Corporate Finance2010--6

Chapter 1: introduction to corporate financeCorporate finance（financial management）：公司财务、公司金融、财务管理Capital budgeting：资本预算Capital structure：资本结构Working capital management：流动资本管理Sole proprietorship：独资制、单一业主制Partnership：合伙制Corporation：公司、股份公司Profit maximization ：利润最大化Agency relation：委托代理关系Agency problem：委托代理问题Managerial compensation：管理层报酬Corporate control：公司控制Primary market ：一级市场、发行市场Secondary market：二级市场、交易市场Chapter 2: financial statements, taxes and cash flow Financial statements: 财务报表Cash flow:现金流Accounting value:会计Net income：净利润Depreciation:折旧The balance sheet：资产负债表The income statement 损益表Current asset流动资产Fixed asset固定资产Inventory存货Current liabilities流动负债Bond债券Bondholder债券持有人Shareholder’s equity/common equity/owner’s equity股东权益Balance sheet identity资产负债表等式Net working capital 营运资本Capital spending:资本支出Liquidity：流动性Generally accepted accounting principles：公认会计准则Historical cost：历史成本The income statement：损益表Operating cash flow：经营现金流Earnings per share（EPS）每股收益Earnings before interest and taxes(EBIT):息税前利润Revenue ：收入Chapter 3: working with financial statementsShort-term solvency/liquidity ratios ：短期偿债能力、流动比率Long-term solvency/financial leverage ratios：长期偿债能力、财务杠杆比率Asset management or turnover ratios：资产周转比率Profitability ratios：盈利比率Market value ratios：市场价值比率Quick (acid-test ratio)：速动比率/酸性比率Debt-equity ratio：债务权益比Equity multiplier：权益乘数Long-term debt ratio：长期债务比率Inventory turnover：存货周转率Days’ sales in inventory：存货周转天数Receivables turnover ：应收账款周转率Days’ sales in receivables：应收账款周转天数Return on assets：资产报酬率Return on equity：权益报酬率Price-earning ratio ：市盈率Market-to-book ratio ：市净率Chapter 5 and chapter 6: discounted cash flow valuationtime value of money: 货币时间价值future value：终值compounding/interest on interest：复利/利滚利present value：现值discount rate：贴现率discounted cash flow (DCF) valuation：贴现现金流股价Annuities：年金Perpetuities：永续年金Preferred stock：优先股Common stock:普通股Interest-only loan：纯利息贷款Amortized loan：分期偿还贷款Chapter 7 and chapter 8: interest rates ,bond valuation and stock valuation Bond:债券Bond’s coupons：债券票面利息Face value/ par value：面值Par value bond：平价债券Bond’s time to maturity：债券到期Yield to maturity (YTM)：到期收益率Discount bond：折价债券Premium bond: 溢价债券Interest rate risk：利率风险Semiannual coupons：一年付息两次债券Zero coupon bond：零息债券Floating-rate bond：浮动利率债券Common stock:普通股The dividend growth model：股利增长模型Cumulative voting：累计投票Straight voting：直接选举Chapter 9: net present value and other investment criteria Net present value: 净现值Payback rule：回收期Discounted payback：折现回收期average accounting return：平均会计报酬率Internal rate of return：内部报酬率Mutually exclusive investments：互斥投资项目Profitability index：获利能力指数Chapter 10 and chapter 11:Making capital investment decisions and project analysis Incremental cash flows:增量现金流Sunk costs：沉没成本Opportunity costs：机会成本Side effects：副作用Financing costs：融资成本Scenario analysis：情境分析Sensitivity analysis：敏感性分析Simulation analysis：模拟分析Break-even analysis：盈亏分析Fixed costs：固定成本Variable costs：变动成本Average cost versus marginal cost：平均成本/边际成本Operating leverage：经营杠杆Financial leverage：财务杠杆Chapter 12 and chapter 13: risk and return Risk premium：风险溢价Variability of returns：报酬率的变动Standard deviation：标准差Variance：方差Normal distribution：正态分布Arithmetic averages：算术均值Geometric averages：几何均值Capital market efficiency：资本市场有效性The efficient markets hypothesis (EMH)：有效市场假说Weak form efficient：弱有效Semi strong form efficient：半强有效Strong form efficient：强有效Chapter 12: return, risk and the security market lineExpected portfolio returns：期望组合收益率Portfolio risk：组合风险Security market line：证券市场线Diversification：多元化Portfolio risk：组合风险Systematic risk：系统风险Unsystematic risk：非系统风险Capital asset pricing model (CAPM)Chapter 14: cost of capital Weighted average cost of capital (WACC)Cost of capital：资本成本Cost of equity：股权成本Risk-free rate：无风险收益率Market risk premium：市场风险溢价Flotation costs：发行成本Chapter 15: raising capitalVenture capital:风险资本Private equity：私募股权Public company/listed company：上市公司Go public：上市General cash offer：现金发行Rights offer：认股权发行/配股Initial public offering：首次公开发行Underwriter：承销商Chapter 16 and chapter 17: capital structure policy and dividend policy Bankruptcy costs ：破产成本Static theory of capital structure：资本结构静态权衡理论Pecking-order theory：啄食理论Cash dividend：现金股利Stock dividend ：股票股利Announcement date：宣告日Ex-dividend date：除息日Record date ：登记日Stock repurchase：股票回购Stock split：股票分拆。

