capital-budgeting — Principles of Finance Practice Questions

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1. Calculate the 'Profitability Index' for a project with an initial cost of 200,000 and a present value of futur
2. According to the Net Present Value criterion, which project should be chosen?
3. If the required rate of return is 10%, what is the Net Present Value (NPV)?
4. Which type of 'real option' is being exercised when a pharmaceutical company decides to build a full-scale man
5. If the cost of capital is 10%, what is the Net Present Value (NPV) of the project?
6. A firm has FCFF of $100M, interest expense of $20M, a tax rate of 25%, and net new borrowing of $10M. Calculat
7. What is the Payback Period of the project?
8. What is the Profitability Index (PI) and what does it indicate for capital rationing?
9. What is the project's Profitability Index (PI) at a 10% discount rate?
10. If the cost of capital is 10%, how do the Internal Rate of Return (IRR) and the Modified Internal Rate of Retu
11. An investor executes a 'bull call spread' by buying a 50-str… — What is the maximum possible profit for this s
12. If the cost of capital is 10%, what is the project's Net Present Value (NPV)?
13. If the cost of capital is 10%, what is the project's Profitability Index (PI)?
14. In the context of capital budgeting, if two projects are mutually exclusive and have different lives, which me
15. If the WACC is 10%, what is the NPV of the project, accounting for the depreciation tax shield?
16. What is the Multiple of Invested Capital (MOIC)?
17. A financial sponsor is evaluating a Leveraged Buyout (LBO) of a manufacturing firm. The primary mechanism thro
18. If the exit multiple is also 10x, what is the investor's IRR?
19. According to standard financial theory, which project should be accepted?
20. Calculate the Enterprise Value (EV) for a company with the following data: Market Capitalization of $1,500M, T
21. What is the approximate annualized Internal Rate of Return (IRR) for the sponsor?
22. If the discount rate is 10%, which project is preferred using the Equivalent Annual Annuity (EAA) method?
23. Which of the following signals would most likely lead to a 'low' score (indicating potential financial manipul
24. If the cost of capital is 10%, what is the Modified Internal Rate of Return (MIRR)?
25. What is the sponsor's IRR?
26. If the project's NPV is positive, what can we conclude about the project's 'Profitability Index' (PI)?
27. What is the total cash flow for Year 5?
28. If high demand occurs, the firm can spend another 15M at the start of Year 2 to expand, adding 6M in annual CF
29. If the tax rate is 25%, what is the net initial investment for this capital budgeting decision?
30. Given CFO = $500M, Interest Expense = $80M, Tax Rate = 25%, and Capital Expenditures = $200M, what is the FCFF