Exam2 FIN470 Spring 2008 Key

1. When considering a capital budgeting project the financial manager should consider the: I. size of the project.II. timing of the project's cash flows.III. risk associated with the project's cash flows. A. I onlyB. II onlyC. I and III onlyD. II and III onlyE. I, II, and III

Ross - Chapter 001 #25SECTION: 1.1TOPIC: CAPITAL BUDGETINGTYPE: CONCEPTS

2. Which term relates to the cash flow which results from a firm's ongoing, normal business activities? A. operating cash flowB. capital spendingC. net working capitalD. cash flow from assetsE. cash flow to creditors

Ross - Chapter 002 #11SECTION: 2.4TOPIC: OPERATING CASH FLOWTYPE: DEFINITIONS

3. A firm has net working capital of $820. Long-term debt is $3,260, total assets are $5,920 and fixed assets are $3,410. What is the amount of the total liabilities? A. $2,440B. $4,080C. $4,130D. $4,230E. $4,950

Current assets = $5,920 $3,410 = $2,510; Current liabilities = $2,510 $820 = $1,690; Total liabilities = $1,690 + $3,260 = $4,950

AACSB TOPIC: ANALYTICRoss - Chapter 002 #49SECTION: 2.1TOPIC: TOTAL LIABILITIESTYPE: PROBLEMS

4. If a firm produces a twelve percent return on assets and also a twelve percent return on equity, then the firm: A. may have short-term, but not long-term debt.B. is using its assets as efficiently as possible.C. has no net working capital.D. has a debt-equity ratio of 1.0.E. has an equity multiplier of 1.0.

Ross - Chapter 003 #58SECTION: 3.3TOPIC: PROFITABILITY RATIOSTYPE: CONCEPTS

5. A firm has sales of $1,640, net income of $135, net fixed assets of $1,200, and current assets of $530. The firm has $280 in inventory. What is the common-size statement value of inventory? A. 15.01 percentB. 15.68 percentC. 16.18 percentD. 30.42 percentE. 52.83 percent

Common-size inventory = $280 ($1,200 + $530) = .1618497 = 16.18 percent

AACSB TOPIC: ANALYTICRoss - Chapter 003 #75SECTION: 3.2TOPIC: COMMON-SIZE STATEMENTSTYPE: PROBLEMS

6. A firm is currently operating at full capacity. Net working capital, costs, and all assets vary directly with sales. The firm does not wish to obtain any additional equity financing.

The dividend payout ratio is constant at 40 percent. If the firm has a positive EFN, that need will be met by: A. accounts payable.B. long-term debt.C. fixed assets.D. retained earnings.E. common stock.

Ross - Chapter 004 #20SECTION: 4.3TOPIC: PRO FORMA STATEMENTSTYPE: CONCEPTS

7. Jed's Designer Clothes has $1,800 of sales and $1,630 of total assets. The firm is operating at 75 percent of capacity. What is the capital intensity ratio at full capacity? A. .54B. .68C. .85D. 1.17E. 1.47

Full-capacity sales = $1,800 / .75 = $2,400; Capital intensity ratio = $1,630 / $2,400 = .68

AACSB TOPIC: ANALYTICRoss - Chapter 004 #48SECTION: 4.3TOPIC: CAPITAL INTENSITY RATIOTYPE: PROBLEMS

8. Twelve years ago, Jake invested $2,000. Six years ago, Tami invested $4,000. Today, both Jake's and Tami's investments are each worth $9,700. Assume that both Jake and Tami continue to earn their respective rates of return. Which one of the following statements is correct concerning these investments? A. Three years from today, Jake's investment will be worth more than Tami's.B. One year ago, Tami's investment was worth more than Jake's.C. Jake has earned a higher rate of return than Tami.D. Tami has earned an average annual interest rate of 15.91 percent.E. Jake has earned an average annual interest rate of 15.47 percent.

Jake $9,700 = $2,000 (1 + r)12; r = 14.06 percent; Tami: $9,700 = $4,000 (1 + r)6; r =

15.91 percent; The correct answer states that Tami earned 15.91 percent interest.

