ADMS3530-Final-F05

ADMS3530-Final-F05 - Name _ Section _ ID # _ (Prof. Kings...

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Page 1 Name ___________________________ Section _____ ID # ______________________ (Prof. King’s section G; Prof. Li’s sections A, C, and D; Prof. Tahani’s section E; Prof. Wong’s section H; and Prof. Yildirim’s sections B and F) AK/ADMS 3530 Final Exam Fall 2005 December 16, 2005 Type A Exam This exam consists of 50 multiple choice questions. Choose the response which best answers each question. Circle your answers below, and fill in your answers on the bubble sheet. Only the bubble sheet is used to determine your exam score . BE SURE TO BLACKEN THE BUBBLES CORRESPONDING TO YOUR STUDENT NUMBER. Please note the following eight points : 1) Please use your time efficiently and start with the questions that you are most comfortable with first. Remember : every question carries the same weight, so please do NOT spend too much time on one particular question; 2) Read the exam questions carefully; 3) Choose the answers that are closest to yours, because of possible rounding; 4) Keep at least 2 decimal places in your calculations and final answers, and at least 4 decimal places for interest rates; 5) Interest rates are annual unless otherwise stated; 6) Bonds pay semi-annual coupons unless otherwise stated; 7) Bonds have a par value (or face value) of $1,000; and 8) You may use the back of the exam paper as your scrap paper. 1. When comparing projects of different lives, we should: a) Use the discounted payback rule. b) Choose the project which has the lowest IRR. c) Choose the project that has the lowest equivalent annual cost. d) Choose the project which has the highest profitability index. Questions 2 to 5 are based on the following information ; A firm is considering the following three projects. Its opportunity cost of capital is 8%. Project Initial Investment Cash Flow Year 1 Cash Flow Year 2 Cash Flow Year 3 Cash Flow Year 4 A -3,000 1,200 1,000 3,000 0 B -1,000 0 1,200 0 1,000 C -5,000 1,000 1,000 3,000 2,000
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Page 2 2. Given that you wish to use the payback rule with a cutoff period of 2 years, which project(s) would you accept? a) project A only b) project B only c) project C only d) none of the projects 3. If you use a cutoff period of 3 years with the discounted payback period rule, which project(s) would you accept? a) project A only b) projects A and B c) projects A and C d) none of the projects 4. Which project(s) have a positive NPV? a) project A only b) project B only c) projects A and C d) all of the projects 5. Which project(s) would you choose under the IRR rule? a) projects A and B b) projects B and C c) all of the projects d) none of the projects
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Page 3 6. A company owns a building that is totally paid for. This building has been sitting idle for the past three years. Now the company is trying to analyze a project that would include the use of this building. Which of the following costs should be included in that analysis? I.
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ADMS3530-Final-F05 - Name _ Section _ ID # _ (Prof. Kings...

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