08_MoF_Do1_2016_FS

Description:

Answer all questions and then press submit. We will discuss the solutions together.


You are considering investing in a start up project at a cost of $100,000. You expect the project to return $500,000 to you in seven years. Given the risk of this project, your cost of capital is 20%. The IRR for this project is closest to:






The NPV profile:






Which of the following costs would you consider when making a free cash flow forecast in a capital budgeting decision?:






Which of the following cash flows are relevant incremental cash flows for a project that you are currently considering investing in?






Suppose that Rose Industries is considering the acquisition of another firm in its industry for $100 million. The acquisition is expected to increase Rose's free cash flow by $5 million the first year, and this contribution is expected to grow at a rate of 3% every year there after. Rose currently maintains a debt to equity ratio of 1, its marginal tax rate is 40%, its cost of debt rD is 6%, and its cost of equity rE is 10%. Rose Industries will maintain a constant debt-equity ratio for the acquisition. Rose's unlevered cost of capital is closest to: