You have a firm that starts out with $70,000 in cash in the bank. You have three investment opportunities. You can undertake any or all of these investment opportunities, but you may only invest in each one once. You do not have to invest, as you may hold on to some or all of your money and leave it in the bank. The discount rate is 25%. Which investments, if any, do you undertake? (check all that apply):

1 point

Invest $40,000 today for a payoff of $49,000 next year

Invest $20,000 today for a payoff of $27,000 next year

Invest $10,000 today for a payoff of $15,000 next year

2.

Question2

YVCF is in the process of assessing the attractiveness of a new project. The project has an estimated life of four years. Revenues, costs and investments are as follows:

• Sales = 75,000 units/year, starting in year 1. No growth is expected.
• Per unit price: $200
• Up-front capital expenditure for new equipment = $3,200,000
• Sales, General and Administrative costs (per year) = $1,500,000
• Cost of production per unit = $100

What are the revenues (in dollars) in year 1?

1 point

75,000

15,000,000

150,000

7,500,000

None of the above

3.

Question3

The corporate tax rate for YVCF is 35%. What is the after tax EBIT (i.e., EBIT * (1-tax rate)) in year 1? Please ignore depreciation.

1 point

3,000,000

6,000,000

3,900,000

2,100,000

None of the above

4.

Question4

ABC Software is considering starting a new division making phone apps. It has prepared the following five-year forecast of free cash flows for this division.

12345Free Cash Flows69,00020,00024,00083,000215,000

Assume that the cash flows after year 5 will grow at 1% per year, forever. The discount rate for this division is 8%.

What is the terminal value as of year 5 (i.e., the value of all future cash flows starting in year 6)?

1 point

3,102,143

2,150,000

215,000

3,071,429

5.

Question5

Assume that the terminal value in year 5 is 2,000,000 (note: this is not the correct answer for Question 4). What is the net present value (NPV) of the whole project?

1 point

2,298,475

1,668,587

411,000

63,889