project's NPV?
5. X Co. is considering replacing two pieces of equipment, a truck and an overhead pulley system, in this year's capital budget. The projects are independent. The cash outlay for the truck is $ 15,200 and that for the pulley system is $ 20,000. The firm's cost of capital is 14%. After-tax cash flows, including depreciation are as follows:

YearTruckPulley

1$ 5,300$ 7,500

25,3007,500

35,3007,500

45,3007,500

55,3007,500

Calculate the IRR, NPV and the MIRR for each project, and indicate the accept-reject decision in each case

6. Project R has a cost of $ 10,000 and in expected to produce cash flows per year of $ 4,000 for 3 years. Project S has a cost of $20,000 and in expected to produce cash flows of $ 7,000 per year for 4 years. Calculate the 2 projects' NPVs, IRRs, MIRRs, and PIs, assuming a cost of capital of 11%. Which project should be selected?

7. An analyst has modeled the stock of a company using the Fama-French three-factor model. The risk-free rate is 5%, the market return is 9%, the return on the SMB portfolio is 3.2%, and the return on the HML portfolio is 4.8%. If a = 0, b = 1.1, c = -0.3, and d=1.2, what is the stock's predicted return ?

8. A stock's return has the following distribution:

Demand for ProductsProbability of Occurrence of DemandReturn if

Demand Occurs

Weak0.1-40%

Below Average0.2-5

Average0.412

Above Average0.221

Strong0.150

Calculate the stock's expected return and standard deviation