1. For a project of six year duration and 10% per year cost of capital, what is the financial basis breakeven: Upfront cost $2,500. Unit price $30. Variable cost: $14. Fixed costs $1,200/yr. Depreciation $770/yr. Taxes 25%. Sales are the same level each year.
a. 5 units/year
b. 68 units/year
c. 107 units/year
d. 41 units/year
e. 28 units/year
2. Which of the following is the best example of scenario analysis?
a. An oil firm considering the impact of oil price changes on their profit
b. A farmer considering the impact of weather on their profit
c. A football team considering the impact of ticket purchases on their external financing required
d. A fisherman considering the impact of cost of bait on their profit
e. A mechanic considering the impact of wages on their external financing required
3. Which of the following might be a question that is directly answered by sensitivity analysis?
a. What is the expected change in our profit if the housing market crashes?
b. What is the expected change in our profit if we issue new common shares?
c. What is the expected change in our profit if the CEO resigns?
d. What is the expected change in our profit if our cost of goods increase?
e. What is the expected change in our profit if our main suppliers go bankrupt?
4. A company currently has no debt, and equity of $3M, and an equity beta of 0.78. If the company changes its capital structure such that it now has $1.5M of debt, then what will the equity beta be if the tax rate is 30%?
a. 1.33
b. 0.78
c. 0.89
d. 1.17
e. 1.01
5. A company currently expects free cash flow in the upcoming year of $33,000. Each year after that, the free cash flow is expected to grow by 1.5%. The relevant discount rate for the company’s cash flows is 6% per year. From a discounted cash flow method, what is the value of the company?
a. $330,000
b. $550,000
c. $733,000
d. $612,000
e. $2,200,000