25 Questions
1) In five years your oldest child will be in 8th grade, at which
point you and your family plan to vacation in Europe. You estimate that you
will need $20,000 for the trip. How much do you need to set aside today if you
can place your money in an investment vehicle earning an average of 4.50% per
year?
A) $16,058 B)
$14,961 C)
$16,049 D) $15,073
2) Simpson Construction had sales seven years ago of $2,150,000. This
year their sales hit $4,600,000. What has been Simpson's average annual rate of
growth of sales?
A) $350,000 per year B) 30.56%
C)
11.48% D) None of
the above
3) You just won a lottery - CONGRATULATIONS! Your parents have always
told you to plan for the future, so since you already have a well-paying job
you decide to invest rather than spend your lottery winnings. The payment
schedule from the lottery commission is $100,000 after taxes at end of year one
and 19 more payments of exactly $100,000 after taxes in equal annual
end-of-the-year deposits (i.e., the first of the next 19 deposits is one year
from today) into your account paying 7% compounded annually. How much money
will be in your account after the last deposit is made?
A)
$4,099,549.23
B)
$3,637,896.48
C) $4,486,517.68
D) $2,000,000.00
4) You invest $15,000 today, compounded monthly, with an annual interest
rate of 8.25%. What amount of interest will you earn in one year?
A) $1,298.98 B)
$1,723.23 C)
$1,285.38 D) $1,295.38
5) You buy a stock for which you expect to receive an annual dividend of
$2.10 for the fifteen years that you plan on holding it. After 15 years, you
expect to sell the stock for 32.25. What is the present value of a share for
this company if you want a 10% return?
A)
$31.41 B)
$7.72
C) $23.69 D)
$15.97
6) The Belgium Bike Company just paid an annual dividend of $1.12. If
you expect a constant growth rate of 4% and have a required rate of return of
13%, what is the current stock price according to the constant growth dividend
model?
A) $12.44 B) $13.46 C) $12.94 D) There is
not enough information to answer this question
7) In a stream of past dividends, the initial dividend is $0.75 and the
most recent dividend is $1.25. The number of years between these two dividends
(n) is 8 years. What is the average growth rate during this eight-year period?
Use a calculator to determine your answer.
A)
6.59%
B)
6.69%
C)
6.72%
D) 6.62%
8) Boyer Corp. has outstanding borrowings. One of these borrowings is
nonconvertible preferred stock (cumulative) with a par value of $75 and an
annual dividend rate of 8.25%. This preferred stock is currently selling for
$56.46 per share. What is the yield or return (r) on this preferred stock?
A) 10.432% B)
10.959% C)
10.395% D) 10.623%
9) Andre is considering an investment in Pollard's Inc. and has gathered
the following information. What is the expected return for a share of the
firm's stock?
|
State of the Economy
|
Probability of the State
|
Conditional Expected Return
Vandelay Inc.
|
|
Recession
|
.20
|
-10%
|
|
Steady
|
.50
|
10%
|
|
Boom
|
.30
|
45%
|
A) 15.00% B)
16.50% C)
65.00% D) 45.00%
10) Richard owns the following portfolio of securities. What is the beta
for the portfolio?
|
Company
|
Beta
|
Percent of Portfolio
|
|
Apple
|
2.50
|
25%
|
|
Wells
Fargo
|
0.65
|
50%
|
|
Ebay
|
1.70
|
25%
|
A) 1.38 B) 1.62 C) 0.65 D) 1.00
11) Given an expected market return of 12.0%, a beta of 0.75 for Benson
Industries, and a risk-free rate of 4.0%, what is the expected return for
Benson Industries?
A)
9.0%
B) 10.0% C) 4.0%
D) 13.0%
12) Jolly Roger Kite Company has a payment cycle of 17 days, a
collection cycle of 31 days, and a production cycle of 12 days. What is the
average cash conversion cycle for the Jolly Roger Company?
A) 60 days B) 2
days C)
36 days D) 26 days
13) What is the present value today of an ordinary annuity cash flow of
$3,000 per year for forty years at an interest rate of 6.0% per year if the
first cash flow is six years from today?
A) $120,000.00 B) $33,730.40 C)
$1,327,777.67
D) $45,138.89
14) Ten years ago Bacon Signs Inc. issued twenty-five-year 8% annual
coupon bonds with a $1,000 face value each. Since then, interest rates in
general have risen and the yield to maturity on the Bacon bonds is now 9%.
Given this information, what is the price today for a Bacon Signs bond?
A) $919.39 B)
$901.77 C)
$1.085.59 D) $1,000
15) Endicott Enterprises Inc. has issued 30-year semiannual coupon bonds
with a face value of $1,000. If the annual coupon rate is 14% and the current
yield to maturity is 15%, what is the firm's current price per bond?
