1. A company currently expects free cash flow in the upcoming year of $25,000. Each year after that, the free cash flow is expected to grow by 3%. The relevant discount rate for the company’s cash flows is 9% per year. From a discounted cash flow method, what is the value of the company?
a. $833,000
b. $417,000
c. $25,000
d. $278,000
e. $23,000
2. For a project of six year duration and 10% per year cost of capital, what is the financial basis breakeven: Upfront cost $500. Unit price $30. Variable cost: $14. Fixed costs $200/yr. Depreciation $70/yr. Taxes 20%. Sales are the same level each year.
a. 20 units/year
b. 32 units/year
c. 50 units/year
d. 41 units/year
e. 8 units/year
3. Which of the following is correct regarding cash basis breakeven?
a. At cash basis breakeven, fixed cash costs are always zero
b. At cash basis breakeven, the company may have a positive operating income
c. At cash basis breakeven and some depreciation, the operating income is negative
d. At cash basis breakeven, the company always will have zero net income
e. The sales level required for cash basis breakeven is higher than that for accounting basis breakeven
4. At a sales level of $40,000, the operating cash flow is $8,500 and the fixed operating costs are $12,000. What will be the operating cash flow if sales are increased to $48,000?
a. $18,200
b. $16,500
c. $10,200
d. $11,100
e. $12,600
5. For a project of six year duration and 10% per year cost of capital, what is the financial basis breakeven: Upfront cost $2,500. Unit price $30. Variable cost: $14. Fixed costs $1,200/yr. Depreciation $770/yr. Taxes 25%. Sales are the same level each year.
a. 5 units/year
b. 68 units/year
c. 107 units/year
d. 41 units/year
e. 28 units/year