Questions from Corporate Finance

Q: You are considering a project that has an initial outlay of $

You are considering a project that has an initial outlay of $1 million. The profitability index of the project is 2.24. What is the NPV of the project?

Q: Explain why the announcement of a new investment is usually accompanied by

Explain why the announcement of a new investment is usually accompanied by a change in the firm’s stock price?

Q: In calculating the NPV of a project, should we use all

In calculating the NPV of a project, should we use all of the after-tax cash flows associated with the project, or incremental after-tax cash flows from the project? Why?

Q: Sprigg Lane Manufacturing, Inc., needs to purchase a new central

Sprigg Lane Manufacturing, Inc., needs to purchase a new central air-conditioning system for a plant. There are two choices. The first system costs $50,000 and is expected to last 10 years, and the se...

Q: The Yellow Shelf Company sells all of its shelves for $100

The Yellow Shelf Company sells all of its shelves for $100 per shelf, and incurs $50 in variable costs to produce each. If the fixed costs for the firm are $2,000,000 per year, what will the EBIT for...

Q: Hydrogen Batteries sells its specialty automobile batteries for $85 each,

Hydrogen Batteries sells its specialty automobile batteries for $85 each, while its current variable cost per unit is $65. Total fixed costs (including depreciation and amortization expense) are $150,...

Q: Why can skipping payment of a preferred dividend be a bad signal

Why can skipping payment of a preferred dividend be a bad signal?

Q: The Vinyl CD Co. is going to take on a project

The Vinyl CD Co. is going to take on a project that is expected to increase its EBIT by $90,000, its fixed cost cash expenditures by $100,000, and its depreciation and amortization by $80,000 next yea...

Q: You are considering investing in a business that has monthly fixed costs

You are considering investing in a business that has monthly fixed costs of $5,500 and sells a single product that costs $35 per unit to make. This product sells for $90 per unit. What is the annual p...

Q: Belt Bottoms, Inc. is considering a five-year project

Belt Bottoms, Inc. is considering a five-year project with an initial investment of $20,000. What annual free cash flow (FCF) would be required for this project to have an NPV of $0 if the opportunit...