Question 21

If there is the capital rationing problem (a limited amount of capital available for investment), which of the following mutually exclusive projects should be accepted? Project A: NPV = $10,000; NINV = $57,560 Project B: NPV = $15,830; NINV = $112,800

Question 21 options:

	A
	B
	Both A and B
	Neither A nor B

Question 22

Using the profitability index, which of the following mutually exclusive projects should be accepted? (Hint: Ch10)

Project A: NPV = $101,557; NINV = $129,650 Project B: NPV = $28,774; NINV = $95,650 Project C: NPV = $19,082 ; NINV = $23,000

Question 22 options:

	A
	A, B, and C
	C
	B

Question 23

Cencora, Inc. is in the process of determining its optimal capital budget for next year. The following investment projects are under consideration:

Required Expected Rate Project Investment of Return A $8 million 18.0% B 7 million 16.5% C 5 million 15.5% D 6 million 14.5% E 3 million 14.0% F 3 million 13.5% G 3 million 12.5%

The firm's marginal cost of capital schedule is as follows:

Amount of Funds Raised Cost $0 - $12 million 12.0% $12 million - $18 million 14.5% $18 million - $32 million 16.5% Over $32 million 18.5%

Determine Cencora's optimal capital budget (in dollars) for the coming year.

Question 23 options:

	$15 million
	$26 million
	$20 million
	$29 million

Question 24

Which of the following is/are FALSE?

I. A firm's leveraged beta will always be greater than its unleveraged beta. II. The larger the amount of debt in a firm's capital structure, the larger will be the firm's leveraged beta.

Question 24 options:

	II only.
	Both I and II.
	I only.
	Neither I nor II.

Question 25

Oneok Company currently has a capital structure of 64 percent debt and 36 percent equity, but is considering a new product that will be produced and marketed by a separate division. The new division will have a capital structure of 70 percent debt and 30 percent equity. Oneok Company has a current beta of 2.4, but is not sure what the beta for the new division will be. Fiserv Company is a firm that produces a product similar to the product under consideration by Oneok Company. Fiserv Company has a beta of 3.70, a capital structure of 65 percent debt and 35 percent equity and a marginal tax rate of 40 percent. Oneok Company's tax rate is 35 percent. Estimate the levered beta for Oneok Company's new product division.

Question 25 options:

	4.93
	3.77
	3.36
	4.40

Question 26 relation coefficient between Cencora stock and the market portfolio is 0.75. The standard deviation of Cencora stock is 48% and that of the market is 25%. Calculate the beta of the Cencora stock.

Question 26 options:

	0.3906
	0.0900
	1.9200
	1.4400

Question 27

The expected return for Centene Common Stock is 25.00%, and it has a standard deviation of 18.00%. The expected return for Cencora Common Stock is 40.00%, and it has a standard deviation of 28.00%. Which of the following is a CORRECT statement?

Question 27 options:

	Cencora Common Stock is the less risky investment of the two investments.
	Centene Common Stock is the less risky investment of the two investments.

Please consider the following information for the next 3 questions.

McKesson, Inc. is considering an asset replacement project of replacing a control device. This old control device has been fully depreciated but can be sold for $15,750. The new control device, which is more automated, will cost $102,000. The new device's installation and shipping costs will total $46,000. The new device will be depreciated on a straight-line basis over its 2-year economic life to an estimated salvage value of $0. The actual salvage value of this device at the end of 2-year period (That is, the market value of the device at the end of 2-year period) is estimated to be $14,500. If the replacement project is accepted, McKesson will require an initial working capital investment of $7,425 (that is, adding $7,425 initially to its net working capital).

During the 1st year of operations, McKesson expects its annual revenue to increase from $245,700 to $524,880. After the 1st year, revenues from the replacement are expected to increase at a rate of $6,048 a year for the remainder of the project life.

McKesson's incremental operating costs associated with the replacement project are expected to decrease from $62,208 to $32,832 during the 1st year and increase at a rate of $4394 for the remainder of the project life.

McKesson expects that it will have to add about $5,400 to its net working capital in year 1, and nothing in year 2. At the end of the project, the total accumulated net working capital required by the project will be recovered.

McKesson has a marginal tax rate of 30%.

Question 28

What is the initial net investment for McKesson to undertake this replacement project?

Question 28 options:

	$139,675.00
	$134,950.00
	$155,425.00
	$144,400.00

Question 29

What is McKesson's net operating cash flow at the end of year 1?

Question 29 options:

	$231,289.20
	$238,189.20
	$225,889.20
	$232,789.20

Question 30

What is McKesson's net operating cash flows at the end of year 2?

Question 30 options:

	$266,672.00
	$259,772.00
	$255,422.00
	$262,322.00