Q30:

A.

Which of the following should be excluded in the calculation of Google's operating cash flows for its investment projects?

I. taxes II. fixed costs III. variable costs IV. interest expenses V. depreciation tax shield

Multiple Choice

• IV only

• I, II, III, IV and V

• I and V only

• II, IV and V only

• I, II, III and V only

B.

Walpurple has an investment project in consideration. Some of its details are provided below. Which is/are the project's time zero cash flow(s)?

I. depreciation tax shield of $2,500

II. loan of $300,000 used to finance the project

III. cost of inventory replenishment of $1,500 in the first year

IV. $50,000 of equipment needed to initiate the project

V. wage of $72,000 paid to three newly hired workers for the project

Multiple Choice

• I, II, III, and IV only

• IV and V only

• IV only

• I, II, and IV only

• I and II only

C.

Since Irene's Kitchen is a/an __________________, its cost of capital is actually the firm's unlevered cost of capital.

Multiple Choice

• corporate shareholder

• governmental entity

• private individual

• all-equity firm

• private entity

D.

For the purpose of conducting capital budgeting analysis, we should find that Testa's pro forma financial statements for a proposed project should:

I. include interest expense. II. be compiled on an aggregate basis. III. include all the incremental cash flows related to the project. IV. include all project-related fixed asset acquisitions and disposals.

Multiple Choice

• III and IV only

• II, III, and IV only

• I, II, III, and IV

• I and III only

• I, II, and IV only

E.

By using ______________, Mary has undone the dividend policy of the issuing firm of her stock and created a better dividend policy for herself by simply reinvesting the dividends she received.

Multiple Choice

• homemade dividend policy

• perfect foresight model

• personalization

• recapitalization

• offsetting leverage

F.

If you find that the euro is selling for $1.42 in the spot market and $1.58 in the one-year forward market, it will indicate that ________________

Multiple Choice

• the dollar is selling at a premium relative to the euro.

• the forward market is out of equilibrium.

• the euro is expected to depreciate in value.

• the euro is selling at a premium relative to the dollar.

• the spot market is out of equilibrium.

Note: Only final answer needed. Explanations not needed