(完整word版)CorporateFinance重点知识整理第一章导论1. 公司目标：为所有者创造价值公司价值在于其产生现金流能力。

2。

财务管理的目标：最大化现有股票的每股现值。

3。

公司理财可以看做对一下几个问题进行研究：1。

资本预算:公司应该投资什么样的长期资产。

2. 资本结构：公司如何筹集所需要的资金。

3. 净运营资本管理:如何管理短期经营活动产生的现金流。

4. 公司制度的优点:有限责任,易于转让所有权，永续经营。

缺点：公司税对股东的双重课税。

第二章会计报表与现金流量资产= 负债+ 所有者权益（非现金项目有折旧、递延税款）EBIT（经营性净利润）= 净销售额—产品成本—折旧EBITDA = EBIT + 折旧及摊销现金流量总额CF(A) = 经营性现金流量—资本性支出—净运营资本增加额= CF(B）+ CF（S)经营性现金流量OCF = 息税前利润+ 折旧- 税资本性输出= 固定资产增加额+ 折旧净运营资本= 流动资产- 流动负债第三章财务报表分析与财务模型1. 短期偿债能力指标（流动性指标）流动比率= 流动资产/流动负债（一般情况大于一）速动比率= （流动资产—存货)/流动负债(酸性实验比率）现金比率= 现金/流动负债流动性比率是短期债权人关心的，越高越好；但对公司而言,高流动性比率意味着流动性好，或者现金等短期资产运用效率低下。

对于一家拥有强大借款能力的公司，看似较低的流动性比率可能并非坏的信号2。

长期偿债能力指标（财务杠杆指标)负债比率= (总资产—总权益)/总资产or （长期负债+ 流动负债)/总资产权益乘数= 总资产/总权益= 1 + 负债权益比利息倍数= EBIT/利息现金对利息的保障倍数（Cash coverage radio）= EBITDA/利息3。

资产管理或资金周转指标存货周转率= 产品销售成本/存货存货周转天数= 365天/存货周转率应收账款周转率= （赊）销售额/应收账款总资产周转率= 销售额/总资产= 1/资本密集度4. 盈利性指标销售利润率= 净利润/销售额资产收益率ROA = 净利润/总资产权益收益率ROE = 净利润/总权益(完整word版)CorporateFinance重点知识整理5. 市场价值度量指标市盈率= 每股价格/每股收益EPS 其中EPS = 净利润/发行股票数市值面值比= 每股市场价值/每股账面价值企业价值EV = 公司市值+ 有息负债市值- 现金EV乘数= EV/EBITDA6. 杜邦恒等式ROE = 销售利润率（经营效率）x总资产周转率(资产运用效率）x权益乘数(财杠）ROA = 销售利润率x总资产周转率7. 销售百分比法假设项目随销售额变动而成比例变动，目的在于提出一个生成预测财务报表的快速实用方法。

