Finance for Non-Finance Professionals - Week 3 Quiz 1

quiz3.txt

1.
Question 1
Machine A costs $5,000 and depreciates on a 4-year schedule. Machine B costs $4,000 and depreciates on a 5-year schedule.  Which machine has a higher Net Fixed Asset value on the Balance Sheet in year 1?

1 / 1 point

### Machine A


Machine B


They are the same

Correct
Machine A = $5,000-($5,000/4) = $3,750

Machine B = $4,000-($4,000/5) = $3,200

2.
Question 2
A company has an operating income of $200 million, no depreciation, an asset sale of $75 million, a capital expenditure of $30 million, and no changes in net working capital. Calculate this company’s free cash flow for the year.

1 / 1 point

$95 million


### $245 million


$305 million

Correct
200+75-30 = 245

3.
Question 3
A project requires an initial investment of $2.8 million. This initial investment is to be depreciated straight-line to 0 in 4 years. What is the annual depreciation amount?

1 / 1 point

$466,666.67


$333,333.33


$500,000


### $700,000

Correct
$2.8M / 4 = $ 0.7M

4.
Question 4
Suppose the investment described above generates an annual sales of $2,360,000, with annual costs of $520,000. Assume a tax rate of 35%. What is the tax to be paid on annual sales?

1 / 1 point

$182,000


### $644,000


$826,000

Correct
(2360000-520000)*0.35 = 644,000

5.
Question 5
What would be the tax savings from depreciation?

1 / 1 point

$178,666.67


$200,000


### $245,000

Correct
0.35*700000 = 245,000

6.
Question 6
What is the annual operating cash flow from this project?

1 / 1 point

$951,000


### $1,441,000


$2,729,000

Correct
2360000 - 520000 - 644,000 + 245000 = 1,441,000

7.
Question 7
Suppose Company XYZ has revenues of $700 million, cost of goods sold of $200 million, and depreciation of $50 million. What is the company’s EBIT?

1 / 1 point

$400 million


### $450 million


$550 million


$950 million

Correct
$700-200-50 = 450

8.
Question 8
Suppose XYZ also pays a 25% tax. What would be the company’s NOPAT?

1 / 1 point

$100 million


### $337.5 million


$450 million

Correct
450*(1-25%) = 337.5

9.
Question 9
Company XYZ has, in addition, an increase in net working capital of $80 million, and capital expenditure of $30 million. What is XYZ’s FCF?

1 / 1 point

$177.5 million


237.5 million


### $277.5 million


$437.5 million

Correct
337.5 (NOPAT) + 50 (Dep) – 80 (NWC) -30 (CAPEX) = 277.5

10.
Question 10
A project requires an initial investment of $750,000 depreciated straight-line to $0 in 4 years. The investment is expected to generate annual sales of $400,000 with annual costs of $120,000 for 4 years. Assume a tax rate of 30% and a discount rate of 14%. What is the NPV of the project?

1 / 1 point

### -$15,016


$367,409


$734,984


-$561,337

Correct
FCF = (400,000-120,000-750,000/4)*(1-0.3) + (750,000/4) = 252,250

NPV = -750,000 + 252,250/1.14 + 252,250/1.14^2 
2
  + 252,250/1.14^3 
3
  + 252,250/1.14^4 
4
  = -15,016