ch 22, ch 7, Ch 31

The current spot rate for the Norwegian krone is $1 = NKr6.83. The expected inflation rate in Norway is 2 percent and in the U.S. 4 percent. A risk-free asset in the U.S. is yielding 5 percent. What risk-free rate of return should you expect on a Norwegian security? A. 2% B. 3% C. 4% D. 5% E. 6%

B

The Quick-Start Company has the following pattern of potential cash flows with its planned investment in a new cold weather starting system for fuel injected cars. if the company has a discount rate of 17%, what is the value closest to time 1 net present value? A. $48.6 million B. $80.9 million C. $108.2 million D. $181.4 million E. None of these

A

A new sweater costs 1,449.95 Russian rubles. How much will the identical sweater cost in Euros if absolute purchasing power parity exists and the following exchange rates apply? Russia ? 29.0190 Euro 1.2159 ? A. €41.09 B. €43.08 C. €45.90 D. €58.25 E. €60.75

A

A risk-free asset in the U.S. is currently yielding 3 percent while a Canadian risk-free asset is yielding 2 percent. The current spot rate is C$.72 is equal to $1. What is the approximate two-year forward rate if interest rate parity holds? A. C$.7057 B. C$.7128 C. C$.7136 D. C$.7189 E. C$.7272

A

Assume that you can buy 245 Canadian dollars with 100 British pounds. How much profit can you earn on a triangle arbitrage given the following rates if you start out with 100 U.S. dollars? Canada ? 1.35 UK 1.8305 ? A. $0.86 B. $0.93 C. $1.09 D. $1.37 E. $1.55

A

Quirk and Company has been busy analyzing a new product. It has determined that an operating cash flow of $18,500 will result in a zero net present value, which is a company requirement for project acceptance. The fixed costs are $14,000 and the contribution margin is $8.00. The company feels that it can realistically capture 10% of the 40,000 unit market for this product. Should the company develop the new product? Why or why not? A. No; because 4,000 units of sales is less than the quantity required for a zero net present value B. No; because the internal break-even point is greater than 4,000 units C. Yes; because the firm can generate sufficient sales to obtain at least a zero net present value D. Yes; because the project has an expected internal rate of return of 100% E. Yes; because the project will pay back on a discounted basis

A

The Can-Do Co. is analyzing a proposed project. The company expects to sell 12,000 units, give or take 4%. The expected variable cost per unit is $7 and the expected fixed cost is $36,000. The fixed and variable cost estimates are considered accurate within a plus or minus 6% range. The depreciation expense is $30,000. The tax rate is 34%. The sale price is estimated at $14 a unit, give or take 5%. The company bases its sensitivity analysis on the expected case scenario. What is the earnings before interest and taxes under the expected case scenario? A. $18,000 B. $24,000 C. $36,000 D. $48,000 E. $54,000

A

The current market value of the assets of Bigelow, Inc. is $86 million, with a standard deviation of 15% per year. The firm has zero-coupon bonds outstanding with a total face value of $45 million. These bonds mature in 2 years. The risk-free rate is 4% per year compounded continuously. What is the value of d 1 ? A. 3.54 B. 3.62 C. 3.68 D. 3.71 E. 3.75

A

The market price of ABC stock has been very volatile and you think this volatility will continue for a few weeks. Thus, you decide to purchase a one-month call option contract on ABC stock with a strike price of $25 and an option price of $1.50. You also purchase a one-month put option on ABC stock with a strike price of $25 and an option price of $.70. What will be your total profit or loss on these option positions if the stock price is $24.60 on the day the options expire? A. -$180 B. -$140 C. -$100 D. $0 E. $180

A

The spot rate for the Japanese yen currently is ¥106 per $1. The one-year forward rate is ¥105 per $1. A risk-free asset in Japan is currently earning 5 percent. If interest rate parity holds, approximately what rate can you earn on a one-year risk-free U.S. security? A. 6.00% B. 6.12% C. 6.20% D. 6.25% E. 6.33%

A

Thompson & Son has been busy analyzing a new product. It has determined that an operating cash flow of $16,700 will result in a zero net present value, which is a company requirement for project acceptance. The fixed costs are $12,378 and the contribution margin is $6.20. The company feels that it can realistically capture 10% of the 50,000 unit market for this product. Should the company develop the new product? Why or why not? A. Yes; because 5,000 units of sales exceeds the quantity required for a zero net present value B. Yes; because the internal break-even point is less than 5,000 units C. No; because the firm cannot generate sufficient sales to obtain at least a zero net present value D. No; because the project has an expected internal rate of return of negative 100% E. No; because the project will not pay back on a discounted basis

A

Wilson's Antiques is considering a project that has an initial cost today of $10,000. The project has a two-year life with cash inflows of $6,500 a year. Should Wilson's decide to wait one year to commence this project, the initial cost will increase by 5% and the cash inflows will increase to $7,500 a year. What is the value of the option to wait if the applicable discount rate is 10%? A. $1,006.76 B. $1,235.54 C. $1,509.28 D. $1,606.76 E. $1,735.54

