Assignment 24157

1)
Part 1)
The stand-alone principle means that _____.
assets can be analyzed separately from liabilities
each firm can be evaluated independently
each project can be evaluated by itself
projects have no side effects
2)
Part 1)
Sunk costs are costs that _____.
may change based on the NPV of the project
are due to a sunken ship
will occur in the future
have been incurred in the past and cannot be recouped fully
3)
Part 1)
Sun Corp. uses a discount rate of 6% for below-average risk projects, 8% for average-risk projects, and 10% for above-average risk projects. Which of the following independent projects should Sun accept?
Project C has above-average risk and an IRR = 9.5%.
Project B has average risk and an IRR = 7.5%.
We need information about the projects’ NPVs to make a decision.
Project A has below-average risk and an IRR = 6.5%.
Part 2)
Which of the following items should be included in the cash flows used to estimate a project’s NPV?
All costs associated with the project that have been incurred up to now.
All costs for project-related research and development up to now.
The recovery of additional net working capital required for the project at the end of the project’s life.
Interest on bonds and loans used to finance the project.
4)
Part 1)
What’s the most important question you should ask if you find a positive NPV project?
Why aren’t competitors doing this?
Can we expand the project?
Where does the value come from?
How much money will the company make?
5)
Part 1)
Sensitivity analysis examines the impact of _______ on a decision criterion, such as NPV.
changing one variable
holding all variables constant
NPV sensitivity
changing several variables
6)
Part 1)
Soft capital rationing occurs when _____.
a business cannot raise additional financing
no profitable projects can be identified
management limits the amount of investable capital
banks are not willing to make soft loan
Part 2)
Hard capital rationing occurs when _____.
management limits the amount of investable capital
a business cannot raise additional financing
banks are not willing to make hard loans
no profitable projects can be identified
7)
Intro)
The Samsung marketing department has estimated demand for a new device and expects to sell 4 million units at a price of $270 each.
It costs $50 million each year to run the factory, independent of the level of production. Labor and components for each device add up to $170 per unit. Samsung’s marginal tax rate is 0.34, and the annual depreciation attributable to the project is $40 million.
Part 1)
What is EBIT in each year of operation (in $ million)?

Part 2)
What is the operating cash flow in each year of operation (in $ million)?

8)
INTRO)
8 years ago, a new machine cost $5,000,000 to purchase and an additional $590,000 for the installation. The machine was to be linearly depreciated to zero over 25 years.
The company has just sold the machine for $3,000,000, and its marginal tax rate is 25%.
Part 1)
What is the annual depreciation?