AACSB TOPIC: ANALYTICRoss - Chapter 005 #29SECTION: 5.3TOPIC: INTEREST RATE FOR MULTIPLE PERIODSTYPE: PROBLEMS

9. You deposit $1,000 in a retirement account today at 8.5 percent interest. How much more money will you have if you leave the money invested for 40 years rather than 35 years? A. $7,714.91B. $7,799.08C. $7,839.73D. $7,846.52E. $8,753.38

Future value = $1,000 (1 + .085)40 = $26,133.02; Future value = $1,000 (1 + .085)35 = $17,379.64; Difference = $26,133.02 $17,379.64 = $8,753.38

AACSB TOPIC: ANALYTICRoss - Chapter 005 #43SECTION: 5.1 AND 5.3TOPIC: FUTURE VALUE AND TIME CHANGESTYPE: PROBLEMS

10. How is an annuity due defined? A. a stream of cash flows occurring for less than one yearB. an annuity stream of payments that are disbursed rather than receivedC. an annuity stream of payments that are received rather than disbursedD. a set of equal cash flows occurring at the end of each periodE. a set of equal cash flows occurring at the beginning of each period

Ross - Chapter 006 #4SECTION: 6.2TOPIC: ANNUITIES DUETYPE: DEFINITIONS

11. You are the beneficiary of a life insurance policy. The insurance company informs you

that you have two options for receiving the insurance proceeds. You can receive a lump sum of $150,000 today or receive payments of $1,627.89 a month for 10 years. You can earn 7.5 percent on your money. Which option should you take and why? A. You should accept the payments because they are worth $151,291.91 to you today.B. You should accept the payments because they are worth $153,417.68 to you today.C. You should accept the payments because they are worth $154,311.12 to you today.D. You should accept the $150,000 because the payments are only worth $137,141.17 to you today.E. You should accept the $150,000 because the payments are only worth $134,808.17 to you today.

AACSB TOPIC: ANALYTICRoss - Chapter 006 #27SECTION: 6.2TOPIC: ORDINARY ANNUITY AND PRESENT VALUETYPE: PROBLEMS

12. The stated interest payment, in dollars, made on a bond each period is called the bond's: A. coupon.B. face value.C. maturity.D. yield to maturity.E. coupon rate.

Ross - Chapter 007 #1SECTION: 7.1TOPIC: COUPONTYPE: DEFINITIONS

13. A $1,000 Treasury bond has an asked quote of 100:07 and a bid quote of 100:05. One bond: A. can be sold to a dealer at a price of $1,000.70.B. can be purchased from a dealer at a price of $1,001.56.C. has a spread of 200 basis points.D. is trading at a discount between 5 and 7 percent.E. provides the dealer a profit of $0.625.

Ross - Chapter 007 #75SECTION: 7.5

TOPIC: BID VERSUS ASKED PRICESTYPE: CONCEPTS

14. The stock valuation model that determines the current stock price by dividing the next annual dividend amount by the excess of the discount rate less the dividend growth rate is called the _____ model. A. zero growthB. dividend growthC. capital pricingD. earnings capitalizationE. discounted dividend

Ross - Chapter 008 #1SECTION: 8.1TOPIC: DIVIDEND GROWTH MODELTYPE: DEFINITIONS

15. The Row Boat has paid annual dividends of $.48, $0.60, and $0.62 a share over the past three years, respectively. The company now predicts that it will maintain a constant dividend since its business has leveled off and sales are expected to remain relatively constant. Given the lack of future growth, you will only buy this stock if you can earn at least a 14 percent rate of return. What is the maximum amount you are willing to pay for one share of this stock today? A. $3.43B. $4.29C. $4.43D. $5.05E. $5.60

AACSB TOPIC: ANALYTICRoss - Chapter 008 #64SECTION: 8.1TOPIC: STOCK VALUETYPE: PROBLEMS

16. The difference between an investment's market value and its cost is the: A. net present value.B. internal rate of return.C. payback period.

D. profitability index.E. discounted payback period.

Ross - Chapter 009 #1SECTION: 9.1TOPIC: NET PRESENT VALUETYPE: DEFINITIONS

17. Which one of the following is a capital budgeting decision? A. deciding whether a bank loan should be secured or if bonds should be issuedB. determining how many bonds versus how many shares of stock should be issuedC. ascertaining the minimum amount of cash which should be kept on handD. determining the optimal level of inventory to be maintainedE. deciding whether or not a newly invented product should be produced

Ross - Chapter 009 #11SECTION: CHAPTER 9 INTRODUCTIONTOPIC: CAPITAL BUDGETING DECISIONSTYPE: CONCEPTS

18. You are considering the following two mutually exclusive projects. The required rate of return is 10.75 percent for project A and 12 percent for project B. Which project should you accept and why?

