fin 2 exam

A company is considering a new venture. This venture will require the purchase of $321,000 of equipment (which will be depreciated straight-line to zero over the life of the project and have no salvage value), $45,000 in inventory, and will increase accounts payable by $73,000. Expected sales are $625,000 with costs of $480,000. The project will last for five years, be taxed at 35% and have a required rate of return of 14%. What is the net present value of this project?

$93,167

Given the following information and assuming straight-line depreciation to zero, what is the NPV of this project? Initial investment = $80,000; life = 4 years; cost savings = $30,000 per year; salvage value = $10,000 in year 4; tax rate = 35%; discount rate = 12%.

$4,621

fast eddie's used cars will sell you a 1989 Mazda Minata for $5000 with no money down. you agree to make weekly payments for 2 years, beginning one week after you buy the car. The stated rate on the loan is 13%. How much is each payment?

$54.66

McGonigal's Meats, Inc. currently pays no dividends. The firm plans to begin paying dividends in 3 years. The first dividend will be $1.50 and dividends will grow at 6% per year thereafter. Given a required return of 14%, what would you pay for the stock today?

14.42

Dizzy Corp. bonds bearing a coupon rate of 12%, pay coupons semiannually, have 3 years remaining to maturity, and are currently priced at $940 per bond. What is the yield to maturity?

14.54%

Given the following information and assuming straight-line depreciation to zero, what is the IRR of this project? Initial investment = $6,000; life = 4 years; cost savings = $2,500 per year; salvage value = $2,000 in year 4; tax rate = 35%; discount rate = 10%.

21.56%

A furniture manufacturer is planning on buying a new industrial sander costing $118,000. The sander has projected maintenance costs of $16,000 annually over the three-year life of the sander. At the end of the three years, the sander will be worthless and will be scrapped. The company has a 34% tax rate, a 16% discount rate, and uses straight-line depreciation over the life of a project. What is the equivalent annual cost?

$68,540

what is the total present value of $80 received in one year, $300 received in two years, and $700 received in six years if the discount rate is 7%?

$803.24

The lowest Moody's bond rating category of investment grade quality is:

Baa

A project costs $300 and has cash flows of $75 for the first three years and $50 in each of the project's last three years. If the discount rate is 15%, what is the discounted payback period?

The project never pays back on a discounted basis

the main risk that the debt ratings specifically attempt to asses is default risk

True

_____________ is an account into which periodic payments are made for the purpose of retiring a bond issue

a sinking fund

which of the following does NOT incorporate discounted cash flow(DCF) valuation in its calculation

average accounting return

in comparing two projects using an NPV profile, at the point where net present of the projects invovled are equal ____________

the discount rate that equates them is called the crossover rate

when we employ ______ we are evaluating a project on the basis of its incremental cash flows, thereby ignoring the other cash flows for the firm

the stand-alone principle

a _________ has a limit order on book on the New York Stock Exchange

specialist

Interest rates or rates of return on investment that have been adjusted for the effects of inflation are called:

real rates

which of the following is NOT an incremental cash flow in capital budgeting analysis

sunk cost

You purchase a machine for $20,000, depreciated straight-line to a salvage value of $5,000 over its 5 year life. If the machine is sold at the end of the fourth year for $10,000, what are the after-tax proceeds from the sale, assuming your tax rate is 35%?

$ 9,300

Pale Hose Corp. will pay a dividend next year of $2.25 per share. Both sales and profits for Pale Hose are expected to grow at a rate of 20% for the following 2 years and then at 5% per year thereafter indefinitely. Dividend growth is expected to match sales growth. If the required return is 15%, what is the value of a share of Pale Hose?

$28.50

Wong Exporters purchased an $89,000 truck that is being depreciated straight-line over 5 years. The company has a marginal tax rate of 33% and a discount rate of 12%. After 3 years, the company expects to sell the truck for $36,500. What is the after-tax salvage value at the time of the intended sale?

$36,203

You are considering a project that costs $600 and has expected cash flows of $224, $250.88 and $280.99 over the next three years. If the appropriate discount rate for the project's cash flows is 12%, what is the net present value of this project?

0.00

J&J Manufacturing just issued a bond with a $1,000 face value and a coupon rate of 8%. If the bond has a life of 20 years, pays annual coupons, and the yield to maturity is 7.5%, what will the bond sell for?

1,051

What is the total future value six years from now of $80 received in one year, $300 received in two years, and $700 received in six years if the discount rate is 7%?

