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1.

"Explorer, Inc. is considering a new 4-year project that requires an initial fixed asset (equipment) investment of $200,000. The fixed asset is three-year MACRS property for tax purposes. In four years, the equipment will be worth about half of what we paid for it. The project is estimated to generate $500,000 in annual sales, with costs of $400,000. The firm has to invest $100,000 in net working capital at the start. After that, net working capital requirements will be 25 percent of sales. The tax rate is 40 percent. What is the incremental cash flow in year 4?"

		"$65,928 "
		"$71,848 "
		"$125,928 "
		"$250,928 "
		"$290,928 "

2.

The Expo Company has the most recent financial statements as follows. The current liabilities are consisted solely of accounts payables. The company maintains a constant dividend payout ratio. The projected sales growth over the next year is 10%. If the Expo Company decides to maintain a constant debt-equity ratio, what is the maximum rate of growth can it maintain assuming that no additional external equity financing is available? Income Statement Assets Sales Current Assets 4,200.0 3,800.0 Net fixed assets 2,100.0 Costs Taxable income Balance Sheet Liabilities and Owners' Equity 900.0 Current Liabilities 500.0 Long-term debt 1,800.0 Owners' equity 700.0 Total liabilities and owners' 3,000.0 equity 3,000.0 400.0 Taxes (34%) 136.0 Total Assets Net Income 264,0 Dividends 132.0 Addition to retained earnings 132.0 4.60 percent 6.24 percent 13.67 percent 17.58 percent 23.24 percent

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