A. project A; because it has the lower required rate of returnB. project A; because its NPV is about $796 more than the NPV of project BC. project B; because it has the largest total cash inflowD. project B; because it returns all its cash flows within two yearsE. project B; because it is the largest sized project

Difference in NPVs = $14,610.69 $13,814.92 = $795.77The answer states that the NPV of Project A exceeds the NPV of project B by about $796.

AACSB TOPIC: ANALYTICRoss - Chapter 009 #60SECTION: 9.1TOPIC: NET PRESENT VALUETYPE: PROBLEMS

19. What is the internal rate of return on an investment with the following cash flows?

A. 6.00 percentB. 6.93 percentC. 12.00 percentD. 12.23 percentE. 12.70 percent

AACSB TOPIC: ANALYTICRoss - Chapter 009 #62SECTION: 9.5TOPIC: INTERNAL RATE OF RETURNTYPE: PROBLEMS

20. The changes in a firm's future cash flows that are a direct consequence of accepting a project are called _____ cash flows. A. incrementalB. stand-aloneC. after-taxD. net present valueE. erosion

Ross - Chapter 010 #1SECTION: 10.1TOPIC: INCREMENTAL CASH FLOWSTYPE: DEFINITIONS

21. You spent $600 last week repairing the brakes on your car. Now, the starter is acting up and you are trying to decide whether to fix the starter or trade the car in for a newer model. In analyzing the starter situation, the $600 you spent fixing the brakes is a(n) _____ cost. A. opportunityB. fixedC. incrementalD. erosionE. sunk

Ross - Chapter 010 #14SECTION: 10.2TOPIC: SUNK COSTTYPE: CONCEPTS

22. You own a house that you rent for $1,600 a month. The maintenance expenses on the house average $300 a month. The house cost $110,000 when you purchased it six years ago. A recent appraisal on the house valued it at $295,000. If you sell the house you will incur $15,000 in real estate fees. The annual property taxes are $25,000. You are deciding whether to sell the house or convert it for your own use as a professional office. What value should you place on this house when analyzing the option of using it as a professional office? A. $150,000B. $255,000C. $280,000D. $293,100E. $310,000

Opportunity cost = $295,000 $15,000 = $280,000

AACSB TOPIC: ANALYTICRoss - Chapter 010 #52SECTION: 10.2TOPIC: OPPORTUNITY COSTTYPE: PROBLEMS

23. You own some equipment which you purchased three years ago at a cost of $155,000. The equipment is 5-year property for MACRS. You are considering selling the equipment today for $41,500. Which one of the following statements is correct if your tax rate is 34 percent?

A. The tax due on the sale is $2,072.40.B. The book value today is $74,400.C. The book value today is $60,600.D. The taxable amount on the sale is $44,640.E. You will receive a tax refund of $1,067.60 as a result of this sale.

Tax refund = [$41,500 $155,000 (1 .2 .32 .192)] .34 = $1,067.60

AACSB TOPIC: ANALYTICRoss - Chapter 010 #67SECTION: 10.4TOPIC: SALVAGE VALUETYPE: PROBLEMS

24. The sales level that results in a project's operating cash flow exactly equaling zero is called the _____ break-even. A. operationalB. leveragedC. accountingD. cashE. financial

Ross - Chapter 011 #9SECTION: 11.4TOPIC: CASH BREAK-EVENTYPE: DEFINITIONS

25. The percentage change in operating cash flow relative to the percentage change in quantity sold is called the: A. marginal profit.B. degree of operating leverage.C. gross profit.D. net profit.E. contribution margin.

Ross - Chapter 011 #12SECTION: 11.5TOPIC: DEGREE OF OPERATING LEVERAGETYPE: DEFINITIONS

26. Which of the following variables will be at their highest expected level under a worst case scenario? I. fixed costII. sales priceIII. variable costIV. sales quantity A. I onlyB. III onlyC. II and III onlyD. I and III only

E. I, III, and IV only

Ross - Chapter 011 #20SECTION: 11.2TOPIC: SCENARIO ANALYSISTYPE: CONCEPTS

The Franklin Co. is analyzing a proposed project. The company expects to sell 3,500 units, give or take 15 percent. The expected variable cost per unit is $6 and the expected fixed costs are $15,500. Cost estimates are considered accurate within a plus or minus 5 percent range. The depreciation expense is $6,000. The sales price is estimated at $21 a unit, give or take 3 percent. The company bases their sensitivity analysis on the base case scenario.