COURSE SYLLABUS AND OUTLINECorporate Finance(公司金融)Spring 2009Instructor:Chen Linong(陈力农)Room 323 Education Office Buildinglnchen@Lecture Time:Fri. 18:00~20:35 PMThe nature of course: electiveClassroom:Classroom 4-409Prerequisite:Accounting; statistic and economic.Working Language:Lecture in ChineseCourse Description:This curriculum is a middle-level corporate finance set up for postgraduate students. The main content includes: Asset valuation, investment decision-making, financing instruments and strategies, capital structure, dividend policy, long-term financial plan, short-term financial planning and managementThrough learing, we want the student can maste the basic principles and methods of corporate finance systematicly ,then they can handle the practical problems flexiblely.This curriculum is a professional foundation course and also the basis of other courses.Course Outline1. Introduction1)What is corporate finance;2)The value of securities of the company or the right to obtain;3)Goals of corporate business;2. Accounting statements and cash flow1)Balance sheet2)income statement;3)Net working capital;4)Financial cash flow;3. Financial markets and the net present value: the first principle of senior management1)Fiancial market economy;2)Basic principles of investment decision-making;3)Investment decision-making process;4. Net present value1) Single-phase investment case2) Multi-phase investment in the case3) Sustainable pension and sustain-growth annuities, annuity and growth annuity;4) How to determine the value of the company5. The pricing of bonds and stocks1) How to price bond: pure discount bonds, coupon bond, the bond in Phnom Penh;2) The pricing of different types of stock ;3) Dividend discount model, the estimated parameters ;4) Growth opportunities ;5) Dividend growth model and the model NPVGO6. Other methods of investment decision-making1) Payback period method ;2) Discounted payback period method ;3) Average accounting rate of return method ;4) Internal rate of return method ;5) Profitability index7. Net present value and capital budget1) Incremental cash flow ;2) Inflation and capital budgeting ;3) Different life-cycle investment;8. Corporate Strategy and the net present value analysis1)Corporate strategy and is the net present value ;2) Decision Tree ;3) Sensitivity analysis, scenario analysis and breakeven analysis ;9. Risk, capital cost and capital budget1)The cost of equity capital ;2) Beta estimates ;3) Determinants of beta ;4) Reduce the cost of capital;10. Corporate finance decision-making and effective capital market1) Financing decision-making can increase the value?2) Description of effective capital markets ;3) The type of effective capital markets: the weak efficient market-based, semi-strongefficient market-based and strong and effective market-based ;4) Capital market efficiency theory of the meaning of the company's financialmanagement;11. long-term financing introduction1) Ordinary shares ;2) Corporate long-term liabilities ;3) Preferred Stock ;4) Financing model ;5) The latest trends in capital structure;12. Capital Structure: Basic Concepts1) Capital Structure Theory and pie ;2) The maximization of corporate value and maximize the interests of shareholders ;3) Financial leverage and corporate value ;4) Modigliani and Miller: Proposition Ⅱ (no tax) ;;5) Proposition MM Ⅰ (corporate tax), MM proposition Ⅱ (corporate tax)13. Capital Structure: Debt limitation1) The cost of financial distress ;2) Taxes and financial distress costs of the combined effects of ;3) Slow down, in-service consumption and harmful investment: the rights and interestsof agency costs on the notes ;4) Pecking Order Theory ;5) Growth and debt-to-equity ratio ;6) Personal tax: Miller Model ;7) How to determine the capital structure of companies;14. Leveraged corporate valuation and capital budget1) Adjusted net present value method ‘2) Cash flow rights and interests ;3) Weighted average cost of capital method ;4) APV method, FTE and WACC Comparative Law ;5) Need to estimate the discount rate of the capital budget ;6) Beta coefficient and financial leverage;15. Dividend Policy1) Different types of dividends ;2) Revenue, distribution costs and dividends ;3) Stock repurchase ;4) Expected to pay dividends and personal income tax ;5) In favor of the reality of high-dividend policy factors ;6) The dividend policy we understand and do not understand16. The issuance of public shares1) Public offering ;2) Cash distribution ;3) Investment Bank ;4) IPO announcements and company value ;5) IPO costs ;6) Lettings ;7) Shelf issue ;8) Private capital markets;17. Long-term liabilities1) Public issuance of bonds ;2) Bond swap ;3) Bond rating ;4) Other bond types5) Bond sales and public offerings of direct comparison;18. The company's financial model and long-term plan1) What is the company's financial plan ;2) Financial plans of the main components of the model ;3) Determination of growth rate ;4) Model of the financial plan on a few notes;19. Short-term financial and planning1) Cash and net working capital ;2) Operating cycle and cash cycle ;3) Short-term financial policies, a number of areas ;4) Cash budget ;5) Short-term financing plan;20. Cash Management1) Determination of the target cash balance ;2) Cash income and expenditure management ;3) Investment of idle funds;21. Credit Management1) Sales conditions ;2) Credit decision-making: Information and Risks ;3) Optimal credit policy ;4) Credit Analysis ;5) Collection policy.Required Textbook:"Corporate Finance" (Corporate Finance original version 6),(U.S.) Stephen A. Ross, Randolph W. Westerfield, Geoff F. Jie Fu,Wu Shinong, Shen Yifeng, Wang Zhiqiang, et al ,Machinery industry in September 2003 Press Release 1Reference Book:1. "Financial Management: Theory and Practice" 10th edition (Financial Management:Theory and Practice, Tenth Edition),(U.S.) Eugene F. Brigham, Michael C. Ehrhardt,and Di Ruipeng, Hu Jinying, HOU Yu translation,Tsinghua University in July 2005 Press Release 12. "Corporate Finance Theory" (Corporate Finance Theory),(U.S.) William L. Megginson,and Liu Minghui main translationNortheast University of Finance and Economics Press and Pearson Education Publishing Group in June 2002 Release 13. "Finance company" written by Zhang ChunRenmin University of China in August 2008 Press Release 1Exams:There will be a final at the end of the semester.Homework:There will be 3-4 homework assignments. They will be distributed in class anddue back in a week.Grades:Grades will be determined according to the following weights:Homework 30%, Final exam　60%, Attendance 10%。

