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q3version1 (1) - MGT 3062 FINANCIAL MANAGEMENT FALL 2009...

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MGT 3062 FINANCIAL MANAGEMENT FALL 2009 QUIZ 3 Student: ___________________________________________________________________________ This quiz is long, please work quickly. Choose the BEST answer to each question. Bubble in your answer on the form provided. If you feel the answer is not provided, show your work, explain your assumptions, and write your answer on the exam. Remove all hats and dark glasses. If you have to go to the restroom, go now. No electronic devices allowed. You may not use your cell phone as a calculator. As a courtesy to your classmates, no questions are allowed after the initial instructions are given. Ethics Challenge: I swear by everything I hold sacred and my family honor that: the work on this exam is my own without outside assistance, that I did not provide assistance to another classmate, that I used no electronic devices for information storage, retrieval, or communications, that I have abided by the Georgia Tech honor code in the preparation and execution of this exam. Signature:____________________________________________________________________________ 1. A project will produce cash inflows of $2,250 a year for five years. The project initially costs $9,400 to get started. In year six, the project will end and will provide a final cash flow of $1,500. What is the net present value of this project if the required rate of return is 14.4 percent? A. $1,080.08 B. $783.72 C. $919.92 D. $461.07 E. $1,207.50 2. The cash flows of a project should: A. include all sunk costs and opportunity costs. B. include the effects of erosion. C. be included in the year when the related expense or income is recognized by GAAP. D. include all financing costs related to the project. E. be computed on a pre-tax basis. 3. A project creates value for a firm's owners: A. whenever the payback period exceeds the life of the project. B. whenever the internal rate of return is less than the required return. C. when the net present value of the project is positive. D. whenever the profitability index is less than one. E. any time the cash inflows exceed the cash outflows.
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4. Courtney is analyzing two mutually exclusive projects of similar size and has compiled the following information based on her analysis. Both projects have four year lives. Courtney has been asked for her best recommendation given this information. Her recommendation should be to accept: A. both projects as they both have positive net present values. B. project A and reject project B based on their average accounting returns. C. project A because it has the shortest payback period. D. project B and reject project A based on their net present values. E. project B and reject project A based on both the payback period and the average accounting return. 5. Edward's Manufactured Homes purchased some machinery 2 years ago for $319,000. These assets are classified as 5-year property
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q3version1 (1) - MGT 3062 FINANCIAL MANAGEMENT FALL 2009...

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