Ross - Chapter 011

27. The company is conducting a sensitivity analysis on the sales price using a sales price estimate of $23. What are the earnings before interest and taxes? A. $38,000B. $44,000C. $50,000D. $59,500E. $65,000

EBIT = [($23 $6) 3,500] $15,500 $6,000 = $38,000

AACSB TOPIC: ANALYTICRoss - Chapter 011 #61SECTION: 11.2TOPIC: SENSITIVITY ANALYSISTYPE: PROBLEMS

28. The excess return required from a risky asset over that required from a risk-free asset is called the: A. risk premium.B. geometric premium.C. excess return.D. average return.E. variance.

Ross - Chapter 012 #1SECTION: 12.3TOPIC: RISK PREMIUMTYPE: DEFINITIONS

29. The notion that capital markets, such as the NYSE, price securities fairly based on available information is called the: A. efficient market hypothesis.B. zero profit hypothesis.C. open markets theorem.D. laissez-faire principle.E. pricing theorem.

Ross - Chapter 012 #8SECTION: 12.6TOPIC: EFFICIENT MARKETS HYPOTHESISTYPE: DEFINITIONS

30. Six months ago, you purchased 50 shares of stock in First Place Co. at a price of $41.68 a share. First Place stock pays a quarterly dividend of $.40 a share. Today, you sold all of your shares for $44.12 per share. What is the total amount of your dividend income on this investment? A. $20B. $40C. $80D. $100E. $122

Dividend income = ($.40 2) 50 = $40.00

AACSB TOPIC: ANALYTICRoss - Chapter 012 #55SECTION: 12.1TOPIC: DOLLAR RETURNSTYPE: PROBLEMS

31. Six months ago, you purchased a stock at a price of $31.88 a share. Today, you sold those shares for $37.51 a share. During the past six months, you have received dividends totaling $0.46 a share while inflation has averaged 3.3 percent. What is your approximate real rate of return on this investment? A. 14.4 percent

B. 15.8 percentC. 17.3 percentD. 19.2 percentE. 20.1 percent

Nominal return = ($37.51 $31.88 + $.46) / $31.88 = 19.10 percent; Real return = 19.10 percent 3.3 percent = 15.8 percent

AACSB TOPIC: ANALYTICRoss - Chapter 012 #66SECTION: 12.1TOPIC: REAL RETURNTYPE: PROBLEMS

32. Risk that affects at most a small number of assets is called _____ risk. A. portfolioB. nondiversifiableC. marketD. unsystematicE. total

Ross - Chapter 013 #5SECTION: 13.4TOPIC: UNSYSTEMATIC RISKTYPE: DEFINITIONS

33. Standard deviation measures _____ risk. A. totalB. nondiversifiableC. unsystematicD. systematicE. economic

Ross - Chapter 013 #16SECTION: 13.1TOPIC: STANDARD DEVIATIONTYPE: CONCEPTS

34. The returns on the common stock of Cycles, Inc. are quite cyclical. In a boom economy, the stock is expected to return 27 percent in comparison to 13 percent in a normal economy and a negative 20 percent in a recessionary period. The probability of a recession is 30

percent while the probability of a boom is 5 percent. The remainder of the time the economy will be at normal levels. What is the standard deviation of the returns on this stock? A. 11.40 percentB. 14.79 percentC. 15.87 percentD. 18.27 percentE. 22.46 percent

E(r) = (.05 .27) + (.65 .13) + (.30 .20) = .0135 + .0845 .06 = .038

Var = .05 (.27 .038)2 + .65 (.13 .038)2 + .30 (.20 .038)2 = .0026912 + .0055016 + .0169932 = .025186Std dev = √.025186 = .1587 = 15.87 percent

AACSB TOPIC: ANALYTICRoss - Chapter 013 #66SECTION: 13.1TOPIC: STANDARD DEVIATIONTYPE: PROBLEMS

35. What is the beta of a portfolio comprised of the following securities?

A. .98B. 1.04C. 1.09D. 1.15E. 1.32

ValuePortfolio = $3,500 + $1,000 + $9,500 = $14,000

BetaPortfolio = ($3,500 / $14,000 1.12) + ($1,000 / $14,000 1.81) + ($9,500 / $14,000 .