Chapter 061.The changes in a firm's future cash flows that are a direct consequence of accepting a project arecalled _____ cash flows.A. i ncrementalB. s tand-aloneC. o pportunityD. n et present valueE. e rosion2.The annual annuity stream of payments with the same present value as a project's costs is calledthe project's _____ cost.A. i ncrementalB. s unkC. o pportunityD. e rosionE. e quivalent annual3. A cost that has already been paid, or the liability to pay has already been incurred, is a(n):A. s alvage value expense.B. n et working capital expense.C. s unk cost.D. o pportunity cost.E. e rosion cost.4.The most valuable investment given up if an alternative investment is chosen is a(n):A. s alvage value expense.B. n et working capital expense.C. s unk cost.D. o pportunity cost.E. e rosion cost.5. A decrease in a firm’s current cash flows resulting from the implementation of a new project isreferred to as:A. s alvage value expenses.B. n et working capital expenses.C. s unk costs.D. o pportunity costs.E. e rosion costs.6.The depreciation method currently allowed under U.S. tax law governing the accelerated write-offof property under various lifetime classifications is called _____ depreciation.A. F IFOB. M ACRSC. s traight-lineD. s um-of-years digitsE. c urvilinear7.The cash flow tax savings generated as a result of a firm's tax-deductible depreciation expense iscalled the:A. a ftertax depreciation savings.B. d epreciable basis.C. d epreciation tax shield.D. o perating cash flow.E. a ftertax salvage value.8.The cash flow from a project is computed as the:A. n et operating cash flow generated by the project, less any sunk costs and erosion costs.B. s um of the incremental operating cash flow and aftertax salvage value of the project.C. n et income generated by the project, plus the annual depreciation expense.D. s um of the incremental operating cash flow, capital spending, and net working capital cashflows incurred by the project.E. s um of the sunk costs, opportunity costs, and erosion costs of the project.9.Interest rates or rates of return on investments that have been adjusted for the effects of inflationare called _____ rates.A. r ealB. n ominalC. e ffectiveD. s trippedE. c oupon10.The increase you realize in buying power as a result of owning an investment is referred to as the_____ rate of return.A. i nflatedB. r ealizedC. n ominalD. r ealE. r isk-free11.The pro forma income statement for a cost reduction project:A. w ill reflect a reduction in the sales of the firm.B. w ill generally reflect no incremental sales.C. h as to be prepared reflecting the total sales and expenses of the entire firm.D. c annot be prepared due to the lack of any project related sales.E. w ill always reflect a negative project operating cash flow.12.One purpose of identifying all of the incremental cash flows related to a proposed project is to:A. i solate the total sunk costs so they can be evaluated to determine if the project will add valueto the firm.B. e liminate any cost which has previously been incurred so that it can be omitted from theanalysis of the project.C. m ake each project appear as profitable as possible for the firm.D. i nclude both the proposed and the current operations of a firm in the analysis of the project.E. i dentify any and all changes in the cash flows of the firm for the past year so they can beincluded in the analysis.13.Sunk costs include any cost that:A. w ill change if a project is undertaken.B. w ill be incurred if a project is accepted.C. h as previously been incurred and cannot be changed.D. w ill be paid to a third party and cannot be refunded for any reason whatsoever.E. w ill occur if a project is accepted and once incurred, cannot be recouped.14.You spent $500 last week fixing the transmission in your car. Now, the brakes are acting up andyou are trying to decide whether to fix them or trade the car in for a newer model. In analyzing the brake situation, the $500 you spent fixing the transmission is a(n) _____ cost.A. o pportunityB. f ixedC. i ncrementalD. s unkE. r elevant15.Erosion can be explained as the:A. a dditional income generated from the sales of a newly added product.B. l oss of current sales due to a new project being implemented.C. l oss of revenue due to employee theft.D. l oss of revenue due to customer theft.E. l oss of cash due to the expenses required to fix a parking lot after a heavy rain storm.16.Which one of these is an example of erosion that should be included in project analysis?A. T he anticipated loss of current sales when a new product is launched.B. T he expected decline in sales as a new product ages.C. T he reduction in your sales that occurs when a competitor introduces a new product.D. T he sudden loss of sales due to a major employer in your community implementing massivelayoffs.E. T he reduction in sales price that will most likely be required to sell inventory that has aged.17.Which one of the following should be excluded from the analysis of a project?A. e rosion costsB. i ncremental fixed costsC. i ncremental variable costsD. s unk costsE. o pportunity costs18.All of the following are anticipated effects of a proposed