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# Finance Review Questions

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Attached you will find two finance questions that I need step by step guidance for with formulas included. Please show all of the work so that I may understand the material fully.

1. You have invested in a project that has the following payoff schedule:

Payoff Probability of Occurrence
\$40 .15
\$50 .20
\$60 .30
\$70 .30
\$80 .05

What is the expected value of the investment's payoff? Show all formulas along with calculations (Round to the nearest \$1).

A) \$70
B) \$60
C) \$59
D) \$65

2. Analysts expect a project to generate EBIT of \$500,000 per year for 5 years. Depreciation expense is expected to be \$150,000 per year and the corporation's tax rate is 40%. The project will require an increase in net working capital of \$50,000 in year one and a decrease in net working capital of \$25,000 in year five. What is the free cash flow from the project in year one? Show all formulas along with calculations.

A) \$250,000
B) \$450,000
C) \$400,000
D) \$100,000

#### Solution Preview

1. You have invested in a project that has the following payoff schedule:

Payoff Probability of Occurrence
\$40 .15
\$50 .20
\$60 .30
\$70 .30
\$80 .05

What is the expected value of the investment's payoff? Show all formulas along with calculations (Round to the nearest \$1).

A) \$70
B) \$60
C) \$59 ...

#### Solution Summary

This solution is comprised of a detailed explanation to answer what is the expected value of the investment's payoff.

\$2.49