Question Details

Lasik Vision Inc. recently analyzed the project whose cash flows 


1.	What would you do for capital budgeting if you have limited resources? 

a.	Focus on the projects the firm has already invested in
b.	Reduce short-term and long-term debt.
c.	Rank good looking projects and choose from the most “profitable” ones
d.	evaluate to determine good projects
e.	Determine the size, timing, and risk of a firm's future cash flows. 

2.	What is the decision rule for IRR? 

a.	Accept a project when IRR > 0 
b.	Accept a project if at the IRR the NPV is positive 
c.	Reject any project if the IRR is below 10% 
d.	Accept a project if the IRR exceeds the firm's bank borrowing rate 
e.	Accept a project if the IRR exceeds the firm's required rate of return

3.	What is the % of total financing by common equity if the total $12m funding include  $7.5m from debt assuming no preferred stocks are used?

a.     35%
b.     37.5%
c.     46.5%
d.     50%
e.     62.5%

4.	You have only three investment opportunities as follows: Project A with 5% return, Project B with 7% return, Project C with 9% return. What should be the required rate of return when you consider for Project B?

a.	5%
b.	7%
c.	9%
d.	12%
e.	14%

5.	Lasik Vision Inc. recently analyzed the project whose cash flows are shown below.  However, before Lasik decided to accept or reject the project, the Federal Reserve took actions that changed interest rates and therefore the firm's WACC.  The Fed's action did not affect the forecasted cash flows.  By how much did the change in the WACC affect the project's forecasted NPV? Note that a project's projected NPV can be negative, in which case it should be rejected.

Old WACC:  8.00%	New WACC:  11.25%
Year		0	1	2	3	
Cash flows	-$1,000	$410	$410	$410

a.	-$59.03
b.	-$56.08
c.	-$53.27
d.	-$50.61
e.	-$48.08



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