project. Which of these should be considered when computing the cash flow for the final year of a project?A. o perating cash flow and salvage valuesB. s alvage values and net working capital recoveryC.operating cash flow, net working capital recovery, salvage valuesD. n et working capital recovery and operating cash flowE.operating cash flow only19.Changes in the net working capital:A. c an affect the cash flows of a project every year of the project's life.B. o nly affect the initial cash flows of a project.C. a re included in project analysis only if they represent cash outflows.D. a re generally excluded from project analysis due to their irrelevance to the total project.E. a ffect the initial and the final cash flows of a project but not the cash flows of the middle years.20.The net working capital of a firm will decrease if there is:A. a decrease in accounts payable.B. a n increase in inventory.C. a decrease in accounts receivable.D. a n increase in the firm's checking account balance.E. a decrease in fixed assets. working capital:A. c an be ignored in project analysis because any expenditure is normally recouped by the end ofthe project.B. r equirements generally, but not always, create a cash inflow at the beginning of a project.C. e xpenditures commonly occur at the end of a project.D. i s frequently affected by the additional sales generated by a new project.E. i s the only expenditure where at least a partial recovery can be made at the end of a project.22.A company which uses the MACRS system of depreciation:A. w ill have equal depreciation costs each year of an asset's life.B. w ill expense the largest percentage of the cost during an asset’s first year of life.C. c an depreciate the cost of land, if it so desires.D. w ill write off the entire cost of an asset over the asset's class life.E. c annot expense any of the cost of a new asset during the first year of the asset's life.23.Champion Toys just purchased some MACRS 5-year property at a cost of $230,000. TheMACRS rates are 20 percent, 32 percent, 19.2 percent, 11.52 percent, 11.52 percent, and 5.76 percent for Years 1 to 6, respectively. The book value of the asset as of the end of Year 2 can be calculated as:A. $230,000 × (1 −.20 −.32).B. $230,000 × ([1 - (.20 × .32)].B. $230,000 × (1 - .20) × (1 - .32).C. $230,000 / (1 - .20 - .32).D. $230,000 - ($230,000 × .20 × .32).24.Pete’s Garage just purchased some equipment at a cost of $650,000. What is the propermethodology for computing the depreciation expense for Year 3 if the equipment is classified as 5-year property for MACRS? The MACRS rates are 20 percent, 32 percent, 19.2 percent, 11.52 percent, 11.52 percent, and 5.76 percent for Years 1 to 6, respectively.A. $650,000 ×(1 − .20) ×(1 −.32) ×(1 −.192)B. $650,000 ×(1 − .20) ×(1 −.32)C. $650,000 ×(1 − .20) ×(1 − .32) × .192)D. $650,000 ×(1 −.192)E. $650,000 ×.19225.The book value of an asset is primarily used to compute the:A. a nnual depreciation tax shield.B. a mount of cash received from the sale of an asset.C. a mount of tax saved annually due to the depreciation expense.D. a mount of tax due on the sale of an asset.E. c hange in depreciation needed to reflect the market value of the asset.26.The salvage value of an asset creates an aftertax cash flow in an amount equal to the:A. s ales price of the asset.B. s ales price minus the book value.C. s ales price minus the tax due based on the sales price minus the book value.D. s ales price plus the tax due based on the sales price minus the book value.E. s ales price plus the tax due based on the book value minus the sales price.27.The pretax salvage value of an asset is equal to the:A. b ook value if straight-line depreciation is used.B. b ook value if MACRS depreciation is used.C. m arket value minus the book value.D. b ook value minus the market value.E. m arket value.28.A project's operating cash flow will increase when the:A. d epreciation expense increases.B. s ales projections are lowered.C. i nterest expense is lowered.D. n et working capital requirement increases.E. e arnings before interest and taxes decreases.29.The cash flows of a project should:A. b e computed on a pretax basis.B. i nclude all sunk costs and opportunity costs.C. i nclude all incremental and opportunity costs.D. b e applied to the year when the related expense or income is recognized by GAAP.E. i nclude all financing costs related to new debt acquired to finance the project.30.Assume a firm has no interest expense or extraordinary items. Given this, the operating cash flow can be computed as:A. E BIT - Taxes.B. E BIT × (1 - Tax rate) + Depreciation × Tax rate.C. (Sales - Costs) × (1 - Tax rate).D. E BIT - Depreciation + Taxes.E.Net income + Depreciation.31.The bottom-up approach to computing the operating cash flow applies only when:A. b oth the depreciation expense and the interest expense are equal to zero.B. t he interest expense is equal to zero.C. t he project is a cost-cutting project.D. n o fixed assets are required for the project.E. t axes are ignored and the interest expense is equal to zero.32.The top-down approach to computing the operating cash flow:A. i gnores all noncash items.B. a