10 May WHAT WILL THE CASH FLOWS FOR THIS PROJECT BE DURING YEAR 2?
4. You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $290 000. The truck falls into the MACRS 10-year class and it will be sold after 10 years for $29 000. Use of the truck will require an increase in NWC (spare parts inventory) of $5 900. The truck will have no effect on revenues but it is expected to save the firm $123 000 per year in before-tax operating costs mainly labor. The firm’s marginal tax rate is 35 percent. What will the cash flows for this project be during year 2?$117 100$98 220$132 150$70 8005.Portfolio Beta You own $21 500 of City Steel stock that has a beta of 3.32. You also own $38 500 of Rent-N-Co (beta = 1.77) and $20 700 of Lincoln Corporation (beta = -.83). What is the beta of your portfolio?4.881.521.004.266.Portfolio Beta You have a portfolio with a beta of .93. What will be the new portfolio beta if you keep 30 percent of your money in the old portfolio and 70 percent in a stock with a beta of 1.53?2.461.231.001.357.FlavR Co stock has a beta of 2.08 the current risk-free rate is 2.08 percent and the expected return on the market is 9.08 percent. What is FlavR Co’s cost of equity? 16.64 .97 .16 .24%8.You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $190 000. The truck falls into the MACRS 5-year class and it will be sold after 5 years for $19 000. Use of the truck will require an increase in NWC (spare parts inventory) of $4 900. The truck will have no effect on revenues but it is expected to save the firm $86 000 per year in before-tax operating costs mainly labor. The firm’s marginal tax rate is 40 percent. What will the cash flows for this project be during year 2?$112 400$75 920$81 100$25 2009.CAPM Required Return A company has a beta of 1.13. If the market return is expected to be 11.8 percent and the risk-free rate is 3.90 percent what is the company’s required return?12.83 .33 .23 .73 .Debt Management Ratios Trina’s Trikes Inc. reported a debt-to-equity ratio of 1.93 times at the end of 2008. If the firm’s total debt at year-end was $10.70 million how much equity does Trina’s Trikes have?$5.54 million$10.70 million$1.93 million$20.65 million
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