Ans Doc 107


The MM Corp. is planning construction of a new warehouse for its single manufacturing plant. The initial cost of the investment is $100,000. Efficiencies from the new facility are expected to reduce after-tax costs by $20,000 for each of the next 10 years. The corporation has a total value of $6 million and has outstanding debt of $4 million. What is the NPV of the project if the firm has a before-tax cost of debt of 9% and a cost equity of 15%? Tax rate = 35% (Approximately)
none of the above

The value of a business is given by ______.
PV = PV(free cash flows)
PV = PV(free cash flows) + PV (horizon value)
PV(free cash flows) – PV(horizon value)
none of the above

The spot rate = US$0.65/A$; the one year forward rate = US$0.60/A$. A US exporter denominates its exports to Australia in A$ and expects to receive A$ 600,000 in one year. What will the value of these exports in one year in US$ given that the firm executes a forward hedge? (Ignore transaction costs)


Large business combinations in Japan are normally carried out through reciprocal ownership of common stock. These networks, or keiretsu, involve a large number of diversified companies centered around a large bank, industrial firm, or trading firm. One of the main benefits of this structure is argued to be _______.

the monopolistic control of economic segments
the reduction of financial distress costs
large scale diversification that cannot be done by individual shareholders
greater efficiency in management because the management skills are homogeneous even for

A firm whose only assets are controlling blocks of shares are called ______.
a conglomerate
a holding company
a pyramid
dual-class company

Conglomerates can be effective in ______.
the U.S.A.
Great Britain
developing economies
none of the above