pplies only if a project produces sales.C. c an only be used if the entire cash flows of a firm are included.D. i s equal to Sales −Costs −Taxes + Depreciation.E. i ncludes the interest expense related to a project.33.For a profitable firm, an increase in which one of the following will increase the operating cashflow?A. e mployee salariesB. o ffice rentC. b uilding maintenanceD. d epreciationE. e quipment rental34.Tax shield refers to a reduction in taxes created by:A. a reduction in sales.B. a n increase in interest expense.C. n oncash expenses.D. a project's incremental expenses.E. o pportunity costs.35.A project which is designed to improve the manufacturing efficiency of a firm but will generate noadditional sales revenue is referred to as a(n) _____ project.A. s unk costB. o pportunityC. c ost-cuttingD. r evenue-cuttingE. r evenue-generating36.Toni's Tools is comparing machines to determine which one to purchase. The machines sell fordiffering prices, have differing operating costs, differing machine lives, and will be replaced when worn out. These machines should be compared using:A. n et present value only.B. b oth net present value and the internal rate of return.C. t heir equivalent annual costs.D. t he depreciation tax shield approach.E. t he replacement parts approach.37.The equivalent annual cost method is useful in determining:A. t he annual operating cost of a machine if the annual maintenance is performed versus whenthe maintenance is not performed as recommended.B. t he tax shield benefits of depreciation given the purchase of new assets for a project.C. o perating cash flows for cost-cutting projects of equal duration.D. w hich one of two machines to acquire given equal machine lives but unequal machine costs.E. w hich one of two machines to purchase when the machines are mutually exclusive, havedifferent machine lives, and will be replaced once they are worn out.38.Marshall's purchased a corner lot five years ago at a cost of $498,000 and then spent $63,500 ongrading and drainage so the lot could be used for storing outdoor inventory. The lot was recently appraised at $610,000. The company now wants to build a new retail store on the site. Thebuilding cost is estimated at $1.1 million. What amount should be used as the initial cash flow for this building project?A. $1,661,500B. $1,100,000C. $1,208,635D. $1,710,000E. $1,498,00039.Samson's purchased a lot four years ago at a cost of $398,000. At that time, the firm spent$289,000 to build a small retail outlet on the site. The most recent appraisal on the propertyplaced a value of $629,000 on the property and building. Samson’s now wants to tear down the original structure and build a new strip mall on the site at an estimated cost of $2.3 million. What amount should be used as the initial cash flow for new project?A. $2,987,000B. $2,242,000C. $2,058,000D. $2,300,000E. $2,929,00040.Jamestown Ltd. currently produces boat sails and is considering expanding its operations toinclude awnings. The expansion would require the use of land the firm purchased three years ago at a cost of $142,000 that is currently valued at $137,500. The expansion could use someequipment that is currently sitting idle if $6,700 of modifications were made to it. The equipment originally cost $139,500 six years ago, has a current book value of $24,700, and a current market value of $39,000. Other capital purchases costing $780,000 will also be required. What is the amount of the initial cash flow for this expansion project?A. $953,400B. $962,300C. $948,900D. $927,800E. $963,20041.The Boat Works currently produces boat sails and is considering expanding its operations toinclude awnings. The expansion would require the use of land the firm purchased three years ago at a cost of $197,000 that is currently valued at $209,500. The expansion could use someequipment that is currently sitting idle if $7,500 of modifications were made to it. The equipment originally cost $387,500 five years ago, has a current book value of $132,700, and a current market value of $139,000. Other capital purchases costing $520,000 will also be required. What is the value of the opportunity costs that should be included in the initial cash flow for theexpansion project?A. $425,000B. $485,000C. $329,700D. $348,500E. $537,20042.Walks Softly sells customized shoes. Currently, it sells 14,800 pairs of shoes annually at anaverage price of $59 a pair. It is considering adding a lower-priced line of shoes that will be priced at $39 a pair. Walks Softly estimates it can sell 6,000 pairs of the lower-priced shoes but will sell 3,500 less pairs of the higher-priced shoes by doing so. What annual sales revenue should be used when evaluating the addition of the lower-priced shoes?A. $27,500B. $24,000C. $31,300D. $789,100E. $900,70043.Foamsoft sells customized boat shoes. Currently, it sells 16,850 pairs of shoes annually at anaverage price of $79 a pair. It is considering adding a lower-priced line of shoes which sell for $49a pair. Foamsoft estimates it can sell 5,000 pairs of the lower-priced shoes but will sell 1,250 lesspairs of the higher-priced shoes by doing so. What is the