# exam 3c - Name _ Peoplesoft Number _ University of Houston...

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Name _________________________________ Peoplesoft Number _________________________________ University of Houston Bauer College of Business Finance 3332 Principles of Financial Management Exam 3C: Fall, 2009 Show equations either in variable form or equations with numbers plugged in, unless instructed differently Calculator financial function inputs must be shown. Clearly indicate your (one) answer Carry all decimals, rounding only final answer Decimal places on answers should be rounded to 4 places (2 in percent form) Currency answers rounded to the nearest cent, where applicable Include applicable units on answers Point values are in parentheses. 1.  What is the  value  of a  6 percent,  28  year  \$1000  bond  that pays  interest   semi-annually  if the  bond’s  yield  to  maturity is 4 percent?  (Only  calculator  inputs  are  required.)  (6) 2.   MNO  Corporation’s  current  annual  com m on  stock  dividend  is \$0.60  per  share.  Over  the  next   two years,  earnings  and  dividends  are  expe cted  to grow  at an  annual  rate  of 10  percent,  then   slow  to a  constant  rate  of 8 percent  thereafter.  What is the  value  per  share  of the  stock  to an   3.   A project  has  an  installed  cost  of \$50,000.  The  project  replace s  an  existing  piece  of  equipm ent  that has  an  estimated  salvage  value  of \$8,000  and  has  a  book  value  of \$6000.  The   firm’s  marginal  tax rate  is 40  percent,  and  a  return  of 14  percent  is required  on  projects  of this   4.  Castle  Corporation  is planning  a  capital  project  with equipm ent  costing  a  total of \$800,000,   which  includes  shipping  of \$10,000  and  installation  of \$90,000.  This  equipm ent  has  an  expe cted   life  of 10  years  and  a  salvage  value  of \$1000.  Revenu e s  are  expected  to increas e  by  \$99,000   per  year  and  operating  expens e s  by  \$2000  per  year.  An additional  working  capital  investment  of  \$1200  is also  required,  and  the  firm’s  marginal  tax rate  is 40  percent.  What are  the   Net Cash 5.  An investment  project  requires  a  net  investm ent  of \$700,000.  The  project  is expe cted  to  generate  annual  net  cash  flows  of \$100,000  for the  next  20  years.  The  firm's  cost  of capital  is 16   a)  Calculate  the  project’s  NPV, determine  whether  or  not the  project  should  be  accepted,  and   state  your  conclusion.  (Show  calculator  inputs;  no  equation  required.)  (6) b)   Evaluate  the  project  using  IRR. (Show  calculator  inputs;  no  equation  required.)  (4)

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6.  Manage m e nt  is planning  for a  capital  budget  of \$500  million.  Retained  earnings  for the
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## This note was uploaded on 11/30/2010 for the course FINA 10606 taught by Professor Darlachisholm during the Fall '08 term at University of Houston.

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exam 3c - Name _ Peoplesoft Number _ University of Houston...

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