1FINANCE (FIN 3001, Section 11)
INTERMEDIATE FINANCE
FALL 2012
PROFESSOR: ARTHUR WILSON
NAME_______________________
FINAL EXAM (30 points)
Please confine your work to these sheets (including the backs).
Write clearly.
Include your name.
Clearly mark your answers. If you wish to add a sentence or two to
clarify your answers, you may receive partial credit (this is a good idea).
Good Luck!
Multiple Choice (1 point each)
1) A firm has total debt of $1,420 and a debt-equity ratio of .28. What is the value of the total assets?
a) $3,986
b) $1,818
c) $2,800
d) $6,491
e) $5,071
f) Other, specify.
2) You are borrowing $5,270 to buy a car. The terms of the loan call for monthly payments for 4 years at a
5.50 % interest. What is the amount of each payment?
a) $122.56
b) $98.41
c) $123.99
d) $97.86
e) $126.14
f) Other, specify
3) Jefferson & Sons is evaluating a project that will increase annual sales by $80,000 and annual costs by
$40,000. The project will initially require $145,000 in fixed assets that will be depreciated straight-line to a
zero book value over the 10 year life of the project. The applicable tax rate is 34 %. What is the operating
cash flow for this project?
a) $31,330
b) $25,500
c) $23,170
d) $16,830
e) $26,400
f) Other, specify
4) Hickock Mining is evaluating when to open a gold mine. The mine has 70,000 ounces of gold left that can
be mined, and mining operations will produce 7,000 ounces per year. The required return on the gold mine is
12 %, and it will cost $16 million to open the mine. When the mine is opened, the company will sign a contract
that will guarantee the price of gold for the remaining life of the mine. If the mine is opened today, each ounce
of gold will generate an aftertax cash flow of $443 per ounce. If the company waits one year, there is a 58 %
probability that the contract price will generate an aftertax cash flow of $493 per ounce and a 42 %
probability that the aftertax cash flow will be $403 per ounce.
What is the value of the option to wait?
a) $267,828.62
b) $233,765.98
c) $50,632.64
d) $126,687.55
e) $-66,716.15
f) Other, specify.
5) The outstanding bonds of Winter Time Products provide a real rate of return of 3.20 %. The current rate
of inflation is 2.10 %. What is the nominal rate of return on these bonds?
a) 5.30 %
b) 5.37 %
c) 5.32 %
d) 5.35 %
e) 5.39 %
f) Other, specify.