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Unformatted text preview: Name ._ Peoplesoft Number University of Houston
C. T. Bauer College of Business
Finance 3332
Spring, 2011
Exam 1B To receive full credit:
0 Show all work—equations in variable form & equations with numbers plugged in
Clearly indicate your answer
Financial functions may be used only for finding annuity factors
All inputs to ﬁnd annuity factor must be shown
Carry all decimals, rounding only final answer
Decimal places should be rounded to four places (two in percent form)
Currency answers rounded to the nearest cent, where applicable
Include applicable units ($, %, etc.) on answers 1. How much would Uncle Tiger be willing to pay for an investment with the following cash flow
stream if his required return is 13 percent? (6) : 2&—
W 4} (“Qt °" PV : f—L—LF + 5:;
(\+L)L \\+n)3 5000 6000 _/'—_—. (M3)" * (in)? = 3016.13 *Q'S’LtltAO ﬁlé‘iWCOABK 2. Daisy Mae borrowed $60,000 at an annual rate of 14 percent to be repaid with annual
payments over the next 12 years. How much will be her annual payments? (8) v\ PVA=PmT'P\liFA;n l“:
(5.66035 ‘4 IT,
(90,000 = PmT~ Pm PAM.“ ,\ pvm _ (90 000 L9T9“"5'é‘°°3
PM" “DrewW
I if 3. For this problem, variable form equation is not required, but you must show equations with
numbers plugged in where applicable. (10) A corporation had taxable income of $13,000,000. Over 18,333,333 35% X Taxable Income 0+) 3) What is the firm’s income tax liability?
3M ; ‘6, "{00, 000 + (35303000000 — io,ooo,oool = B’Uioopoor “050,000
: 4* 4,450,000. (2) b) What is the firm's marginal tax rate? W WTaleL,
CL” c) What is the firm’s average tax rate?
"—‘b‘q 5° '000 m
I3’Ooo .000 ’— 4. How much should I pay for an investment which pays $9000 per year for 13 years, with the
first payment beginning in 4 years, if my opportunity cost is 12 percent? (10) LAN Scull? m ONE ere? OR TWO.  5N
Pm» PM PA 1,)“ n, £/\r two)“ > —\ Pm‘V g
V (e'qZbs VT P‘l 
: ‘1000. menu”) C
M (W03
; swan/M __—______——"‘ \Hoﬂﬁ = l5 Lil. \“lol.3al WA" 5. How much must Tommy save each year if his account earns an annual rate of 4 percent and
he wants to have $20,000 to pay for his daughter's wedding in 7 years? (8) FVA=~PMT«PVlFALH (makes) ‘
20,000 ‘ PmT FV\PA’04I1 *\ Pm".
(OTF‘J: 1.30133
PmT; 10000
1&995 = éusazn‘l
__________ 6. Hildegard is planning to repay a 12 percent loan which requires annual payments of $2000
per year. If she makes her payments at the beginning of each year, how much will be her
annual payments? (4) 3;
mm: 2‘00: . mesnl 7. Refer to the following quotes to complete the sentence below. Australian Dollars to 1 Euro
Dec. 29, 2010 0.7707 AUD/EUR _
Feb. 22, 2011 0 7334 AUD/EUR
Over this roughly twomonth period, the Australian Dollar has in value relative to the Euro. (4) 8. If Clayton saves $20,000 per year. how much will he have in 18 years if his account earns 8
percent compounded annually? (8) it"; :4
FVA = W01 FulPA cm ‘6 3/1
(31.4501) —\ Pym
= 20,000 a .081'8 FV": —, $1i+°'004.6‘1
L_________________._L 9. Cody Ann sold her fourwheeler for $8000 and deposited the proceeds in a savings account.
How much will she have in 9 years if her account earns 7 percent, compounded annually? (6) FV =WL\+'~Y‘
. 90000.01)q
: 0000(Légag) 10. A few months ago, Frank purchased 400 shares of stock for $60 per share, the stock is now
worth $68, and he received a dividend check of $1200. What is his holding period return? (6) : BBQ 
DP5 40° 3
: E+D—l5_ sea—34.90: \\ _
“i” is to 'gazzowMo 11. Rusty wants to have $100,000 in his account in 8 years. How much must he deposit today if
his account earns 7 percent per year? (6) F" \00 000
PV : I 6 ': \.._——IO : Q (l.o‘l) \f—Hez / 12. How much is Candice willing to pay for an investment that promises to pay $50 per year
. forever, if she requires a 16 percent return? (4) V CT. : 3;“:— .\“’3\z.60 L/ Characterize each statement by circling T for True or F for False. (2 points each) T 1. Hetty Green, known as the Witch of Wall Street, didn't take her son to the doctor
because she did not trust that he would be well cared for. GDP 2. If a corporation has $10.000 in dividend income. taxable income will decrease by $3000. 3000
T 3. The primary goal of the ﬁnancial manager is to maximize the corporation's Net
Income. T Q 4. Eurocurrency is a currency that is deposited in a European bank. @F 5. Financial intermediaries consist of companies such as commercial banks and thrift
institutions. and they differ from financial middlemen in that they issue secondary
claims to the ultimate lender rather than primary claims. (D F 6. The three basic forms of business ownership determine the liability, control, taxation,
and capital access characteristics of a ﬁrm. CD F 7. Capital market efﬁciency implies that since there are no predictable patterns of
security prices and interest rate movements over time, ﬁnancing decisions based on
market timing are not likely to be proﬁtable. on average. T F 8. Given the following information concerning taxable income for a corporation which
was formed in 2005, the ﬁrm's tax liability in 2006 would be $10,000. Taxable Income
2005 $50,000 — 50,000 ' 0 "
4 2006 80.000 — 60,000 ' ° ’
2007 140,000 ..
2008 125,000 40,000 \\5 ,ooo Quasi... \vxcomL
2009 75,000
T 9. if I am interested in maximizing my wealth, and I have a choice of three cash payouts.
I would prefer option two (2) if my opportunity cost is 20 percent.
V 1) $2000 today as 2.000
2) $470.05 per year for ten years l‘l‘l o. (0“ 3) $12,201.88 to be received in ten years. \‘t'io. 61 T ® 10. The inverse relationship between interest rates and value implies that if interest rates
increase. the value of an asset will increase, ceteris paribus. ‘l i, ...
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 Spring '10
 CHISHOLM
 Finance

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