FIN350 midterm 1 Version B
EVA = After-tax __ After-tax
Operating Income Capital costs
= NOPAT – After-tax Cost of Capital
MVA = Market value __ Equity capital
of equity supplied (book value)
NOWC = Current assets - Non-interest bearing current liability
FCFs for all investors = OCF-Gross Investment in Operating Capital
= (OCF-Dep)-(Gross Investment in Operating Capital-Dep)
= NOPAT-Net Investment in Operating Capital
= NOPAT- Change in Total Operating Capital
Value of Equity= Present Value of Future FCFs for Common Stock Investors
FCFs for Common Stock Investors = NCF-Gross Investment in Operating Capital
= (NCF-Dep)-(Gross Investment in Operating Capital-Dep)
= NI-Net Investment in Operating Capital
= NI- Change in Total Operating Capital
Total Operating Capital = Net Operating Working Capital (NOWC) + Net Fixed Assets
= Current Assets-Non-interest Bearing Current Liabilities
+Net Fixed Assets
Change in Total Operating Capital = Total Operating Capital in Year t+1
- Total Operating Capital in Year t
NOPAT = EBIT*(1-Tax Rate)=EBIT-Tax Expense
If tax rate is available, you should use: NOPAT = EBIT*(1-Tax Rate)
To toggle between END and BEGIN model, press 2nd, BGN, 2nd, ENTER
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1. Which of the following could explain why a business might choose to organize as a corporation rather than as a sole proprietorship or a partnership?
a. Corporations generally face fewer regulations.
b. Corporations generally face lower taxes.
c. Corporations generally find it easier to raise capital.
d. Corporations enjoy unlimited liability.
e. Statements c and d are correct.
2. The primary goal of corporate management should be to:
A) maximize the shareholders’ wealth.
B) maximize the firm’s profit.
C) minimize the firm’s costs.
D) maximize the number of shareholders.
3. Which of the following statements is true regarding the corporate form of organization compared to that of the sole proprietorship?
a. The owners of the sole proprietorship have limited liability for the firm's debts.
b. Dividends received by the corporation's shareholders are tax-exempt.
c. The corporation has a limited life.
d. The sole proprietorship is the simplest business form to start-up.
e. It is more difficult to transfer ownership in a corporation.
4. Superior Medical System's 2005 balance sheet showed total common equity of $2,050,000. The company had 100,000 shares of stock outstanding which sold at a price of $57.25 per share. By how much did the firm's market value and book value per share differ?
a. $36.7 b. $38.25 c. $51.00 d. $40.25 e. $39.50
5. Scranton Shipyards has $20 million in total investor-supplied operating capital. The company’s after tax percentage cost of capital is 10 percent. The company has the following income statement:
Sales $10.0 million
Operating costs 6.0 million
Operating income (EBIT) $ 4.0 million
Interest expense 2.0 million
Earnings before taxes (EBT) $ 2.0 million
Taxes (40%) 0.8 million
Net income $ 1.2...
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