84) = .28 + .1293 + .57 = .9793 = .98

AACSB TOPIC: ANALYTICRoss - Chapter 013 #80SECTION: 13.2 AND 13.6TOPIC: BETATYPE: PROBLEMS

36. A put option is the _____ an asset at a fixed price during a stated period of time.

A. right to sellB. right to buyC. obligation to sellD. obligation to buyE. obligation to trade

Ross - Chapter 014 #8SECTION: 14.1TOPIC: PUT OPTIONTYPE: DEFINITIONS

37. A security that gives the holder the right to purchase shares of stock at a fixed price over a specified period of time is called a(n): A. convertible bond.B. warrant.C. initial public offering.D. seasoned equity offering.E. put.

Ross - Chapter 014 #16SECTION: 14.7TOPIC: WARRANTTYPE: DEFINITIONS

38. What is the value of ten November 25 put contracts?

A. $15B. $150C. $475D. $680E. $710

Contract value = 10 100 $.15 = $150

AACSB TOPIC: ANALYTICRoss - Chapter 014 #58SECTION: 14.1TOPIC: OPTION QUOTESTYPE: PROBLEMS

39. You own one call option with an exercise price of $55 on Doo Little stock. The stock is currently selling for $55.20 a share but is expected to sell for either $54 or $62 a share in one year. The risk-free rate of return is 3 percent and the inflation rate is 2.5 percent. What is the current option price if the option expires one year from now? A. $0.55B. $0.79C. $1.67D. $2.43E. $2.72

Number of options needed = ($62 $54) (7 0) = 1.142857; $55.20 = (1.142857 C0) +

[$54 (1 + .03)]; $55.20 = 1.142857C0 + $52.427184; 1.142857C0 = 2.772816; C0 =

$2.426214 = $2.43

AACSB TOPIC: ANALYTICRoss - Chapter 014 #77SECTION: 14.3TOPIC: CALL OPTION VALUETYPE: PROBLEMS

40. When a manager develops a cost of capital for a specific project based on the cost of capital for another firm which has a similar line of business as the project, the manager is utilizing the _____ approach. A. subjective riskB. pure playC. divisional cost of capitalD. capital adjustmentE. security market line

Ross - Chapter 015 #4SECTION: 15.5TOPIC: PURE PLAY APPROACHTYPE: DEFINITIONS

41. The cost of capital primarily depends on the: A. debt-equity ratio.B. applicable tax rate.C. cost of equity financing.D. cost of debt.

E. use of the funds.

Ross - Chapter 015 #7SECTION: 15.1TOPIC: COST OF CAPITALTYPE: CONCEPTS

42. Sundial Enterprises common stock is currently priced at $33.20 a share. The company just paid $1.40 per share as their annual dividend. The dividends have been increasing by 3 percent annually and are expected to continue doing so. What is the cost of equity for Sundial Enterprises? A. 7.22 percentB. 7.34 percentC. 7.49 percentD. 7.61 percentE. 7.82 percent

AACSB TOPIC: ANALYTICRoss - Chapter 015 #42SECTION: 15.2TOPIC: COST OF EQUITYTYPE: PROBLEMS

43. The Basket Weavers Company has 100,000 bonds outstanding that are selling at par value. Bonds with similar characteristics are yielding 7.5 percent. The company also has 1 million shares of 10.5 percent preferred stock outstanding and 5 million shares of common stock outstanding. The preferred stock sells for $56 per share. The common stock has a beta of 1.2 and sells for $38 a share. The U.S. Treasury bill is yielding 3 percent and the return on the market is 12 percent. The corporate tax rate is 34 percent. What is Basket Weaver's weighted average cost of capital? A. 10.71 percentB. 12.04 percentC. 12.78 percentD. 14.02 percentE. 14.85 percent

AACSB TOPIC: ANALYTICRoss - Chapter 015 #62SECTION: 15.4TOPIC: WEIGHTED AVERAGE COST OF CAPITALTYPE: PROBLEMS

44. Choice Golf Equipment has a beta of 1.2 and a cost of equity of 13 percent. The risk-free rate of return is 4 percent. Choice is considering a project with a beta of .8. An appropriate discount rate for the project is: A. 7.2 percent.B. 8.0 percent.C. 9.0 percent.D. 10.0 percent.E. 10.8 percent.

