Midterm 2
Business Finance, Spring 2007
Instructor:
Nina Baranchuk
a
1.
The difference between the present value of an investment and its cost is the:
a.
net present value.
b.
internal rate of return.
c.
payback period.
d.
profitability index.
e.
discounted payback period.
d
2.
The discounted payback rule states that you should accept projects:
a.
which have a discounted payback period that is greater than some prespecified period
of time.
b.
if the discounted payback is positive and rejected if it is negative.
c.
only if the discounted payback period equals some prespecified period of time.
d.
if the discounted payback period is less than some prespecified period of time.
e.
only if the discounted payback period is equal to zero.
d
3.
The most valuable investment given up if an alternative investment is chosen is a(n):
a.
salvage value expense.
b.
net working capital expense.
c.
sunk cost.
d.
opportunity cost.
e.
erosion cost.
b
4.
The stock valuation model that determines the current stock price by dividing the next
annual dividend amount by the excess of the discount rate less the dividend growth rate
is called the _____ model.
a.
zero growth
b.
dividend growth
c.
capital pricing
d.
earnings capitalization
e.
discounted dividend
d
5.
The price a dealer is willing to accept for selling a security to an investor is called the:
a.
equilibrium price.
b.
auction price.
c.
bid price.
d.
ask price.
e.
bidask spread.
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6.
Wine and Roses, Inc. offers a 7 percent coupon bond with semiannual payments and a
yield to maturity of 7.73 percent. The bonds mature in 9 years. What is the market price
of a $1,000 face value bond?
a.
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 Spring '08
 NA
 Net Present Value, PAYBACK PERIOD, OCF

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