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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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