.13 = .04 + (1.2 mrp); mrp = .075; RProject = .04 + (.8 .075) = .10 = 10.0 percent

AACSB TOPIC: ANALYTICRoss - Chapter 015 #69SECTION: 15.4TOPIC: PROJECT COST OF CAPITALTYPE: PROBLEMS

You have $50,000 to invest. If you invest $10,000 into asset A which has a standard deviation of 5%, $25,000 into asset B which has a standard deviation of 11%, and the remainder into the risk-free asset, what will be the standard deviation of the portfolio if the correlation between assets A and B is -0.6?0.25 percent.0.5 percentC. 5.0 percent6.5 percent8.0 percent

WA = 10,000/50,000 = 0.2

WB = 25,000/50,000 = 0.5

Standard Deviation = [(0.2)2 × (0.05)2 + (0.5)2 × (.11)2 + 2 × 0.2 × 0.5 × 0.05 × 0.11 ×

(-0.6)]½

Exam2 FIN470 Spring 2008 Summary

Category # of QuestionsAACSB TOPIC: ANALYTIC 21Ross - Chapter 001 1Ross - Chapter 002 2Ross - Chapter 003 2Ross - Chapter 004 2Ross - Chapter 005 2Ross - Chapter 006 2Ross - Chapter 007 2Ross - Chapter 008 2Ross - Chapter 009 4Ross - Chapter 010 4Ross - Chapter 011 5Ross - Chapter 012 4Ross - Chapter 013 4Ross - Chapter 014 4Ross - Chapter 015 5SECTION: 1.1 1SECTION: 10.1 1SECTION: 10.2 2SECTION: 10.4 1SECTION: 11.2 2SECTION: 11.4 1SECTION: 11.5 1SECTION: 12.1 2SECTION: 12.3 1SECTION: 12.6 1SECTION: 13.1 2SECTION: 13.2 AND 13.6 1SECTION: 13.4 1SECTION: 14.1 2SECTION: 14.3 1SECTION: 14.7 1SECTION: 15.1 1SECTION: 15.2 1SECTION: 15.4 2SECTION: 15.5 1SECTION: 2.1 1SECTION: 2.4 1SECTION: 3.2 1SECTION: 3.3 1SECTION: 4.3 2SECTION: 5.1 AND 5.3 1SECTION: 5.3 1SECTION: 6.2 2SECTION: 7.1 1SECTION: 7.5 1SECTION: 8.1 2SECTION: 9.1 2SECTION: 9.5 1SECTION: CHAPTER 9 INTRODUCTION 1TOPIC: ANNUITIES DUE 1TOPIC: BETA 1TOPIC: BID VERSUS ASKED PRICES 1TOPIC: CALL OPTION VALUE 1TOPIC: CAPITAL BUDGETING 1TOPIC: CAPITAL BUDGETING DECISIONS 1TOPIC: CAPITAL INTENSITY RATIO 1TOPIC: CASH BREAK-EVEN 1

TOPIC: COMMON-SIZE STATEMENTS 1TOPIC: COST OF CAPITAL 1TOPIC: COST OF EQUITY 1TOPIC: COUPON 1TOPIC: DEGREE OF OPERATING LEVERAGE 1TOPIC: DIVIDEND GROWTH MODEL 1TOPIC: DOLLAR RETURNS 1TOPIC: EFFICIENT MARKETS HYPOTHESIS 1TOPIC: FUTURE VALUE AND TIME CHANGES 1TOPIC: INCREMENTAL CASH FLOWS 1TOPIC: INTEREST RATE FOR MULTIPLE PERIODS 1TOPIC: INTERNAL RATE OF RETURN 1TOPIC: NET PRESENT VALUE 2TOPIC: OPERATING CASH FLOW 1TOPIC: OPPORTUNITY COST 1TOPIC: OPTION QUOTES 1TOPIC: ORDINARY ANNUITY AND PRESENT VALUE 1TOPIC: PRO FORMA STATEMENTS 1TOPIC: PROFITABILITY RATIOS 1TOPIC: PROJECT COST OF CAPITAL 1TOPIC: PURE PLAY APPROACH 1TOPIC: PUT OPTION 1TOPIC: REAL RETURN 1TOPIC: RISK PREMIUM 1TOPIC: SALVAGE VALUE 1TOPIC: SCENARIO ANALYSIS 1TOPIC: SENSITIVITY ANALYSIS 1TOPIC: STANDARD DEVIATION 2TOPIC: STOCK VALUE 1TOPIC: SUNK COST 1TOPIC: TOTAL LIABILITIES 1TOPIC: UNSYSTEMATIC RISK 1TOPIC: WARRANT 1TOPIC: WEIGHTED AVERAGE COST OF CAPITAL 1TYPE: CONCEPTS 9TYPE: DEFINITIONS 14TYPE: PROBLEMS 21