version1 (1) - MGT 3062 FINANCIAL MANAGEMENT - EXAM 2...

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MGT 3062 FINANCIAL MANAGEMENT - EXAM 2 SPRING 2008 Version #1 Student: ___________________________________________________________________________ Choose the best answer to each question and mark your answer on the answer sheet. Ethics Challenge: I did not violate the Georgia Tech Honor code while taking or preparing for this exam: Signature: _________________________________ 1. What is the expected return on a portfolio comprised of $7,500 in stock M and $2,500 in stock N if the economy enjoys a boom period? A. 8.25 percent B. 8.16 percent C. 12.25 percent D. 15.75 percent E. 6.93 percent 2. Which one of the following will increase the net present value of a project? A. having all incoming cash flows occur in the final year of a project rather than periodically over a five-year period B. an increase in the discount rate C. increasing the amount of the initial cash outflow D. decreasing the required rate of return E. decreasing the amount of each cash inflow 3. When the present value of the cash inflows exceeds the initial cost of a project, then the project should be: A. rejected because the net present value is negative. B. accepted because the profitability index is greater than 1. C. accepted because the internal rate of return is positive. D. accepted because the profitability index is negative. E. rejected because the internal rate of return is negative. 1
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4. Justin's Manufacturing purchased a lot in Lake City ten years ago at a cost of $790,000. Today, that lot has a market value of $1.2 million. At the time of the purchase, the company spent $100,000 to grade the lot and another $20,000 to build a small garage on the lot to house additional equipment. The company now wants to build a new facility on the site. The building cost is estimated at $1.7 million. What amount should be used as the initial cash flow for this project? A. $2,610,000 B. $2,900,000 C. $3,690,000 D. $3,020,000 E. $2,490,000 5. You are comparing stock A to stock B. Given the following information, which one of these two stocks should you prefer and why? A. Stock A; Stock A has a slightly lower expected return but appears to be significantly less risky than stock B. B. Stock B; Stock B has a much higher return which compensates for the additional risk. C. Stock A; Stock A has an expected return of 10.2 percent and appears to be less risky. D. Stock B; Stock B has a higher expected return and appears to be just slightly more risky than stock A. E. Stock A; Stock A has a higher expected return and appears to be less risky than stock B. 6. The Fine Leather Co. has bonds outstanding that mature in nine years, have a 7 percent coupon, and pay interest annually. These bonds have a face value of $1,000 and a current market price of $1,080. What is the company's aftertax cost of debt if their tax rate is 35 percent? A. 5.83 percent
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This note was uploaded on 02/09/2012 for the course MGT 3078 taught by Professor Marchman during the Spring '12 term at Georgia Institute of Technology.

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version1 (1) - MGT 3062 FINANCIAL MANAGEMENT - EXAM 2...

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