estimated value of the erosion cost that should be charged to the lower-priced shoe project?A. $138,750B. $146,250C. $98,750D. $52,000E. $123,24044.Sue purchased a house for $89,000, spent $56,000 upgrading it, and currently had it appraised at$212,900. The house is being rented to a family for $1,200 a month, the maintenance expenses average $200 a month, and the property taxes are $4,800 a year. If she sells the house she will incur $20,000 in expenses. She is considering converting the house into professional officespace. What opportunity cost, if any, should she assign to this property if she has been renting it for the past two years? A. $178,500A. $120,000B. $185,000C. A NSD. $192,900D. $232,90045.Jamie's Motor Home Sales currently sells 1,100 Class A motor homes, 2,200 Class C motorhomes, and 2,800 pop-up trailers each year. Jamie is considering adding a mid-range camper and expects that if she does so she can sell 1,500 of them. However, if the new camper is added, Jamie expects that her Class A sales will decline to 850 units while the Class C camper sales decline to 2,000. The sales of pop-ups will not be affected. Class A motor homes sell for anaverage of $140,000 each. Class C homes are priced at $59,500 and the pop-ups sell for $5,000 each. The new mid-range camper will sell for $42,900. What is the erosion cost of adding the mid-range camper?A. $54,250,000B. $46,900,000C. $53,750,000D. $63,150,000E. $78,750,00046.Ernie's Electrical is evaluating a project which will increase sales by $50,000 and costs by$30,000. The project will cost $150,000 and will be depreciated straight-line to a zero book value over the 10-year life of the project. The applicable tax rate is 34 percent. What is the operating cash flow for this project?A. $19,200B. $15,000C. $21,300D. $17,900E. $18,30047.Kurt's Cabinets is looking at a project that will require $80,000 in fixed assets and another$20,000 in net working capital. The project is expected to produce sales of $110,000 withassociated costs of $70,000. The project has a 4-year life. The company uses straight-line depreciation to a zero book value over the life of the project. The tax rate is 35 percent. What is the operating cash flow for this project?A. $7,000B. $13,000C. $27,000D. $33,000E. $40,00048.Peter's Boats has sales of $760,000 and a profit margin of 5 percent. The annual depreciationexpense is $80,000. What is the amount of the operating cash flow if the company has no long-term debt?A. $34,000B. $86,400C. $118,000D. $120,400E. $123,90049.Samoa's Tools has sales of $760,000 and a profit margin of 8 percent. The annual depreciationexpense is $50,000. What is the amount of the operating cash flow if the company has no long-term debt?A. $50,000B. $60,800C. $110,800D. $810,000E. $930,00050.Le Place has sales of $439,000, depreciation of $32,000, and net working capital of $56,000. Thefirm has a tax rate of 34 percent and a profit margin of 6 percent. The firm has no interestexpense. What is the amount of the operating cash flow?A. $49,384B. $52,616C. $54,980D. $58,340E. $114,34051.The By-Way has sales of $435,000, costs of $254,000, depreciation of $35,000, interest expenseof $22,000, and taxes of $43,400. What is the amount of the operating cash flow?A. $115,600B. $157,900C. $137,600D. $322,100E. $114,34052.Ben's Border Café is considering a project that will produce sales of $16,000 and increase cashexpenses by $10,000. If the project is implemented, taxes will increase from $23,000 to $24,500 and depreciation will increase from $4,000 to $5,500. What is the amount of the operating cash flow using the top-down approach?A. $4,000B. $4,500C. $6,000D. $7,500E. $8,50053.Camille's Café is considering a project that will not produce any sales but will decrease cashexpenses by $12,000. If the project is implemented, taxes will increase from $23,000 to $24,500 and depreciation will increase from $4,000 to $5,500. What is the amount of the operating cash flow using the top-down approach?A. $15,000B. $10,500C. $5,500D. $17,500E. $13,50054.Ronnie's Coffee House is considering a project which will produce sales of $6,000 and increasecash expenses by $2,500. If the project is implemented, taxes will increase by $1,300. The additional depreciation expense will be $1,000. An initial cash outlay of $2,000 is required for net working capital. What is the amount of the operating cash flow using the top-down approach?A. $200B. $1,500C. $2,200D. $3,500E. $4,20055.A project will increase sales by $60,000 and cash expenses by $51,000. The project will cost$40,000 and will be depreciated using straight-line depreciation to a zero book value over the 4-year life of the project. The company has a marginal tax rate of 35 percent. What is the operating cash flow of the project using the tax shield approach?A. $5,850B. $8,650C. $9,350D. $9,700E. $10,35056.A project will increase sales by $140,000 and cash expenses by $95,000. The project will cost$100,000 and will be depreciated using the straight-line method to a zero book value over the 4-year life of the project. The company has a marginal tax rate of 34 percent. What is the value of the depreciation tax