# buad306 midterm 2-2 - BUAD 306 FALL 2008 Business Finance...

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BUAD 306 Business Finance FALL 2008 Midterm II - Sample INSTRUCTIONS You have one hour and fifty minutes to complete this exam. There are 22 questions . This exam is closed book and closed notes . You can use one two-sided formula sheet. Calculators are allowed. IMPORTANT : Provide your Student ID Number (or SSN) on both sides of the Scantron sheet. Copy all of your final answers onto the Scantron sheet. Please mark or erase properly to avoid mis-grades. Hand in both questions and answer sheet. This exam is taken under the Student Conduct Code, which stipulates: Any use of external assistance during an examination shall be considered academically dishonest unless expressly permitted by the instructor. The following are considered unacceptable examination behaviors: communicating with fellow students during an exam, copying material from another student’s exam, allowing another student to copy from an exam, possession or use of unauthorized notes, calculator, or other materials during exams and/or any behavior that defeats the intent of an exam or other classwork. Please sign your name below to acknowledge and accept the Student Conduct Code. SIGNATURE: (Please sign) NAME: (Please print) STUDENT ID (or SSN):

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1. Jeff is considering a project which will produce cash inflows of \$1,500 a year for 6 years. The project has a 10 percent required rate of return and an initial cost of \$6,200. What is the discounted payback period? A. 4.55 years B. 4.61 years C. 5.55 years D. 5.61 years E. never 2. You are considering two mutually exclusive projects with the following cash flows. Which project(s) should you accept if the discount rate is 7 percent? What if the discount rate is 10 percent? A. accept project A as it always has the higher NPV B. accept project B as it always has the higher NPV C. accept A at 7 percent and B at 10 percent D. accept B at 7 percent and A at 10 percent E. accept A at 7 percent and neither at 10 percent. 3. The advantages of the payback method of project analysis include the: I. application of a discount rate to each separate cash flow. II. bias towards liquidity. III. ease of use. IV. arbitrary cutoff point. A. I and II only B. I and III only C. II and III only D. II and IV only E. II, III, and IV only
4. Wiley Electric just purchased some MACRS 5-year property at a cost of \$118,000. Which one of the following will correctly give you the book value of this equipment at the end of year 3? A. \$118,000 / (1 + .20 + .32 + .192) B. \$118,000 (1 .20 .32 .192) C. \$118,000 (.20 + .32 + .192) D. {[\$118,000 (1 .20)] (1 .32)} (1 .192) E. \$118,000 /{[(1.20 / 1.32)] / 1.192} 5. McLain, Inc. currently produces boat sails and is considering expanding its operations to include awnings for homes and travel trailers. The company owns land beside its current manufacturing facility that could be used for the expansion. The company bought this land eight years ago at a cost of \$500,000. At the time of purchase, the company paid \$70,000 to level out the land so it would be suitable for future use. Today, the land is valued at

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buad306 midterm 2-2 - BUAD 306 FALL 2008 Business Finance...

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