1,205.44

given the following cash flows, what is the discount rate if the present value is $2,450? 1, $700 2, $950, 3,$1400

10.48%

Suppose a firm invests $250 in a project. The initial cost is depreciated straight-line to zero over 3 years. Net income from the project is $10, $30 and $50 in each of the three years of the project's life. What is the average accounting return?

24%

You are evaluating two mutually exclusive projects, A and B. Project A costs $600 and has cash flows of $400 in each of the next 2 years. Project B also costs $600, and generates cash flows of $500 and $275 for the next 2 years, respectively. What is the crossover rate?

25%

What would you pay today for a stock that is expected to make a $2 dividend in one year if the expected dividend growth rate is 5% and you require a 12% return on your investment?

28.57

Suppose NoGro, Inc. has just issued a dividend of $3.25 per share. Subsequent dividends will remain at $3.25 indefinitely. Returns on the stock of firms like NoGro are currently running 10%. What is the value of one share of stock?

32.50

A project costs $300 and has cash flows of $75 for the first three years and $50 in each of the project's last three years. What is the payback period of the project?

4.50 years

. Given the following project information and assuming straight-line depreciation to zero, what is the discounted payback period? Initial investment = $500,000; life = 5 years; cost savings = $160,000 per year; salvage value = $30,000 in year 5; tax rate = 34%; discount rate = 13%.

5 years

Suppose a project costs $2,500 and produces cash flows of $400 over each of the following 8 years. What is the IRR of the project?

5.84%

what is the effective annual rate of 6% compounded quarterly?

6.14%

Llano's stock is currently selling for $40.00. The expected dividend one year from now is $2 and the required return is 13%. What is this firm's dividend growth rate assuming the constant dividend growth model is appropriate?

8%

If Big Amp, Inc. stock closed at $36 and the current quarterly dividend is $0.75 per share, what dividend yield would be reported for the stock in The Wall Street Journal?

8.3

ABC Corporation's common stock dividend yield is 3.61%. It just paid a dividend of $2.75, and will pay a dividend of $2.89 one year from now. Dividends are expected to grow at a constant rate indefinitely. What is the required rate of return on ABC stock?

8.7%

hich of the following are considered cash flows of a project? I. Taxes II. Financing costs III. Sunk costs IV. Opportunity costs

I and IV only

Interest rates or rates of return on investment that have not been adjusted for the effects of inflation are called:

Nominal rates.

at the discount rate of 10% which is worth more today? $10,000 to be receive at the end of five years from now or an annuity of $2,000 at the end of each year for the next 5 years

The annuity

which of the following is a plausible example of a negative restrictive bond covenant?

The company must avoid dividend payments in excess of its debt expense

a pawn shop has more customers than funds. Which capital budgeting technique would allow them to rank their potential customers in order to maximize current wealth?

profitability index

A company owns a building that is totally paid for. This building has been sitting idle for the past three years. Now the company is trying to analyze a project that would include the use of this building. Which of the following costs should be included in that analysis? I. The past property taxes on the building II. The past insurance on the building III. The current market value of the building IV. The future cost to survey the lot to construct a drainage pond required for the project

b. III and IV only

in capital budgeting, it is important to identify and use only incremental cash flows

because ultimately it is the change in a firm's overall future cash flows that matter

the total return on a share of common stock is comprised of a

capital gains and dividend yield

a claim on a specific property is called a

collateral bond or a mortgage bond

a general claim on property that is not otherwise pledged is called a

debuture (unsecured loan)

the length of time for an investment discounted cash flows to equal its inital cost is its

discounted payback period

which is not a reason the valuation of common stock is harder than of bonds

dividends must be paid before interest payments can be made

true of false: an annuity interest rate expressed with compounding

effective annual rate

a firm experiences __________ when the cash flows of a new project come at the expense of a firm's existing projects

erosion

the written agreement between the corporation and its bond creditors is called an

indenture

as the interest rate on a five year annual annuity is increased, what happens to the future value of the annuity, all else unchanged?

it rises

the ____________ decision rule is considered the best in principle

net present value

the most valuable investment gven up if an alternative investment is chosen is

opportunity cost

an annuity stream where the payments occur forever is called a(n

perpetuity

which of the following is not a right of an owner of a share of common stock

preference over preffered shareholders in the payment of dividends

a grand of authority allowing for another individual to vote your shares is what?

proxy