Most missed - finance final

32. A garage is installing a new "bubble-wash" car wash. It will promote the car wash a a fun activity for the family, and it is expected that the novelty of this approach will boost sales in the medium term. If the cost of capital is 10%, what is the net present value (NPV) of this project? A) 150,548$ B)165,603$ C)-143,021$ D)-135,493$

A

A firm is considering a new project that will generate cash revenue of $1,300,000 and cash expenses of $700,000 per year for five years. The equipment necessary for the project will cost $300,000 and will be depreciated straight line over four years. What is the expected free cash flow in the second year of the project if the firm's marginal tax rate is 35 %? A) $416,250 B) $374,625 C) $341,250 D) $499,500

A

A software company acquires a smaller company in order to acquire the patents that it holds. Where will the cost of this acquisition be recorded on the statement of cash flows? A) as an outflow under investment activities B) as an outflow under financial activities C) as an outflow under operating activities D) not recorded on the statement of cash flows

A

Refer to the balance sheet above. Luther's quick ratio for 2006 is closest to ________. A) 0.87 B) 0.88 C) 1.75 D) 1.31

A

The ultimate goal of the capital budgeting process is to ________. A) determine the effect of the decision to accept or reject a project on the firm's cash flows B) determine how the consequences of making a particular decision affects the firm's revenues and costs C) forecast the consequences of a list of future projects for the firm D) list the projects and investments that a company plans to undertake in the future

A

Two years ago you purchased a new SUV. You financed your SUV for 60 months (with payments made at the end of the month) with a loan at 5.95 % APR. Your monthly payments are $386.19 and you have just made your 24th monthly payment on your SUV. The amount of your original loan is closest to ________. A) $20,000 B) $22,000 C) $24,000 D) $28,000

A

You are considering investing in a zero-coupon bond that will pay you its face value of $1000 in twelve years. If the bond is currently selling for $496.97, then the internal rate of return (IRR) for investing in this bond is closest to ________. A) 6.0 % B) 8.2% C) 7.1% D) 5.0 %

A

Refer to the balance sheet above. If in 2006 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share, then using the market value of equity, the debt-equity ratio for Luther in 2006 is closest to ________. A) 3.45 B) 1.72 C) 0.86 D) 2.41

B

Refer to the balance sheet above. When using the book value of equity, the debt-equity ratio for Luther in 2006 is closest to ________. A) 4.51 B) 2.25 C) 1.13 D) 3.16

B

SAP Inc. received a $1.5 million grant under its Small Business Innovation program. SAP invested the grant money and developed a system to remove metal contaminants from storm water in shipyards. The firm estimates that each shipyard spends $500,000 a year on storm water clean-up efforts. If SAP is able to sign up and retain four shipyards in the first year onwards, what is the present value (PV) of the project (net of investment) if the cost of capital for SAP is 14% per year? Assume a cost of operations and other costs for SAP equal 50 % of revenue. A) $4.80 million B) $5.64 million C) $4.51 million D) $5.93 million

B

The Sisyphean Company is considering a new project that will have an annual depreciation expense of $3.6 million. If Sisyphean's marginal corporate tax rate is 35 % and its average corporate tax rate is 30%, then what is the value of the depreciation tax shield on the company's new project? A) $1,080,000 B) $1,260,000 C) $1,134,000 D) $1,890,000

B

Which of the following risk-free, zero-coupon bonds could be bought for the lowest price? A) one with a face value of $1,000, a YTM of 4.8%, and 5 years to maturity B) one with a face value of $1,000, a YTM of 5.9%, and 20 years to maturity C) one with a face value of $1,000, a YTM of 3.2%, and 8 years to maturity D) one with a face value of $1,000, a YTM of 6.8%, and 10 years to maturity

B

33) An investment will pay you $120 in one year and $200 in two years. If the interest rate is 4%, what is the present value of these cash flows? A) $320.00 B) $307.69 C) $300.29 D) $304.91

C

A corporation issues a bond that generates the above cash flows. If the periods are of 3-month intervals, which of the following best describes that bond? 0 1 2 3 59 60 |----------|-----------|----------| . . . . . . |-----------| $57.5 $57.5 $57.5 $57.5 $5057.5 A) a 15-year bond with a notional value of $5000 and a coupon rate of 1.2% paid annually B) a 60-year bond with a notional value of $5000 and a coupon rate of 4.6 % paid quarterly C) a 15-year bond with a notional value of $5000 and a coupon rate of 4.6 % paid quarterly D) a 30-year bond with a notional value of $5000 and a coupon rate of 3.5 % paid semiannually

