This preview shows pages 1–3. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: BUSI 2504B Practice Final SOLUTIONS Page 1/9 PART A: MULTIPLE CHOICE (10 QUESTIONS - 30 MARKS) [ 3] Q1. When net capital spending is a negative value, the firm has: (a) depreciation expense which exceeds the cost of new assets acquired. (b) acquired more fixed assets than it has current assets. (c) sold more fixed assets than it acquired during a stated period of time . (d) reduced its total assets during the course of the year. [ 3] Q2. What is the present value of $12,450 to be received 3 years from today if the discount rate is 4.25 percent? (a) $10,878.68. (b) $10,988.57 . (c) $10,929.13. (d) $8,788.24. [ 3] Q3. Bob bought some land costing $14,190. Today that same land is valued at $58,408. How long has Bob owned this land if the price of land has been increasing at 5 percent per year? (a) 28.51 years. (b) 28.67 years. (c) 28.72 years. (d) 29.00 years . [ 3] Q4. If you are borrowing money, which one of the following rates would you prefer? (a) 9% paid annually . (b) 9% compounded semi-annually. (c) 9% compounded quarterly. (d) 9% compounded monthly. [ 3] Q5. You are considering an annuity which costs $88,656 today. The annuity pays $6,100 a year. The rate of return is 5.5 percent. What is the length of the annuity time period? (a) 20.06 years. (b) 28.90 years. (c) 30.00 years . (d) 31.00 years. Page 2/9 BUSI 2504B Practice Final SOLUTIONS [ 3] Q6. You just paid $330,000 for a policy that will pay you and your heirs $12,200 a year forever. What rate of return are you earning on this policy? (a) 3.44 percent. (b) 3.57 percent. (c) 3.70 percent . (d) 3.30 percent. [ 3] Q7. If the coupon rate and yield to maturity are both 5%, then the bond must be: (a) A zero coupon bond. (b) Selling at a discount. (c) Selling at par . (d) Maturing within one year. [ 3] Q8. For a project with conventional cash flows, if NPV is greater than zero, then: (a) The IRR is equal to the firms required rate of return. (b) The profitability index is greater than 1 . (c) The payback period is faster than the firms required cutoff point. (d) The AAR exceeds the IRR. [ 3] Q9. The length of time needed to recover the initial investment once time value of money is considered is called the: (a) Discounted payback period . (b) Average accounting return period. (c) Discounted net present value period. (d) Payback period....
View Full Document