Examen 1. Etapa 2 Corporate Finance

A company is evaluating three projects: (1) new equipment to reduce the cost of producing an already-approved drug, (2) early-stage R&D on an experimental drug, and (3) packaging that meets a new regulatory requirement. Which is LEAST likely to be classified as maintenance capex?

Under the net present value (NPV) rule, a company should accept an independent project if its NPV is:

A project requires an initial investment of $1,000 and returns a single cash flow of $1,210 in 2 years. Its internal rate of return (IRR) is approximately:

A project requires an initial investment of $500 and generates cash flows of $220 at the end of each of the next 3 years. If the cost of capital is 10%, the NPV is approximately:

When estimating a project’s cash flows for a capital allocation decision, a company should most accurately:

For two mutually exclusive projects, if NPV and IRR give conflicting rankings, the company should most accurately be guided by:

A project requires an investment of $1,000 and generates a cash flow of $250 at the end of each year. Its simple payback period is approximately:

Under Modigliani-Miller Proposition I WITHOUT taxes, the value of a firm most accurately:

Under Modigliani-Miller Proposition II, as a firm increases its leverage, its cost of equity (required return on equity) most likely:

When corporate taxes are introduced into the Modigliani-Miller model, the relevant capital structure implies that the value of the firm most accurately:

A company has 40% debt and 60% equity (at market value). The pre-tax cost of debt is 7%, the cost of equity is 11%, and the tax rate is 25%. Its WACC is approximately:

A company issues debt with a pre-tax cost of 8% and has a tax rate of 30%. Its after-tax cost of debt is approximately:

Under the pecking order theory, firms’ order of preference for financing is most accurately:

Under the trade-off theory of capital structure, the optimal structure is reached when:

A business model most accurately describes:

A subscription revenue model, relative to a one-time sale model, is most accurately characterized by:

A ‘freemium’ model most accurately:

A business model with strong network effects most accurately:

A frequent capital allocation pitfall is most likely:

A company’s TARGET capital structure is most accurately: