1.Douglass Engineering is considering a project that has an initial cost today of $22,000. The project has a two-year life with cash inflows of $13,500 a year. Should the firm decide to wait one year to commence this project, the initial cost will increase by 4 percent and the cash inflows will increase to $14,200 a year. What is the value of the option to wait if the applicable discount rate is 12 percent?

Select one:

a. $81.05

b. $183.17

c. $141.41

d. $123.33

2.

Avalon Inc. is a high growth publicly traded firm that is expected to become a stable growth firm after 5 years. You have estimated an expected after-tax operating income of $60 million in year 6 and believe that the firm will generate a return on capital of 12% in perpetuity. If the cost of capital is 10% and the expected growth rate in perpetuity after year 5 is 3%, what will the terminal value be at the end of year 5?

Select one:

a. $666.67 million

b. $540.26 million

c. $642.86 million

d. $857.14 million

3.

Lulu is an apparel manufacturer with no debt outstanding and a market value of $1,000 million. Lulu is considering borrowing $400 million and buying back its stock. The interest rate on debt is 9% and the firm faces a tax rate of 32%. Estimate the present value of interest savings assuming that the current yield to maturity of debt is 8%.

Select one:

a. $125 million

b. $144 million

c. $128 million

d. $175 million

4.

You are trying to determine the optimal capital structure of NYZ. Currently, NYZ has a debt amount of $100,000 with an interest rate of 11%, an EBIT of $10,032, and a marginal tax rate of 36.1%. At this level of debt, what is the firm's implicit tax rate?

Select one:

a. 30.56%

b. 34.32%

c. 32.92%

d. 36.10%