16.3 Illustrative Case: Cemex Enters Indonesia
1) Given a current spot rate of 8.10 Norwegian krone per U.S. dollar, expected inflation
rates of 6% in Norway and 3% per annum in the U.S., use the formula for relative
purchasing power parity to estimate the one-year spot rate of krone per dollar.
A) 7.87 krone per dollar
B) 8.10 krone per dollar
C) 8.34 krone per dollar
D) There is not enough information to answer this question.
2) When evaluating capital budgeting projects, which of the following would NOT
necessarily be an indicator of an acceptable project?
A) an NPV > $0
B) an IRR > the project’s required rate of return
C) an IRR > $0
D) All of the above are correct indicators.
3) Given a current spot rate of 8.10 Norwegian krone per U.S. dollar, expected inflation
rates of 3% in Norway and 6% per annum in the U.S., use the formula for relative
purchasing power parity to estimate the one-year spot rate of krone per dollar.
A) 7.87 krone per dollar
B) 8.10 krone per dollar
C) 8.34 krone per dollar
D) There is not enough information to answer this question.
4) When determining a firm’s weighted average cost of capital (wacc) which of the
following terms is NOT necessary?
A) the firm’s tax rate
B) the firm’s cost of debt
C) the firm’s cost of equity
D) All of the above are necessary.
5) When determining a firm’s weighted average cost of capital (wacc) which of the
following terms is NOT necessary?
A) the firm’s weight of equity financing
B) the accumulated depreciation
C) the firm’s weight of debt financing
D) All of the above are necessary to determine a firm’s wacc.
6) Of the following, which would NOT be considered an initial outlay at time 0 (today)?
A) investment in new equipment
B) initial investment in additional net working capital
C) shipping and handling costs associated with the new investment
D) All of the above are initial outlays.
Instruction 16.1:
Use the information for the following question(s).
The Wheel Deal Inc., a company that produces scooters and other wheeled non-motorized
recreational equipment is considering an expansion of their product line to Europe. The
expansion would require a purchase of equipment with a price of euro 1,200,000 and
additional installation of euro 300,000 (assume that the installation costs cannot be
expensed, but rather, must be depreciated over the life of the asset). Because this would be
a new product, they will not be replacing existing equipment. The new product line is
