Coporate Finance Assignment #3
Coporate Finance Assignment #3 Corporate Finance Assignment Section 1: Multiple Choice (30 questions; 30 marks). Select the best alternative for each of the following statements. 1. When analyzing two mutually exclusive capital budgeting projects, the NPV and IRR capital budgeting methods can result in different ranking decisions. On a NPV profile (a chart showing the NPV at different discount rates) of these two projects, the cross-over rate is the point at which: a) the market risk premium equals the asset risk premium. b) the IRR and NPV for a single project are equal. c) the IRR for two projects are equal. d) the NPV for two projects are equal. e) none of the above. 2. Lan Electronics is considering expanding into another line of business. There are five potential business opportunities available. Each line of business has the same expected return. The betas of the various business lines are provided below. Which of the expansion alternatives would be the best choice for Lan Electronics? a) copper mines, 1.63 d) toy manufacturing, 0.79 b) machinery construction, 1.00 e) janitorial services, 0.95 c) natural gas exploration, 1.75 3. LH Enterprises borrowed $44 million in the Eurocurrency market 8 months ago at an interest rate of LIBOR plus 111. The LIBOR at that time was 2.83%. The loan is repayable today. How much does LH Enterprises owe? a) $44,000,000 d) $45,733,600 b) $45,245,200 e) $45,155,733 c) $44,830,133 4. Which of the following is not a source of financing (capital) for a company? a) assets d) bonds b) common shares e) all of the above are sources c) preferred shares 5. Parrish Corp is evaluating a capital budgeting project that has an initial cost of $850 million. The company’s cost of capital is 13.8% and the NPV of the project is +$26,352. This means that: a) the project generates a return of $26,352 to Parrish Corp. b) the project return of $26,352 is not sufficient given the project’s cost of $850 million. c) the project’s...