What four financial statements can be found in a firm's $10-\mathrm{K}$ filing? What checks are there on the accuracy of these statements?

You work for an outdoor play structure manufacturing company and are trying to decide between the following two projects:

$$\begin{array}{lrrcc} & \text{ Year-End Cash Flows (\$ thousands) } \\ \text{Project} & 0 & 1 & 2 & \text{IRR} \\ \hline \text{Playhouse} & -27 & 16 & 21 & 22.7 \% \\ \text{Fort} & -77 & 40 & 50 &10.6 \% \\ \hline \end{array}$$

You can undertake only one project. If your cost of capital is $8 \%$, use the incremental IRR rule to make the correct decision.

You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $\$ 9.8$ million. Investment A will generate $\$ 2.01$ million per year (starting at the end of the first year) in perpetuity. Investment B will generate $\$ 1.47$ million at the end of the first year and its revenues will grow at $2.6 \%$ per year for every year after that.

a. Which investment has the higher IRR?

b. Which investment has the higher NPV when the cost of capital is $7.8 \%$ ?

c. In this case, for what values of the cost of capital does picking the higher IRR give the correct answer as to which investment is the best opportunity?

You are considering making a movie. The movie is expected to cost $\$ 8.8$ million upfront and take a year to make. After that, it is expected to make $\$ 4.3$ million in the first year it is released and $\$ 2.1$ million for the following four years. What is the payback period of this investment? If you require a payback period of two years, will you make the movie? What is the NPV of the movie if the cost of capital is $10.6 \%$ ?

When a pharmaceutical company develops a new drug, it often receives patent protection for that medication, allowing it to charge a higher price. Explain how this public policy of providing patent protection might help align the corporation's interests with society's interests.

You are a real estate agent thinking of placing a sign advertising your services at a local bus stop. The sign will cost $\$ 10,000$ and will be posted for one year. You expect that it will generate additional revenue of $\$ 1500$ a month. What is the payback period?

You have decided to form a new start-up company developing applications for the iPhone. Give examples of the three distinct types of financial decisions you will need to make.

Your firm spends $\$ 407,000$ per year in regular maintenance of its equipment. Due to the economic downturn, the firm considers forgoing these maintenance expenses for the next three years. If it does so, it expects it will need to spend $\$ 1.9$ million in year $4$ replacing failed equipment.

a. What is the IRR of the decision to forgo maintenance of the equipment?

b. Does the IRR rule work for this decision?

c. For what costs of capital is forgoing maintenance a good decision?

Which statement best describes how globalization is affecting the world?

Innovation Company is thinking about marketing a new software product. Upfront costs to market and develop the product are $\$ 5,100,000$. The product is expected to generate profits of $\$ 1,000,000$ per year for $10$ years. The company will have to provide product support expected to cost $\$ 97,000$ per year in perpetuity. Assume all income and expenses occur at the end of the year.

a. What is the NPV of this investment if the cost of capital is $5.54 \%$ ? Should the firm undertake the project? Repeat the analysis for discount rates of $2.72 \%$ and $10.46 \%$.

b. How many IRRs does this investment opportunity have?

c. Can the IRR rule be used to evaluate this investment? Explain.

What does the phrase limited liability mean in a corporate context?

Professor Wendy Smith has been offered the following deal: A law firm would like to retain her for an upfront payment of $\$ 52,000$. In return, for the next year the firm would have access to $8$ hours of her time every month. Smith's rate is $\$ 556$ per hour and her opportunity cost of capital is $14 \%$ (EAR). What does the IRR rule advise regarding this opportunity? What about the NPV rule?

________ is the difference between the prospective customer's evaluation of all the benefits and all the costs of an offering and the perceived alternatives.

A) Perceived usefulness

B) Failure avoidance rate

C) Total customer benefit

D) Customer-perceived value

E) Competitors' market share rate

You have been offered a very long term investment opportunity to increase your money one hundredfold. You can invest $\$ 900$ today and expect to receive $\$ 90,000$ in $40$ years. Your cost of capital for this (very risky) opportunity is $21 \%$. What does the IRR rule say about whether the investment should be undertaken? What about the NPV rule? Do they agree?