​Atlas Corp

question 46

Multiple Choice

​Atlas Corp.is considering two mutually exclusive projects.Both require an initial investment of $10,000 at t = 0.Project S has an expected life of 2 years with after-tax cash inflows of $6,000 and $8,000 at the end of Years 1 and 2,respectively.Project L has an expected life of 4 years with after-tax cash inflows of $4,373 at the end of each of the next 4 years.Each project has a WACC of 9.25%,and Project S can be repeated with no changes in its cash flows.The controller prefers Project S,but the CFO prefers Project L.How much value will the firm gain or lose if Project L is selected over Project S,i.e.,what is the value of NPV_L - NPV_S?

• A)$56.50
• B)$62.15
• C)$68.37
• D)$75.21
• E)$82.73

Understand the factors influencing net income and operating cash flow.

Comprehend the concept of earnings per share and factors affecting it.

Identify and calculate changes in net working capital.

Analyze the impact of dividend changes on cash flow to stockholders.

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Definitions:

Inelastic

A description of a product or service's demand when its quantity demanded does not significantly change in response to price changes.

Perfectly Inelastic

Perfectly inelastic describes a market situation where the demand for a product does not change in response to a change in price.

Upsloping

Characteristic of a curve or line that rises as it moves to the right, often used in economics to describe certain supply curves or cost functions.

Incentive Function

The role of incentives in influencing the behavior and decisions of individuals or organizations.