A) $466.79 B)
$934.34 C)
$934.20 D) $1,000.00
16) Benson Biometrics Inc., has outstanding $1,000 face value 8% coupon
bonds that make semiannual payments, and have 14 years remaining to maturity.
If the current price for these bonds is $987.24, what is the annualized yield
to maturity?
A)
8.15%
B)
8.64%
C)
8.38%
D) 8.00%
17) Consider the following four-year project. The initial outlay or cost
is $180,000. The respective cash inflows for years 1, 2, 3 and 4 are: $100,000,
$80,000, $80,000 and $20,000. What is the discounted payback period if the
discount rate is 11%?
A) About 2.427 years B) About 2.000 years
C) About 2.135 years D) About
1.667 years
18) Geronimo, Inc. is considering a project that has an initial
after-tax outlay or after-tax cost of $220,000. The respective future cash
inflows from its four-year project for years 1 through 4 are: $50,000, $60,000,
$70,000 and $80,000. Geronimo uses the net present value method and has a
discount rate of 11%. Will Geronimo accept the project?
A) Geronimo rejects the project because the NPV is about -$2,375.60.
B) Geronimo rejects the project because the NPV is about -$12,375.60.
C) Geronimo rejects the project because the NPV is about -$22,375.73.
D) Geronimo accepts the project because the NPV is greater than
$10,000.00.
19) Opie, Inc. is considering an eight-year project that has an initial
after-tax outlay or after-tax cost of $180,000. The future after-tax cash
inflows from its project for years 1 through 8 are the same at $38,000. Opie
uses the net present value method and has a discount rate of 11.50%. Will Opie
accept the project?
A) Opie accepts the project because the NPV is greater than$12,000.
B) Opie rejects the project because the NPV is about -$11,114.
C) Opie rejects the project because the NPV is less than -$12,000.
D) Opie accepts the project because the NPV is about $11,114.
20) Dice, Inc. is considering a very risky five-year project that has an
initial outlay or cost of $70,000. The future cash inflows from its project for
years 1, 2, 3, 4, and 5 are all the same at $35,000. Dice uses the internal
rate of return method to evaluate projects. Will Dice accept the project if its
hurdle rate is 41.00%?
A) Dice will accept this project because its IRR is over 45.50%.
B) Dice will probably accept this project because its IRR is about
41.04%, which is slightly above its hurdle rate.
C) Dice will probably reject this project because its IRR is about
39.74%, which is slightly below its hurdle rate.
D) Dice will accept this project because its IRR is about 41.50%.
21) Find the Modified Internal Rate of Return (MIRR) for the following
annual series of cash flows, given a discount rate of 10.50%: Year 0: -$75,000;
Year 1: $15,000; Year 2: $16,000; Year 3: $17,000; Year 4: $17,500; and, Year
5: $18,000.
A) About 7.35% B) About 7.88% C) About
6.35% D) About 6.88%
22) Pigeon, Inc. is currently considering an eight-year project that has
an initial outlay or cost of $80,000. The future cash inflows from its project
for years 1 through 8 are the same at $30,000. Pigeon has a discount rate of
13%. Because of concerns about funds being short to finance all good projects,
Pigeon wants to compute the profitability index (PI) for each project. What is
the PI for Pigeon's current project?
A) About 1.60 B) About 1.80 C)
About 1.70 D) About 1.50
23) Baldwin Co. purchases an asset for $50,000. This asset qualifies as
a five-year recovery asset under MACRS, with the fixed depreciation percentages
as follows: year 1 = 20.00%; year 2 = 32.00%; year 3 = 19.20%; year 4 = 11.52%.
Baldwin has a tax rate of 35%. If the asset is sold at the end of four years
for $5,000, what is the after-tax cash flow from disposal?
A) $3,535.36 B)
$6274.00 C)
$2,592.00 D) $3,408.22
25) The following information comes from the Galaxy Construction balance
sheet. The value of common stock is $10,000, retained earnings equals $7,000,
total common equity equals $17,000, preferred stock has a value of $3,000, and
long-term debt totals $15,000. If the cost of debt is 8.00%, preferred stock
has a cost of 10.00%, common stock has a cost of 12.00%, and the firm has a
corporate tax rate of 30%, calculate the firm's WACC adjusted for taxes.
A) 10.00% B) 10.11% C) 9.09% D)
There is not enough information to answer this question.
TUTORIAL PREVIEW
18) Geronimo, Inc. is
considering a project that has an initial after-tax outlay or after-tax cost of
$220,000. The respective future cash inflows from its four-year project for
years 1 through 4 are:
|
year
|
Cash flows
|
|
|
0
|
-220,000
|
($220,000.00)
|
|
1
|
50,000
|
$45,045.05
|
|
2
|
60,000
|
$48,697.35
|
|
3
|
70,000
|
$51,183.40
|
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