C

An investor is considering a project that will generate $900,000 per year for four years. In addition to upfront costs, at the completion of the project at the end of the fifth year there will be shut-down costs of $400,000 . If the cost of capital is 4.4%, based on the MIRR, at what upfront costs does this project cease to be worthwhile? A) $2.62 million B) $3.21 million C) $2.91 million D) $3.50 million

C

Consider the above Income Statement for CharmCorp. All values are in millions of dollars. If CharmCorp. has 4 million shares outstanding, and its managers and employees have stock options for 2 million shares, what is its diluted EPS in 2008 ? A) $1.33 B) $2.00 C) $1.67 D) $0.83

C

Sunnyfax Publishing pays out all its earnings and has a share price of $37. In order to expand, Sunnyfax Publishing decides to cut its dividend from $3.00 to $2.00 per share and reinvest the retained funds. Once the funds are reinvested, they are expected to grow at a rate of 13%. If the reinvestment does not affect Sunnyfax's equity cost of capital, what is the expected share price as a consequence of this decision? A) $62.86 B) $36.67 C) $52.38 D) $41.90

C

The Busby Corporation had a share price at the start of the year of $26.10 , paid a dividend of $0.59 at the end of the year, and had a share price of $29.50 at the end of the year. Which of the following is closest to the rate of return of investments in companies with equal risk to The Busby Corporation for this period? A) 12% B) 13% C) 15% D) 14%

C

What is the present value (PV) of an investment that pays $100,000 every year for four years if the interest rate is 5% APR, compounded quarterly? A) $424,581 B) $459,963 C) $353,818 D) $389,200

C

Your estimate of the market risk premium is 7%. The risk-free rate of return is 4% and General Motors has a beta of 1.6 . What is General Motors' cost of equity capital? A) 13.7% B) 16.0% C) 15.2% D) 14.4%

C

1) Which of the following statements regarding growing perpetuities is FALSE? A) PV of a growing perpetuity = Cr - g B) To find the value of a growing perpetuity one cash flow at a time would take forever. C) A growing perpetuity is a cash flow stream that occurs at regular intervals and grows at a constant rate forever. D) We assume that r < g for a growing perpetuity.

D

20) Which of the following is NOT an advantage of a sole proprietorship? A) single taxation B) ease of setup C) no separation of ownership and control D) unlimited liability

D

A small manufacturer that makes clothespins and other household products buys new injection molding equipment for a cost of $500,000. This will allow the manufacturer to make more clothespins in the same amount of time with an estimated increase in sales of 25 %. If the manufacturer currently makes 75 tons of clothespins per year, which sell at $18,000 per ton, what will be the increase in revenue next year from the new equipment? A) $837,500 B) $303,750 C) $125,000 D) $337,500

D

Matthew wants to take out a loan to buy a car. He calculates that he can make repayments of $5000 per year. If he can get a four-year loan with an interest rate of 7.9 %, what is the maximum price he can pay for the car? A) $19,918 B) $26,557 C) $23,237 D) $16,598

D

Sinclair Pharmaceuticals, a small drug company, develops a vaccine that will protect against Helicobacter pylori, a bacteria that is the cause of a number of diseases of the stomach. It is expected that Sinclair Pharmaceuticals will experience extremely high growth over the next three years and will reinvest all of its earnings in expanding the company over this time. Earnings were $1.10 per share before the development of the vaccine and are expected to grow by 40% per year for the next three years. After this time, it is expected that growth will drop to 5% and stay there for the expected future. Four years from now Sinclair will pay dividends that are 75% of its earnings. If its equity cost of capital is 12%, what is the value of a share of Sinclair Pharmaceuticals today? A) $20.62 B) $33.96 C) $33.51 D) $24.17

D

What is the internal rate of return (IRR) of an investment that requires an initial investment of $11,000 today and pays $15,400 in one year's time? A) 37% B) 43% C) 44% D) 40%

D

Which of the following statements is FALSE? A) Interest rates we observe in the market will vary based on quoting conventions, the term of investment, and risk. B) The opportunity cost of capital is the best available expected return offered in the market on an investment of comparable risk and term of the cash flows being discounted. C) The opportunity cost of capital is the return the investor forgoes when the investor takes on a new investment. D) For a risk-free project, the opportunity cost of capital will typically be greater than the interest rate of U.S. Treasury securities with a similar term.

D

Which of the following statements regarding real options is NOT correct? A) Real options should only be exercised when they increase the NPV of a project. B) Real options give owners the right, but not the obligation, to exercise these opportunities at a later date. C) Real options build greater flexibility into a project and thus increase its net present value (NPV). D) Real options enhance the forecast of a project's expected future cash flows by incorporating, at the start of the project, the effect of decisions that will be made at a later date.

D