Alien Corp Finance Assingment Help With Solution

QUESTION 1
1. The Cost of Capital is:
(1) Used to determine net present value (NPV)
(2) The required rate of return
(3) Set by the Federal Reserve

(4) The cost of funding new projects

a. 1 and 2

b. 1, 2 and 4

c. 2 and 3

d. 1, 2, 3 and 4
7.7 points

QUESTION 2
1. A mutually exclusive project:

a. Is independent of all alternative projects

b. Dependent on other projects

c. May preclude acceptance of alternative projects

d. Is the first choice in a list of projects
7.7 points

QUESTION 3
1. Alien Corp. has been considering building an adult resort on a site originally purchased as investment property. Alien paid a consultant $250,000 to determine whether the plan is feasible, and has recently found that the site is worth $2.5 MM. The original purchase price was $1 MM. If the expected outlay for building and staffing the resort is $4.5 MM, what is the Net Investment when running an NPV?

a. $4.5 M

b. $7.0 MM

c. $5.75 M

d. $7.25 MM
7.7 points

QUESTION 4
1. What is the net present value (NPV) of the following project if the discount rate is 11%?
Initial outflow = $50,000
End of year one inflow = $15,000
End of year two inflow = $22,000
End of year three inflow = $30,000

a. $17,000.00

b. $9,168.49

c. $3,304.95

d. $4,357.63
7.7 points

QUESTION 5
1. What is the internal rate of return for a project with the following cash outflows and inflows:
Initial outflow = $50,000
End of year one inflow = $15,000
End of year two inflow = $22,000

End of year three inflow = $30,000

a. 6.60%

b. 34.00%

c. 11.00%

d. 14.36%
7.7 points

QUESTION 6
1. You buy a rental property for $180,000. Assuming that you could sell the property for $250,000 at the end of 6 years, what is your return based on the following cash flows?
Year 0 (now) = – 180,000
End of Year 1 = + 24,000
End of Year 2 = + 24,000
End of Year 3 = – 3,000 and +12,000
End of Year 4 = + 18,000
End of Year 5 = + 30,000
End of Year 6 = + 32,000

(Note – negative numbers represent cash outflows and positive numbers represent cash inflows.)

a. 17.78%

b. 6.8%

c. 16.57%

d. -6.8%

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QUESTION 7
1. Which of the following statements about capital budgeting methodology are true?
(1) Projects with a net present value greater than or equal to zero are generally considered acceptable
(2) Projects with an internal rate of return greater than the risk-free rate are generally considered acceptable
(3) Projects with a profitability index greater than or equal to one are generally considered acceptable

(4) Projects with a payback period less than 10 years are generally considered acceptable

a. 1 and 2

b. 1 and 3

c. 1, 2 and 3

d. 1, 2, 3 and 4
7.7 points

QUESTION 8
1. Should the following project be accepted if the company requires both a
payback on discounted cash flows within three years (assuming a hurdle rate of 10%)
payback on nominal dollars within three years
Project cash flows are:
Cost of the project in year zero is $50,000
End of year one inflow = 15,000
End of year two inflow = 20,000
End of year three inflow = 25,000

End of year four inflow = 30,000

a. No, while the undiscounted cash flow payback is less than three years the payback for discounted cash flows exceeds three years.

b. No, while the discounted cash flow payback is less than three years the payback for undiscounted cash flows exceeds three years.

c. No, both the undiscounted and discounted cash flow paybacks exceed three years.

d. Yes, the project should be accepted because both the undiscounted and discounted payback periods are less than three years.
7.7 points

QUESTION 9
1. This option gives management the ability to get out of a project that does not meet expectations:

a. Investment timing option

b. Output flexibility option

c. Abandonment option

d. Shutdown option
7.7 points

QUESTION 10
1. You are considering the purchase of a real estate income property. The cost of the four-room apartment complex is $700,000. The projected annual net operating cash flows at the end of years 1-4 are $50,000, $53,000, $56,000 and 60,000, respectively. Additionally, at the end of year four it is projected that the property could be sold for $760,000 (after commissions). Should you make the purchase if you client demand a 9% internal rate of return and a positive NPV?

a. Yes, the internal rate of return on this purchase is 12.52% and the NPV is $44,651

b. No, the internal rate of return on this purchase is only 7.91% and the NPV is negative.

c. No, the NPV is a positive $30,492 but the internal rate of return on this purchase is only 7.91%

d. Yes, the internal rate of return on this purchase is 9.62% and the NPV is $14,631
7.7 points

QUESTION 11
1. You purchased 500 shares of stock on January 1, 2011 for $29. The stock paid dividends of $1.50 per share in December of 2011, $1.80 per share in December of 2012, and $2.10 per share in December of 2013. At the end of December you sell your full position in the stock at the market price of $35 per share. What is the annualized dollar-weighted return or IRR% of this investment?

a. 11.7%

b. 9.3%

c. 12.2%

d. 13.1%
7.7 points

QUESTION 12
1. Drunk Uncle comes to you for advice about four business investments. Which of the following projects would give him the highest internal rate of return?

a. Cost of investment equals $25,000; annual end-of-year cash flows are: $2,500, $6,000, $6,000, $15,000, respectively

b. Cost of investment equals $30,000; annual end-of-year cash flows are: $0, $0, $14,000, $20,000, respectively

c. Cost of investment equals $55,000; annual end-of-year cash flows are: $10,000, $12,000, $14,000, $20,000, respectively

d. Cost of investment equals $45,000; annual end-of-year cash flows are: $15,000, $10,000, $5,000, $20,000, respectively
7.7 points

QUESTION 13
1. How many years will it take to payback an investment of $100,000 given annual end-of-year cash flows of: $25,000, $30,000, $35,000, $40,000, $55,000? (Use nominal dollars rather than discounted dollars in the payback calculation.)

a. 3.75 years

b. 3.50 years

c. 4 years

d. 3.25 years

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