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A levered firm has only assets on its balance sheet with the below market values and CAPM betas. The risk free rate is 3% pa and the market risk premium is 5% pa. Assume that the CAPM is correct and all assets are fairly priced. Beta 0 Selected Company Details Item Market value ($m) Cash asset 0.5 Truck asset 0.5 Loan liabilities 0.25 Equity funding ? 2 0.1 ? The firm then pays $0.5m cash for trucks that are actually worth $0.2m on the market. Assume that the beta and yield on the existing loan liabilities are unchanged compared to before. All figures are given to 6 decimal places. Which of the following statements is NOT correct? This event led to a: Select one: O a. Bad outcome for the company since the NPV of buying the trucks was -$0.3m. O b. Unchanged market and book value of equity. c. $0.2m increase in the market value of trucks to $0.7m and a $0.5m increase to the book value of trucks to $1m, assuming the accountant doesn't write-down the value yet. O d. $0.5m decrease in the market and book value of cash to zero. O e. $0.30 decrease in the stock price to $0.45 assuming that there are 1 million shares. Clear my choice Below is the formula for Net Operating profits After Tax (NOPAT). Note that it's just the same as Net Profit After Tax (NPAT) or Net Income (NI), but interest expense (IntExp) is ignored or set to zero. NPAT = (Rev-COGS-FixedCosts-Depr-IntExp)*(1-tc) = Earnings = NI NOPAT = (Rev-COGS-Fixed Costs-Depr)*(1-tc) For profit-making firms with leverage, which formula deducts the actual amount of tax that the firm will pay? Select one: a. NPAT O b. NOPAT. O C. Both NPAT and NOPAT deduct the correct amount of tax. O d. Neither. Clear my choice Elon Musk said "If something has to be designed and invented, and you have to figure out how to ensure that the value of the thing you create is greater than the cost of the inputs, then that is probably my core skill." Elon Musk believes that his core skill is: Select one: O a. Diversifying. o b. Maximising projects' net present values. OC. Understanding and applying the principal of 'time value of money! O d. Growing sales through marketing. O e. Raising funds to finance his projects

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