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Unformatted text preview: P/’————— 80 5 342 ‘ WEGTVIQJQfO’Qd L;
Name: > i . E M 1. You are the beneﬁciary of a life insurance policy. The insurance company informs you that you have two
options for receiving the insurance proceeds. You can receive a lump sum of $50,000 today or receive payments
of $641 a month for ten years. You can earn 6.5 percent on your money. Which option should you take and
why?
You should accept the payments because they are worth $56,451.91 today. :. You should accept the payments because they are worth $56,523.74 today. C. You should accept the payments because they are worth $56,737.08 today. D. You should accept the $50,000 because the payments are only worth $47,757.69 today. E. You should accept the $50,000 because the payments are only worth $47,808.17 today. 2. Ernie‘s Electrical is evaluating a project which will increase sales by $50,000 and costs by $30,000. The
project will cost $150,000 and be depreciated straightline to a zero book value over the 10 year life of the
project. The applicable tax rate is 34 percent. What is the operating cash ﬂow for this project? g 126“! SOtCDO +ax r100
. 5 c.» " . W
’ C031 301000 NQT 3300
C. $8,300 . — ‘5 0
$13,300 WP +D€D $3000
@18,300 V, WE"? T”; {WT H100 "1?) 3. Leslie's Unique Clothing Stores offers a common stock that pays an annual dividend of $2.00 a share. The
company has promised to maintain a constant dividend. How much are you willing to pay for one share of this stock if you want to earn 12 percent return on your equity investments?
A. $1 0.00 .$13.33
@1667
D. $18.88
B. $20.00 4. The current yield on Alpha‘s common stock is 4.8 percent. The company just paid a $2.10 dividend. The
rumor is that the dividend will be $2.205 next year. The dividend growth rate is expected to remain constant at
the current level. What is the required rate of return on Alpha's stock? ‘ . 10.04 t ‘
1607:3222; K : Doum) t 9 K + qg
C. 21.88 percent Po [0 I ' D. 43.75 percent
E. 45.94 percent 5. The interest rate charged per period multiplied by the number of periods per year is called the rate. .a . effective annual
a: ual percentage
. periodic interest D. compound interest
E. daily interest > —————7, 11. A bond that makes no coupon payments and is initially priced at a deep discount is called a bond. A. Treasury
B. municipal
C. ﬂoatingrate
D. junk zero coupon 12. The preferred stock of North Coast Shoreline pays an annual dividend of $1.70 and sells for $20.24 a share. What is the rate of return on this security? A. 5.95 percent
7.08 percent K I 90019) + 9 .7 ‘1 70 m (a ?q
8.40 percent P0 24 m . D. 11.90 percent
E. 14.17 percent 13. The annual coupon payment of a bond divided by its market price is called the: ‘ . coupon rate.
current yield. ' . yield to maturity. D. bidask spread. E. capital gains yield. 14. You have a sub—contracting job with a local manufacturing ﬁrm. Your agreement calls for annual payments
f 12 percent, what is this job worth to you today? f $50,000 for the next ﬁve years. At a discount rate 0
$180,238.81 N : S . $201,867.47 pMT : 50, (b0
C. $210,618.19 ‘: ‘2 D. $223,162.58
E. $224,267.10 15. The present value of an investment's future cash ﬂows divided by the initial cost of the investment is called I the:
A. net present value.
B. internal rate of return. average accounting return.
proﬁtability index. proﬁle period. 16. What is the net present value of a project with the following cash ﬂows and a required return of 12 percent? Year Cash Flow 0 $28,90’0 1 $12,450 2 $19,630 3 $ 2,750
.A $287.22
$177.62
C. $177.62
D. $204.36 E. $287.22 23. What is the future value of $2,896 invested for twelve years at 6.5 percent compounded annually? A. $5,827.32 ‘2
B. $6,023.44 7., 6% (1. 0108) $6,049.45
$6,165.86 a
. $6,218.03 24. The Great Giant Corp. has a management contract with their newly hired president. The contract requires a
lump sum payment of $25 million be paid to the president upon the completion of her ﬁrst ten years of service.
The company wants to set aside an equal amount of funds each year to cover this anticipated cash outﬂow. The
company can earn 6.5 percent on these funds. How much must the company set aside each year for this purpose? N t ‘0 A. $1,775,042.93 F b, S B. $1,798,346.17 N r O
.$1,801,033.67  C , 1,852,617.25 PMT ' ' E. $1,938,018.22 1" J ” ZS; 000me 25. You want to have $10,000 saved ten years from now. How much less do you have to deposit today to reach
this goal if you can earn 6 percent rather than 5 percent on your savings? 23323 @— 188.0151 3 sea. 615 c.$615.48 g  Mg ,04 3 (0 13‘1. 13
D. $928.73
E.$1,046.22 26. The written, legally binding agreement between the corporate borrower and the lender detailing the terms f a bond issue is called the:
indenture. . covenant.
C. terms of trade.
'D. debenture
E. call provision. 27. The Merriweather Co. just announced that they are increasing their annual dividend to $1.60 and
establishing a policy whereby the dividend will increase by 3.5 percent annually thereafter. How much will one
share of this stock be worth ﬁve years from now if the required rate of return is 12 percent? .$21.60 $22.36 ,1,I *1 1’0 : 1.100 : 1. 100 __ '8 823
“2314 100 1.0% 42—033 . $3. ‘ '
E.$24.79 .4...“ in”... 1.001 1.714 18.623 (1.03633 =22.% ans on saving $3,000 a year and expects to earn 8.5 percent. How much will Janet have at the end of 33. Janet pl
twenty—ﬁve years if she earns what she expects?
A. $219,317.82 N : 23
$230,702.57 \ z 5 g
Q236,003.38 W _._ O
D. 244,868.92 ._._ 
E. $256,063.66 7 $000 ﬂows of $1,750 a year for four years. The project initially costs $10,600 to get 34. A project will produce cash in
started. In year ﬁve, the project will be closed and as a result should produce a cash inﬂow of $8,500. What is the net present value of this project if the required rate of return is 13.75 percent? 1‘0 4" l 4‘ "4 4‘ 3 7" A >46 5
.—$935.56 “100390 I130 V130 mo 1730 5300
D. $1,011.40
E. $5,474.76 35. Forty years ago, your father invested $2,500. Today that investment is worth $107,921. What is the average rate of return your father earned on his investment? A. 8.50 percent
B. 9.33 percent
C. 9.50 percent 9.87 percent
. 9.99 percent ...
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 Fall '06
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