Unit 2 FIN 3100
Exam Review
Define and understand the term APR by its relationship to EAR, use of the rate and its relationship to the legal
mandates (Truth in Savings Law)
APR (annual percentage rate) is what is earned yearly by investing or charged for
FIN 3100
Fall 2016
Dr. Amine Khayati
Chapter 6 Review questions
Bonds and Bond Valuation
1- Face value and par value are synonymous terms.
a- true
b- false
2- To determine the value of a bond at a particular point in time we use the yield to
maturity, whi
FIN 3100
Fall 2016
Dr. Amine Khayati
Chapter 9 Review questions
Capital Budgeting Decision Models
1- A project with a net present value of zero implies that the project:
a- does not payback its initial cash outlay
b- has an initial cost of zero
c- has cas
FIN 3100
Fall 2016
Dr. Amine Khayati
Chapter 7 Lecture Notes
Stocks and Stock Valuation
I- Characteristics and Features of common and preferred stocks:
Common stock features:
- A common stock is a stock that has no special preference either in paying divi
FIN 3100
Fall 2016
Dr. Amine Khayati
Chapter 10 Review questions
Cash Flow Estimation
1- The incremental cash flow for a project can be defined as the firms cash flows if the
project is undertaken minus the firm cash flows if the project is not undertaken
Market interest rates and bond prices are:
Which one of the following terms refers to a bond's rate of return that is required by
the market place?
When a bond's yield to maturity is less than the bond's coupon rate, the bond:
1)
A 6.5 percent coupon bond
Question 1
A bond has a face value of $1,000, a market price of $1,112, and
pays $45 in interest every six months.
A bond has a face value of $1,000, a market price of $1,112, and pays $45 in
interest every six months.
What is the coupon rate?
1) 4.05 per
Morris Industries would like to purchase some new equipment costing $1.56 million.
This purchase is
scheduled for 3 years from today. The company earns 3.8 percent compounded
monthly on its savings. How
much does the company need to save at the end of eac
Question 1
Which one of the following is the rate of return an investor earns on
a bond before adjusting for inflation?
Which one of the following is the rate of return an investor earns on a bond before
adjusting for inflation?
1) Nominal rate
2) Real ra
Which one of the following is a primary market transaction?
1) Kate, the president of Logistics, Inc., sells some of her shares in the
firm on the NYSE.
1) Kate, the president of Logistics, Inc., sells some of her shares in the firm on
the NYSE.
1) Kate,
Question 1
Cash flow to creditors is defined as:
Cash flow to creditors is defined as:
1) interest paid minus net new borrowing.
2) interest paid
plus net new borrowing.
1) interest paid minus net new borrowing.
2) interest paid plus net
new borrowing.
1)
CH 13 Risk/Return
Uncertainty is the absence of knowledge of the actual outcome of an event before it happens.
Risk a measure of the uncertainty in a set of potential outcomes for an event in which there is
a chance of some loss.
Financial markets allow c
Print CH 11 Slides:
2, 4, 8, 13, 16
Examples for Capstone Project (Hit Excel Icon)
o Slide 3: New Project
o Slide 5: Sensitivity Analysis
Total Cost (TC) = Fixed Cost (FC) + Variable Cost (VC)*Q
NI = (Sales VC FC D)*(1-T) = 0
o Q(P) Q(VC) FC D = 0
o Q(P V
FIN 3100
Chapter 8 In-Class Exercises
1.Using the following returns, calculate:
a. The average return.
b. The variance.
c. The standard deviation.
Remember that:
Variance is the average squared difference between the actual return and
the average return.
FIN 3100
Chapter 7 In-Class Exercises
1. A firm pays a constant annual dividend of $1.60 per share on its
common stock. How much are you willing to pay for one share of this
stock if you want to earn an 11% rate of return?
2. A firm pays a constant annual
FIN 3100
Chapter 8 In-Class Exercises
1.Using the following returns, calculate:
a. The average return.
b. The variance.
c. The standard deviation.
Remember that:
Variance is the average squared difference between the actual return and
the average return.
FIN 3100
Chapter 9 In-Class Exercises - #1
1. A project has an initial cost of $215,000. The project produces cash
inflows of $34,200, $64,700, $57,600, $47,900, and $26,500,
respectively. (1) What is the Payback Period for this project? (2)
Should the pr
FIN 3100
Chapter 11 In-Class Exercises
1. COST OF DEBT - A firm issued a $1,000 face value, 30-year, 8%, semi-annual
coupon bond seven years ago. The current quote of the bond is 107. The firms
tax rate is 35%. What is the after-tax cost of debt [(Rd)(1-T
FIN 3100
Chapter 9 In-Class Exercises - #2
Your firm would like to launch a new product. It will only do so if it can
enhance shareholder wealth by undertaking a project that will produce cash
flows sufficient to offset required rates of return. The firm
FIN 3100
Chapter 10 In-Class Exercise
1. Your firm is considering launching a new product. The project details follow:
Expected Sales - 50,000 cans/year
Expected Price - $4.00/can
Variable Cost - $2.50/can
Project Life 3 years
Discount Rate - 20% (on proj
FIN 3100
Chapter 3 In-Class Exercises
FV = PV (1 + r)t
PV = FV / (1 + r)t
1. You are planning for retirement. Your 401(k) pays 10%. (a) What
amount would you have to invest today to have $1,000,000 when you
retire in 45 years? (b) What if the interest wer
FIN 3100
Chapter 4 In-Class Exercises
1. A firm is considering a project that will produce cash inflows of $10,000
in year one, $25,000 in year two, and $50,000 in year three. What is the
present value of these cash inflows if the company assigns the proj
FIN 3100
Chapter 6 In-Class Exercises
1. A bond has a 9% coupon and pays interest semi-annually. Manually
calculate the amount of each coupon payment if the face value of the
bond is $1,000.
2. A bond has a 6% coupon rate, matures in 14 years, and pays in
FIN 3100
Chapter 10 In-Class Exercise
1. Your firm is considering launching a new product. The project details follow:
Expected Sales - 50,000 cans/year
Expected Price - $4.00/can
Variable Cost - $2.50/can
Project Life 3 years
Discount Rate - 20% (on proj
FIN 3100
Chapter 9 In-Class Exercises #1
1. A project has an initial cost of $215,000. The project produces cash
inflows of $34,200, $64,700, $57,600, $47,900, and $26,500,
respectively. (1) What is the Payback Period for this project? (2)
Should the proj
FIN 3100
Chapter 9 In-Class Exercises #2
Your firm would like to launch a new product. It will only do so if it can
enhance shareholder wealth by undertaking a project that will produce cash
flows sufficient to offset required rates of return. The firm wa
FIN 3100
Chapter 7 In-Class Exercises
1. A firm pays a constant annual dividend of $1.60 per share on its
common stock. How much are you willing to pay for one share of this
stock if you want to earn an 11% rate of return?
2. A firm pays a constant annual
FIN 3100
Chapter 11 In-Class Exercises
1. COST OF DEBT - A firm issued a $1,000 face value, 30-year, 8%, semi-annual
coupon bond seven years ago. The current quote of the bond is 107. The firms
tax rate is 35%. What is the after-tax cost of debt [(Rd)(1-T