FINANCE Quiz #3 03 Nov 99 Name:_____ by Q1zswRe


									FINANCE     Quiz #3     3 & 9 Nov 05               Name:___________________________

Cash   flows for Project "A" apply to questions 1 through 6.
                        Yr0     Yr1     Yr2       Yr3       Yr4      Yr5
CASH FLOWS ($000)      (350)     70      90       120       150      180

1.a) Calculate the Net Present Value of the cash flow when discounted at 16.5 %.

b) Calculate the theoretical change in the stock price. Assume that there are two and
three quarter million shares outstanding. Remember: cash flows are "in thousands".

2. Calculate the Modified Internal Rate of Return (IRR*), using the original discount
rate for the reinvestment rate.

3. Calculate the date of the payback on the DISCOUNTED cash flows. Assume that "Yr0" is
2005, and write the answer in day/mos/year style [e.g. 5 Nov 05]. Assume original
investment will be made on 31 Dec 2005.

4. The Replacement Chain Method is being used to evaluate four mutually exclusive
projects A,B,C& D. Project "A" has a 5 year life, B=15 yrs, C=10 yrs, D=3 yrs. a) The
first common terminal year is Yr__? b) Recalculate the cash flow for Project "A" for Yr 5
(assuming that this method was going to be used) c) What is the cash flow for Project “A”
for the “terminal year”?

5. For Project A: a) Calculate the Equivalent Annual Annuity (EAA). b) Write the cash
flows for yrs 0 through 5 that are implied by the use of this method. c) What is the NPV
of the cash flows that you just wrote down when discounted at 16.5%?

6. Ascending Discount Rates are applied to the original cash flow using 7/8% increments
for each year, (with Yr0 at the original discount rate). Calculate the discount factors
for Yr4 & Yr5.

7. Estimate the probability of getting a negative NPV from a project whose expected NPV
is $120K and whose standard deviation of the NPV is $40K.

8.   The DJIA closed yesterday at___?
8. Given these "actuals", generate a "plan". Assume no change in capital structure, and
that the dividend policy is "constant dollars". Actuals are in $000, Plan should be,

        ACTUALS for 2004                      PLAN for 2005
   Income                Balance                 Income                 Balance
Sales        7000     Cash      17570        Sales        8000      Cash          ____
Variable     2600     Acct/Rec    670        Variable     ____      Acct/Rec      ____
Gross Prft   4400     Inventory   480        Gross Prft   ____      Inventory     ____
Fixed         500     PP&E        900        Fixed        ____      PP&E          ____
EBIT         3900     Tot Assts 19620        EBIT         ____      Tot Assts     ____
Interest      300                            Interest     ____
Inc B/T      3600     Acct/Pay       320     Inc B/T      ____      Acct/Pay      ____
Taxes         980     Debt          6000     Taxes        ____      Debt          ____
Inc A/T      2620     Pref           300     Inc A/T      ____      Pref          ____
Prefer'd       80     Comm          5000     Prefer'd     ____        Comm        ____
EAC          2540     RetEarn       8000     EAC          ____      RetEarn       ____
Div           100     Tot L&E      19620     Div          ____       Tot L&E      ____
∆RE          2440                            ∆RE          ____

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