shield?A. $8,500B. $17,000C. $22,500D. $25,000E. $37,75057.Lee's Furniture just purchased $24,000 of fixed assets that are classified as 5-year MACRSproperty. The MACRS rates are 20 percent, 32 percent, 19.2 percent, 11.52 percent, 11.52 percent, and 5.76 percent for Years 1 to 6, respectively. What is the amount of the depreciation expense for the third year?A. $2,304B. $2,507C. $2,765D. $4,608E. $4,80058.Lew just purchased $67,600 of equipment that is classified as 5-year MACRS property. TheMACRS rates are 20 percent, 32 percent, 19.2 percent, 11.52 percent, 11.52 percent, and 5.76 percent for Years 1 to 6, respectively. What will the book value of this equipment be at the end of four years should he decide to resell the equipment at that point in time?A. $11,681.28B. $18,280.20C. $17,040.00D. $19,468.80E. $22,672.0059.Northern Enterprises just purchased $1,900 of fixed assets that are classified as 3-year MACRSproperty. The MACRS rates are 33.33 percent, 44.44 percent, 14.82 percent, and 7.41 percent for Years 1 to 4, respectively. What is the amount of the depreciation expense for Year 2?A. $562.93B. $633.27C. $719.67D. $844.36E. $1,477.6360.The Galley purchased some 3-year MACRS property two years ago at a cost of $19,800. TheMACRS rates are 33.33 percent, 44.44 percent, 14.82 percent, and 7.41 percent. The firm no longer uses this property so is selling it today at a price of $13,500. What is the amount of the pretax profit on the sale?A. $11,140.48B. $9,098.46C. $10,500.00D. $8,016.67E. $10,702.4061.Three years ago, you purchased some 5-year MACRS equipment at a cost of $135,000. TheMACRS rates are 20 percent, 32 percent, 19.2 percent, 11.52 percent, 11.52 percent, and 5.76 percent for Years 1 to 6, respectively. You sold the equipment today for $82,500. Which of these statements is correct if your tax rate is 34 percent?A. T he tax due on the sale is $14,830.80.B. T he book value today is $40,478.C. T he book value today is $37,320.D. T he taxable amount on the sale is $47,380.E. T he tax refund from the sale is $13,219.20.62.Custom Cars purchased some $39,000 of fixed assets two years ago that are classified as 5-yearMACRS property. The MACRS rates are 20 percent, 32 percent, 19.2 percent, 11.52 percent,11.52 percent, and 5.76 percent for Years 1 to 6, respectively. The tax rate is 34 percent. If theassets are sold today for $19,000, what will be the aftertax cash flow from the sale?A. $16,358.88B. $17,909.09C. $18,720.00D. $18,904.80E. $19,000.0063.Winslow Motors purchased $225,000 of MACRS 5-year property. The MACRS rates are 20percent, 32 percent, 19.2 percent, 11.52 percent, 11.52 percent, and 5.76 percent for Years 1 to 6, respectively. The tax rate is 34 percent. If the firm sells the asset after five years for $10,000, what will be the aftertax cash flow from the sale?A. $8,993.60B. $8,880.20C. $11,006.40D. $7,770.40E. $12,892.0064.A project is expected to create operating cash flows of $26,500 a year for four years. The initialcost of the fixed assets is $62,000. These assets will be worthless at the end of the project. An additional $3,000 of net working capital will be required throughout the life of the project. What is the project's net present value if the required rate of return is 12 percent?A. $19,208.11B. $14,028.18C. $15,306.09D. $17,396.31E. $21,954.1765.A project will produce operating cash flows of $45,000 a year for four years. During the life of theproject, inventory will be lowered by $30,000 and accounts receivable will increase by $15,000.Accounts payable will decrease by $10,000. The project requires the purchase of equipment at an initial cost of $120,000. The equipment will be depreciated straight-line to a zero book value over the life of the project. The equipment will be salvaged at the end of the project creating a $25,000 aftertax cash inflow. At the end of the project, net working capital will return to its normal level. What is the net present value of this project given a required return of 15 percent?A. $23,483.48B. $16,117.05C. $24,909.09D. $22,037.86E. $19,876.0266.A project will produce an operating cash flow of $7,300 a year for three years. The initialinvestment for fixed assets will be $11,600, which will be depreciated straight-line to zero over the asset’s 4-year life. The project will require an initial $500 in net working capital plus an additional $500 every year with all net working capital levels restored to their original levels when the project ends. The fixed assets can be sold for an estimated $2,500 at the end of the project, the tax rate is 34 percent, and the required rate of return is 12 percent. What is the net present value of the project?A. $7,532.27B. $9,896.87C. $7,072.72D. $6,353.41E. $8,398.2967.Matty's Place is considering the installation of a new computer system that will cut annualoperating costs by $12,000. The system will cost $42,000 to purchase and install. This system is expected to have a 5-year life and will be depreciated to zero using straight-line depreciation.What is the amount of the earnings before interest and taxes for each year of this project?A. −$20,400B. $5,400C. $3,600D. $12,000E. $8,400。