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2504i_deferred0 - Deferred EXAMINATION June 2010 DURATION 3...

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Deferred EXAMINATION June 2010 DURATION: 3 HOURS No. of Students: 2 Course: BUSI 2504I - Essentials of Business Finance Instructor: Mitch Murphy Student Name: Student Number: Grade: / 60 + / 40 = / 100 AUTHORIZED MEMORANDA BAII Plus calculator One double-sided 8.5”x11” handwritten notes/formula sheet Students MUST count the number of pages in this examination question paper before beginning to write, and report any discrepancy to a proctor. This question paper has 12 pages (including this cover). This examination question paper MAY NOT be taken from the examination room. In addition to this question paper, students require: an examination booklet NO a Scantron sheet NO This examination question paper MAY NOT be released to the library.
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Page 2/12 Deferred Exam - June 2010 BUSI 2504I PART A: MULTIPLE CHOICE (31 QUESTIONS - 60 MARKS) [ 2] Q1. Tiffany invests $5,000 at her bank using a certificate of deposit. She receives an annual interest rate of 6% for 7 years. To the nearest dollar, how much interest will this investment earn by the time it matures? (a) $2,021. (b) $2,100. (c) $2,368. (d) $2,518 . [ 2] Q2. A firm is considering a project that will generate perpetual cash flows of $15,000 per year beginning next year. Equity costs 14% and debt costs 4% on an after-tax basis. The firm’s D/E ratio is 0.8. What is the most the firm can pay for the project and still earn its required return? (a) $138,000. (b) $157,000 . (c) $164,000. (d) $182,000. [ 2] Q3. The reason cash flow is used in capital budgeting is because (a) cash rather than income is used to purchase new machines. (b) investors care more about cash flow than accounting profit. (c) cash outlays need to be evaluated in terms of the present value of the resultant cash inflows. (d) cash salvage value represents a return from the initial investment, even if it occurs as the project is coming to an end. (e) all of the above . [ 2] Q4. A conventional cash flow is defined as a series of cash flows where: (a) The total of the cash flows is positive. (b) All of the cash flows are positive. (c) The sum of the cash flows is equal to zero. (d) The present value of the cash flows is equal to zero. (e) Only the initial cash flow is negative .
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BUSI 2504I Deferred Exam - June 2010 Page 3/12 [ 2] Q5. 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. [ 2] Q6. When the decision to accept or reject one project affects the decision to accept or reject another project, the projects are said to be: (a) Mutually inclusive. (b) Mutually exclusive . (c) Independent. (d) A crossover project.
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