# This is due tonight. Question 1 Ongoing Operations add Value over Invested Capital provided:

Question 1

Ongoing Operations add Value over Invested Capital provided:

r > c*

r > y

r > c

y < c

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Question 2

Suppose a firm has no Debt as part of its Invested Capital. Which of the following is true?

c > c* > y

c < y, but c* > y

c* = r

c = c* = y

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Question 3

An analyst reviewing a company assigns a Horizon Value equal to Invested Capital at the forecast period when estimating Value. Which of the following is true about the period beyond the forecast horozon?

Only group 2 projects are available after the forecast period

r = c*

Projects beyond the horizon earn a rate of return equal to an equally risky portfolio of assets

All of the answers are true

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Question 4

Suppose a project has a 4 year horizon and projected Invested Capital of \$10,000 at the end of year 4. Suppose beyond the horizon is r = 11%, g = 3% and c* = 6.5%. What is the approximate Horizon Value as of the end of year 4?

\$22,860

\$4375

\$10,000

\$5625

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Question 5

A firm with a WACC of 11.5% applies mid-period discounting when doing Valuations. Using the EVA method and traditional Present Value formulas, they arrive at an initial Value estimate of \$1.35 million for a project under consideration. When they adjust for mid-period discounting their new Value estimate would be approximately –

\$1,235,600

\$1,505,250

\$1,425,500

\$1,210,760

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