TOTAL POINTS 10

1.

Question 1

Rosaline is a high-level manager in Capulet Manufacturing, a large multinational company. The company is considering an expansion of their operations into the country of Montague. Rosaline has been tasked with conducting an analysis into whether this expansion will be profitable. Of the following, which is the LEAST likely task to be performed as a part of this analysis?

Open a small factory in Montague and see if it is profitable before building larger factories.

Look at the sales performance of Capulet Manufacturing's operation in countries neighbouring Montague.

Employ the services of consultants based in Montague to get a better idea of its citizens.

Look at the financials of a comparable publicly traded company in Montague.

1 point

2.

Question 2

Brunhilde is looking to invest some of her savings. She had chosen an investment product that was to her liking, when a sly looking employee of the investment company by the name of Loki presented an alternative product offered by the company. He does some calculations for the two products, and Brunhilde can understand and verify every step of the calculation. It turns out that the product Loki introduced has a lower payback period (PBP) than Brunhilde's original choice.

Even though Loki has a cunning grin, Brunhilde trusts the investment company itself, and so trusts the documentation of Loki's product. Given this information, should Brunhilde immediately invest in this alternative product?

No, the PBP does not take later cash flows into account, so Brunhilde could be losing out on larger cash flows payable later in the original investment's life

Despite Loki's appearance, the second product has a lower PBP and is thus the superior option. Brunhilde should definitely invest in the second product.

No, Brunhilde has already decided to invest in the first product, and must stay with that choice.

Brunhilde should definitely invest in the second product, since Loki is an employee and is therefore providing her with insider information.

1 point

3.

Question 3

Percy has been asked by his manager to perform an analysis of two particular business ventures.

Zeus Electronics, will cost $400,000 today and another $100,000 in one years' time, after which the project is expected to generate income of $100,000 every year.

Percy knows that his company's required rate of return for such projects is 10% per annum effective.

Using a spreadsheet (or otherwise), calculate the IRR for Zeus Electronics.

Give your answer rounded to the nearest next whole number.For example, 10.5 rounded to the nearest next whole number is 11. 10.4 rounded to the nearest to the next whole number is 10.

1 point

4.

Question 4

Percy has been asked by his manager to perform an analysis of two particular business ventures.

Zeus Electronics, will cost $400,000 today and another $100,000 in one years' time, after which the project is expected to generate income of $100,000 every year.

Percy knows that his company's required rate of return for such projects is 10% per annum effective.

Calculate the Pay Back Period (PBP) for Zeus Electronics

Give your answer rounded to the nearest next whole number.

For example, 10.5 rounded to the nearest next whole number is 11.

10.4 rounded to the nearest to the next whole number is 10.

1 point

5.

Question 5

Kurt, an accountant at Mercury Industries, is reviewing his company's financials. He has gathered the following information:

The company's Assets total $20 million.

The company has debt of $12 million. This debt is in the form of corporate bonds that yield 5% for bond holders.

Shareholders in this company expect a return of 8%, and the company intends to live up to this expectation.

The corporate tax rate is 30%.

Government bonds currently yield 3% to their holders. They are considered risk-free.

The expected return on the market is 7%.

All yields are quoted as effective annual rates.

Using this information, What is the implied beta for Mercury Industries under the CAPM?

Give your answer rounded to the nearest next whole number.

For example, 10.5 rounded to the nearest next whole number is 11.

10.4 rounded to the nearest to the next whole number is 10.

1 point

6.

Question 6

Kurt, an accountant at Mercury Industries, is reviewing his company's financials. He has gathered the following information:

The company's Assets total $20 million.

The company has debt of $12 million. This debt is in the form of corporate bonds that yield 5% for bond holders.

Shareholders in this company expect a return of 8%, and the company intends to live up to this expectation.

The corporate tax rate is 30%.

Government bonds currently yield 3% to their holders. They are considered risk-free.

The expected return on the market is 7%.

All yields are quoted as effective annual rates.

What is the WACC for Mercury industries?

Give your answer rounded to the nearest next whole number.

For example, 10.5 rounded to the nearest next whole number is 11.

10.4 rounded to the nearest to the next whole number is 10.

1 point

7.

Question 7

Kurt, an accountant at Mercury Industries, is reviewing his company's financials. He has gathered the following information:

The company's Assets total $20 million.

The company has debt of $12 million. This debt is in the form of corporate bonds that yield 5% for bond holders.

Shareholders in this company expect a return of 8%, and the company intends to live up to this expectation.

The corporate tax rate is 30%.

Government bonds currently yield 3% to their holders. They are considered risk-free.

The expected return on the market is 7%.

All yields are quoted as effective annual rates.

A year has passed, and Kurt is still working at Mercury Industries. The beta for the company is now 1.3, but the expected market return and the yield on government bonds remains unchanged. According to CAPM, what returns do shareholders now expect?

Give your answer rounded to the nearest next whole number.

For example, 10.5 rounded to the nearest next whole number is 11.

10.4 rounded to the nearest to the next whole number is 10.

1 point

8.

Question 8

Under the CAPM, what is the purpose of beta?

It measures the amount of (systematic) risk of a particular investment relative to the market.

It represents the proportion of a company's assets funded by debt.

It measures the amount of (systematic) risk of a particular investment relative to a government bond.

It represents the proportion of a company's assets funded by equity.

1 point

9.

Question 9

Percy has been asked by his manager to perform an analysis of two particular business ventures.

The first, Zeus Electronics, will cost $400,000 today and another $100,000 in one years' time, after which the project is expected to generate income of $100,000 every year.

The second business venture, Poseidon Shipping, will cost $500,000 today and another $200,000 in one years' time, and is then expected to generate income of $150,000 every year.

Percy knows that his company's required rate of return for such projects is 10% per annum effective.

Calculate the NPV of Zeus Electronics. Round your answer to thenearest $1000.

1 point

10.

Question 10

Percy has been asked by his manager to perform an analysis of two particular business ventures.

The first, Zeus Electronics, will cost $400,000 today and another $100,000 in one years' time, after which the project is expected to generate income of $100,000 every year.

The second business venture, Poseidon Shipping, will cost $500,000 today and another $200,000 in one years' time, and is then expected to generate income of $150,000 every year.

Percy knows that his company's required rate of return for such projects is 10% per annum effective.

Calculate the NPV of Poseidon Shipping. Round your answer to the nearest $1000.