wi98finalmba810 - OSU, Fisher College of Business Final...

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OSU, Fisher College of Business Final Exam, MBA 810, Winter 2000 Anil K. Makhija You are allowed 2 hours to answer the following 6 questions. There is credit for method employed; please show all work neatly. The exam carries a total of 80 points, which are distributed as shown alongside individual questions. Good luck. 1.You bought a house a year ago for $250,000, borrowing $200,000 at 10% on a 30-year term loan (with monthly payments). Interest rates have since come down to 9%. You can refinance your mortgage at this rate, with a closing cost of 3% of the loan. Ignore tax effects. Your opportunity cost of capital is 8%. i.How much are your monthly payments on your current loan (at 10%)? (3 points) ii.How much would your monthly payments be if you could refinance your mortgage (remaining loan) at 9% with a term of 29 years? (3 points) iii.You plan to stay in this house for the next 5 years, and in deciding whether to refinance you choose to only compare the present value in monthly payments by refinancing against the closing costs. Given the 3% closing cost, would you refinance this loan? (4 points) 2.The XYZ Co. recently announced some startling successful news regarding their research and development program. As a result, share prices rose from $20 to $25, and analysts claimed that the price-earnings ratio (P0/EPS1) increased from 15 to 21. You feel that the announcement did not affect the riskiness of the projects of the firm, and a discount rate of
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This note was uploaded on 07/17/2008 for the course MBA 810 taught by Professor Makhija during the Winter '02 term at Ohio State.

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wi98finalmba810 - OSU, Fisher College of Business Final...

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