You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $290,000.

4.You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $290,000. The truck falls into the MACRS 10-year class, and it will be sold after 10 years for $29,000. Use of the truck will require an increase in NWC (spare parts inventory) of $5,900. The truck will have no effect on revenues, but it is expected to save the firm $123,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 35 percent. What will the cash flows for this project be during year 2? 

$117,100 

$98,220 

$132,150 

$70,800

5.Portfolio Beta You own $21,500 of City Steel stock that has a beta of 3.32. You also own $38,500 of Rent-N-Co (beta = 1.77) and $20,700 of Lincoln Corporation (beta = -.83). What is the beta of your portfolio? 

4.88 

1.52 

1.00 

4.26

6.Portfolio Beta You have a portfolio with a beta of .93. What will be the new portfolio beta if you keep 30 percent of your money in the old portfolio and 70 percent in a stock with a beta of 1.53? 

2.46 

1.23 

1.00 

1.35

7.FlavR Co stock has a beta of 2.08, the current risk-free rate is 2.08 percent, and the expected return on the market is 9.08 percent. What is FlavR Co's cost of equity?  

16.64% 

20.97% 

11.16% 

13.24%

8.You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $190,000. The truck falls into the MACRS 5-year class, and it will be sold after 5 years for $19,000. Use of the truck will require an increase in NWC (spare parts inventory) of $4,900. The truck will have no effect on revenues, but it is expected to save the firm $86,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 40 percent. What will the cash flows for this project be during year 2? 

$112,400 

$75,920 

$81,100 

$25,200

9.CAPM Required Return A company has a beta of 1.13. If the market return is expected to be 11.8 percent and the risk-free rate is 3.90 percent, what is the company's required return? 

12.83% 

13.33% 

17.23% 

16.73%

10.Debt Management Ratios Trina's Trikes, Inc. reported a debt-to-equity ratio of 1.93 times at the end of 2008. If the firm's total debt at year-end was $10.70 million, how much equity does Trina's Trikes have?

$5.54 million

$10.70 million

$1.93 million

$20.65 million