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FIN 4604eun8e_chapter18International Financial Management, 8e (Eun)
Chapter 18 International Capital Budgeting
1) The financial manager's responsibility involves
A) increasing the per share price of the company's stock at any cost and by any means, ways
and fashion that is possible.
B) the shareholder wealth maximization.
C) which capital projects to select.
D) the shareholder wealth maximization and which capital projects to select.
2) Perhaps the most important decisions that confront the financial manager are
A) which capital projects to select.
B) the correct capital structure for the firm.
C) the correct capital structure for projects.
D) none of the options
3) Capital budgeting analysis is very important, because it
A) involves, usually expensive, investments in capital assets.
B) has to do with the productive capacity of a firm.
C) will determine how competitive and profitable a firm will be.
D) all of the options
4) Tiger Towers, Inc. is considering an expansion of their existing business, student apartments.
The new project will be built on some vacant land that the firm has just contracted to buy. The
land cost $1,000,000 and the payment is due today. Construction of a 20-unit office building will
cost $3 million; this expense will be depreciated straight-line over 30 years to zero salvage value;
the pretax value of the land and building in year 30 will be $18,000,000. The $3,000,000
construction cost is to be paid today. The project will not change the risk level of the firm. The
firm will lease 20 office suites at $20,000 per suite per year; payment is due at the start of the
year; occupancy will begin in one year. Variable cost is $3,500 per suite. Fixed costs, excluding
depreciation, are $75,000 per year. The project will require a $10,000 investment in net working
capital.
= 10.0% = 11.20%
= 15.0% tax rate = 34% =3
= 24.9% = 2%
What is the unlevered after-tax incremental cash flow for year 0?
A) –$3,660,000
B) –$5,100,000
C) –$4,000,000
D) –$4,010,000
,FIN 4604eun8e_chapter18
5) Tiger Towers, Inc. is considering an expansion of their existing business, student apartments.
The new project will be built on some vacant land that the firm has just contracted to buy. The
land cost $1,000,000 and the payment is due today. Construction of a 20-unit office building will
cost $3 million; this expense will be depreciated straight-line over 30 years to zero salvage value;
the pretax value of the land and building in year 30 will be $18,000,000. The $3,000,000
construction cost is to be paid today. The project will not change the risk level of the firm. The
firm will lease 20 office suites at $20,000 per suite per year; payment is due at the start of the
year; occupancy will begin in one year. Variable cost is $3,500 per suite. Fixed costs, excluding
depreciation, are $75,000 per year. The project will require a $10,000 investment in net working
capital.
= 10.0% = 11.20%
= 15.0% tax rate = 34% =3
= 24.9% = 2%
What is the unlevered after-tax incremental cash flow for year 2?
A) –$4,610
B) $102,300
C) $202,300
D) $255,000
6) Tiger Towers, Inc. is considering an expansion of their existing business, student apartments.
The new project will be built on some vacant land that the firm has just contracted to buy. The
land cost $1,000,000 and the payment is due today. Construction of a 20-unit office building will
cost $3 million; this expense will be depreciated straight-line over 30 years to zero salvage value;
the pretax value of the land and building in year 30 will be $18,000,000. The $3,000,000
construction cost is to be paid today. The project will not change the risk level of the firm. The
firm will lease 20 office suites at $20,000 per suite per year; payment is due at the start of the
year; occupancy will begin in one year. Variable cost is $3,500 per suite. Fixed costs, excluding
depreciation, are $75,000 per year. The project will require a $10,000 investment in net working
capital.
= 10.0% = 11.20%
= 15.0% tax rate = 34% =3
= 24.9% = 2%
What is the unlevered after-tax incremental cash flow for year 30?
A) $12,432,300
B) $12,225,390
C) $12,332,300
D) $12,485,000
,FIN 4604eun8e_chapter18
7) Tiger Towers, Inc. is considering an expansion of their existing business, student apartments.
The new project will be built on some vacant land that the firm has just contracted to buy. The
land cost $1,000,000 and the payment is due today. Construction of a 20-unit office building will
cost $3 million; this expense will be depreciated straight-line over 30 years to zero salvage value;
the pretax value of the land and building in year 30 will be $18,000,000. The $3,000,000
construction cost is to be paid today. The project will not change the risk level of the firm. The
firm will lease 20 office suites at $20,000 per suite per year; payment is due at the start of the
year; occupancy will begin in one year. Variable cost is $3,500 per suite. Fixed costs, excluding
depreciation, are $75,000 per year. The project will require a $10,000 investment in net working
capital.
= 10.0% = 11.20%
= 15.0% tax rate = 34% =3
= 24.9% = 2%
Assume that the firm will partially finance the project with a $3,000,000 interest-only 30-year
loan at 10.0 percent APR with annual payments.
What is the levered after-tax incremental cash flow for year 0?
A) −$1,010,000
B) −$1,000,000
C) −$660,000
D) −$2,100,000
, FIN 4604eun8e_chapter18
8) Tiger Towers, Inc. is considering an expansion of their existing business, student apartments.
The new project will be built on some vacant land that the firm has just contracted to buy. The
land cost $1,000,000 and the payment is due today. Construction of a 20-unit office building will
cost $3 million; this expense will be depreciated straight-line over 30 years to zero salvage value;
the pretax value of the land and building in year 30 will be $18,000,000. The $3,000,000
construction cost is to be paid today. The project will not change the risk level of the firm. The
firm will lease 20 office suites at $20,000 per suite per year; payment is due at the start of the
year; occupancy will begin in one year. Variable cost is $3,500 per suite. Fixed costs, excluding
depreciation, are $75,000 per year. The project will require a $10,000 investment in net working
capital.
= 10.0% = 11.20%
= 15.0% tax rate = 34% =3
= 24.9% = 2%
Assume that the firm will partially finance the project with a $3,000,000 interest-only 30-year
loan at 10.0 percent APR with annual payments.
What is the levered after-tax incremental cash flow for year 1?
A) $4,300
B) −$202,610
C) −$95,700
D) $57,000
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