MBA 621 Topics in Corporate Finance- Exam 1 | 2025/2026 LATEST UPDATE|
COMPREHENSIVE QUESTIONS WITH 100% RATED ANSWERS | GUARANTEED TO PASS
Ford Motor Company is considering launching a new line of Plug-in electric SUVs. The heavy
advertising expenses associated with the new SUV launch would generate operating losses of
$35 million next year. Without the new SUV, Ford expects to earn pre-tax income of $80 million
from operations next year. Fod pays a 30% tax rate on its pre-tax income. The amount that Ford
Motor Company will owe in taxes next year with the launch of the new SUV is closest to
$13.5 million
Which of the following statements is FALSE?
Depreciation is not a cash expense paid by the firm.
Net Working Capital = Cash + Inventory + Payables - Recievables
Since 1977, companies can "carry back" losses for two years and "carry forward" losses for 20
years.
Earnings do not represent real profits. Net Working Capital = Cash + Inventory + Payables -
Recievables
Which of the following statements is TRUE?
I) Most projects will require the firm to invest in net working capital.
II) The main components of net working capital are cash, inventory, receivables, and property,
plant and equipment
III) deltaNWCt = NWCt - NWCt-1
,IV) In the final year of a project, the firm ultimately recovers the investment in net working
capital I, III, and IV only
Which of the following statements is FALSE?
Depreciation expenses have a positive impact on free cash flow.
Free Cash Flow -= (Revenues - Costs - Depreciation) * (1-tc) - Capital Expenditures - deltaNWC
+tc * Depreciation
The firm cannot use its earnings to buy goods, pay employees, fund new investments, or pay
dividends to shareholders.
The depreciation tax shield is the tax savings that results from the ability to deduct
depreciation. Free Cash Flow -= (Revenues - Costs - Depreciation) * (1-tc) - Capital
Expenditures - deltaNWC +tc * Depreciation
Which of the following cash flows are relevant incremental cash flows for a project that you are
currently investing in?
I) The tax savings brought about by the project's depreciation expense
II) The cost of a marketing survey you conducted to determine demand for the proposed
project
III) Interest payments on debt used to finance the project
IV) Research and Development expenditures you will make in carrying out the project I and
IV only
Consider the following probability distribution of returns for Alpha Corporation
Current Stock Price: $25
, Stock Price in One Year: $35 $25 $20
Return R: 40% 0% -20%
Probability PR: 25% 50% 25%
The expected reutrn for Alpha Corporation is closest to: 5.00%
Consider the following probability distribution of returns for Alpha Corporation
Current Stock Price: $25
Stock Price in One Year: $35 $25 $20
Return R: 40% 0% -20%
Probability PR: 25% 50% 25%
The variance of the return on Alpha Corporation is closest to:: 4.75%
Consider the following probability distribution of returns for Alpha Corporation
Current Stock Price: $25
Stock Price in One Year: $35 $25 $20
Return R: 40% 0% -20%
Probability PR: 25% 50% 25%
The standard deviation of the return on Alpha Corporation is closest to: 21.8%
Investors demand a higher return for investments that have larger fluctuations in values
because they do not like risk
COMPREHENSIVE QUESTIONS WITH 100% RATED ANSWERS | GUARANTEED TO PASS
Ford Motor Company is considering launching a new line of Plug-in electric SUVs. The heavy
advertising expenses associated with the new SUV launch would generate operating losses of
$35 million next year. Without the new SUV, Ford expects to earn pre-tax income of $80 million
from operations next year. Fod pays a 30% tax rate on its pre-tax income. The amount that Ford
Motor Company will owe in taxes next year with the launch of the new SUV is closest to
$13.5 million
Which of the following statements is FALSE?
Depreciation is not a cash expense paid by the firm.
Net Working Capital = Cash + Inventory + Payables - Recievables
Since 1977, companies can "carry back" losses for two years and "carry forward" losses for 20
years.
Earnings do not represent real profits. Net Working Capital = Cash + Inventory + Payables -
Recievables
Which of the following statements is TRUE?
I) Most projects will require the firm to invest in net working capital.
II) The main components of net working capital are cash, inventory, receivables, and property,
plant and equipment
III) deltaNWCt = NWCt - NWCt-1
,IV) In the final year of a project, the firm ultimately recovers the investment in net working
capital I, III, and IV only
Which of the following statements is FALSE?
Depreciation expenses have a positive impact on free cash flow.
Free Cash Flow -= (Revenues - Costs - Depreciation) * (1-tc) - Capital Expenditures - deltaNWC
+tc * Depreciation
The firm cannot use its earnings to buy goods, pay employees, fund new investments, or pay
dividends to shareholders.
The depreciation tax shield is the tax savings that results from the ability to deduct
depreciation. Free Cash Flow -= (Revenues - Costs - Depreciation) * (1-tc) - Capital
Expenditures - deltaNWC +tc * Depreciation
Which of the following cash flows are relevant incremental cash flows for a project that you are
currently investing in?
I) The tax savings brought about by the project's depreciation expense
II) The cost of a marketing survey you conducted to determine demand for the proposed
project
III) Interest payments on debt used to finance the project
IV) Research and Development expenditures you will make in carrying out the project I and
IV only
Consider the following probability distribution of returns for Alpha Corporation
Current Stock Price: $25
, Stock Price in One Year: $35 $25 $20
Return R: 40% 0% -20%
Probability PR: 25% 50% 25%
The expected reutrn for Alpha Corporation is closest to: 5.00%
Consider the following probability distribution of returns for Alpha Corporation
Current Stock Price: $25
Stock Price in One Year: $35 $25 $20
Return R: 40% 0% -20%
Probability PR: 25% 50% 25%
The variance of the return on Alpha Corporation is closest to:: 4.75%
Consider the following probability distribution of returns for Alpha Corporation
Current Stock Price: $25
Stock Price in One Year: $35 $25 $20
Return R: 40% 0% -20%
Probability PR: 25% 50% 25%
The standard deviation of the return on Alpha Corporation is closest to: 21.8%
Investors demand a higher return for investments that have larger fluctuations in values
because they do not like risk
