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Test 1

In: Business and Management

Submitted By michaelnguyentam
Words 471
Pages 2
University of La Verne
College of Business & Public Management
BUS 330 Business Finance Online Summer 2016
Assignment #3

This work is due on Sunday July 31 at Midnight. Please post your work file, with your name in the file title, to the Assignment #3 file folder in the Assignments folder in Blackboard. This work represents 5% of your course grade.
Question #1: WACC & Capital Budget Analysis – 60%
Based on the inputs below prepare a capital budget analysis for this Base Case using the Net Present Value, Internal Rate of Return, Profitability Index and Payback in years methods, determining whether the project is feasible. Please show your spreadsheet calculations and your final determinations of “go” or “no go” on the project. Use your Investment Return Analysis as an example for this capital budget analysis.

Project Inputs:

WACC – Debt is 75% and Equity is 25% of this firm’s capital structure. Interest rate on the debt is 7.5%, firm’s tax rate is 30%. Firm’s beta is 1.25, Risk Free Rate is 2.0%, Market Return Rate is 11.0%.

Project Investment Outlay, Year 0 - $1,000,000
Project Investment Life – 10 years
Project Depreciation - $100,000 / year
Project Salvage Value - $30,000

Working Capital Base of Annual Sales – 10%
Expected inflation rate per year – 3.0%
Project Tax Rate – 30%

Units sold per year – 40,000
Selling Price per Unit, Year 1 - $40.00
Fixed operating costs per year excluding depreciation - $175,000
Manufacturing (Variable) costs per unit, Year 1 - $30.00

Question #2: (Twenty Points)
Multiple Choice Questions – select the best answer:
Chapter 12 -
(1). If you were willing to bet that the overall stock market was heading up on a sustained basis, it would be logical to invest in:
A. high beta stocks.
B. low beta stocks.
C. stocks with large amounts of unique risk.
D. stocks that plot below the security…...

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