1. Consider Coral Bay Hospital. Which has a greater impact on the NPV - 10% decrease in procedures, 10% decrease in average revenue per procedure, or 10% decrease in salvage value? 10% decrease in procedures
10% decrease in average revenue
10% decrease in salvage value
2. Consider Coral Bay Hospital. A higher payback period indicates a project with lots of liquidity. True False
3. Consider Coral Bay Hospital. If the cost of capital changes to 8%, the project is a/an accept reject Consider Coral Bay Hospital. If we think inflation will be greater than 3%, we should change the cost of capital before doing the inflation sensitivity chart. True False
4. Consider Coral Bay Hospital. If the land’s value changes to $250,000, the project’s NPV True/False
5. Consider Coral Bay Hospital. In the worst case scenario, the NPV is still positive. True False
6. Consider National Rehab Centers. A negative of doing projects in stages is that it can signal to competitors opportunities. True False
7. Consider National Rehab Centers. The inclusion of an abandonment option lowers the coefficient of variation. True False
8. Consider National Rehab Centers. If the initial fixed cost amount changed to $30,000,000, the NPV of the poor scenario will
a. increase and make project B more desirable
b. increase and make project B less desirable
c. decrease and make project B more desirable
d. decrease and make project B less desirable
9. Consider National Rehab Centers. During stage 1, if the chance for a good scenario changed to 30%, stage 1 as a stand alone project is an accept. True False
10. Consider National Rehab Centers. A good stage 1 and high demand in stage two results in a positive NPV. True False
11. Consider Southeastern Homecare. One uses the Hamada equation to see what the beta and cost of equity are under different debt ratio scenarios. True False
12. Consider Southeastern Homecare. If its dividend payout rate changed to 60%, the growth rate would ___ and the cost of equity would ____.
a. increase; increase
b. increase; decrease
c. decrease; increase
d. decrease; decrease
13. Consider Bedford Clinics. The multiple for net patient revenue is about 3. True/False
14. Consider Bedford Clinics. The revenue multiplier approach using historical revenue is good if there is lots of variability in revenues over the years. True False
15. You are considering the purchase of an investment that would pay you $5,000 per year for Years 1-5, $3,000 per year for Years 6-8, and $2,000 per year for Years 9 and 10. If you require a 14%, and the cash flows occur at the end of each year, what is the internal rate of return if the initial outlay is $10,000 and the cash flows are reinvested at the required rate of return?
a. 14%
b. 23%
c. 28%
d. 46%
16. Macy Pharmacy has a project which has the following cash flows. Year 0 = -$200,000 Year 1 = $50,000 Year 2 = $100,000 Year 3 = $150,000 Year 4 = $40,000 Year 5 = $25,000 The cost of capital is 10%. What would happen to the discounted payback if the cost of capital increased to 12%?
a. the discounted payback would increase
b. the discounted payback would decrease
c. the discounted payback would be unchanged
17. A company has determined that its optimal capital structure consists of 40% debt and 60% equity. Given the following information, calculate the firm's weighted average cost of capital. Before-tax cost of debt = 6% Tax rate = 40% Current price = $25 Growth rate = 0% Current dividend (D0) = $2.00
a. 6.0%
b. 6.2%
c. 7.0%
d. 7.2%
e. 8.0%