A

You are analyzing a very low-risk project with an initial cost of £120,000. The project is expected to return £40,000 the first year, £50,000 the second year and £60,000 the third and final year. The current spot rate is £.54. The nominal return relevant to the project is 4 percent in the U.K. and 3 percent in the U.S. Assume that uncovered interest rate parity exists. What is the net present value of this project in U.S. dollars? A. $33,232 B. $34,040 C. $34,067 D. $34,422 E. $35,009

A

You are considering a new project. The project has projected depreciation of $720, fixed costs of $6,000, and total sales of $11,760. The variable cost per unit is $4.20. What is the accounting break-even level of production? A. 1,200 units B. 1,334 units C. 1,372 units D. 1,889 units E. 1,910 units

A

You are considering a project in Poland which has an initial cost of 250,000PLN. The project is expected to return a one-time payment of 400,000PLN 5 years from now. The risk-free rate of return is 3 percent in the U.S. and 4 percent in Poland. The inflation rate is 2 percent in the U.S. and 5 percent in Poland. Currently, you can buy 375PLN for 100USD. How much will the payment 5 years from now be worth in U.S. dollars? A. $101,490 B. $142,060 C. $1,462,350 D. $1,489,025 E. $1,576,515

A

You are considering a project which has been assigned a discount rate of 8%. If you start the project today, you will incur an initial cost of $480 and will receive cash inflows of $350 a year for three years. If you wait one year to start the project, the initial cost will rise to $520 and the cash flows will increase to $385 a year for three years. What is the value of the option to wait? A. $15.23 B. $17.08 C. $18.67 D. $20.20 E. $50.20

A

You are planning a trip to Australia. Your hotel will cost you A$150 per night for five nights. You expect to spend another A$2,000 for meals, tours, souvenirs, and so forth. How much will this trip cost you in U.S. dollars given the following exchange rates? Austrailia .7004 1.4278 A. $1,926 B. $2,007 C. $2,782 D. $2,856 E. $3,926

A

You own one call option with an exercise price of $30 on Nadia Interiors stock. This stock is currently selling for $27.80 a share but is expected to increase to either $28 or $34 a share over the next year. The risk-free rate of return is 5% and the inflation rate is 3%. What is the current value of your option if it expires in one year? A. $0.76 B. $0.79 C. $0.89 D. $0.92 E. $0.95

A

Assume that the delta of a call option on a firm's assets is .792. This means that a $50,000 project will increase the value of equity by: A. $27,902. B. $39,600. C. $43,820. D. $63,131. E. $89,600.

B

Assume that you can buy 250 Canadian dollars with 100 British pounds. Which one of the following statements is correct given the following exchange rates? Assume that you start out with British pounds. Canada ? 1.35 UK 1.8305 ? A. You can earn a profit of C$2.47 by using triangle arbitrage. B. You can earn a profit of £1.17 by using triangle arbitrage. C. You can earn a profit of C$1.17 by using triangle arbitrage. D. You can earn a profit of £2.47 by using triangle arbitrage. E. You cannot earn a profit given the current exchange rates.

B

At a production level of 5,600 units a project has total costs of $89,000. The variable cost per unit is $11.20. What is the amount of the total fixed costs? A. $24,126 B. $26,280 C. $27,090 D. $27,820 E. $28,626

B

At stage 2 of the decision tree it shows that if a project is successful, the payoff will be $53,000 with a 2/3 chance of occurrence. There is also the 1/3 chance of a $-24,000 payoff. The cost of getting to stage 2 (1 year out) is $44,000. The cost of capital is 15%. What is the NPV of the project at stage 1? A. $-13,275 B. $-20,232 C. $2,087 D. $7,536 E. Cannot be calculated without the exact timing of future cash flows

B

Given the following information, what is the value of d 2 as it is used in the Black-Scholes Option Pricing Model? Stock price $42 Time to expiration .25 Risk-free rate .055 Standard deviation .50 d 1 .375161 A. .021608 B. .125161 C. .175608 D. .200161 E. .250161

B

How many euros can you get for $2,500 given the following exchange rates? Euro 10606 .9424 A. €2,306 B. €2,357 C. €2,451 D. €2,652 E. €2,675

B

Marguerite is reviewing a project with projected sales of 1,500 units a year, a cash flow of $40 a unit and a three-year project life. The initial cost of the project is $95,000. The relevant discount rate is 15%. Marguerite has the option to abandon the project after one year at which time she feels she could sell the project for $60,000. At what level of sales should she be willing to abandon the project? A. 899 units B. 923 units C. 967 units D. 1,199 units E. 1,206 units

B

Martha B's has total assets of $1,750. These assets are expected to increase in value to either $1,800 or $2,400 by next year. The company has a pure discount bond outstanding with a face value of $2,000.This bond matures in one year. Currently, U.S. Treasury bills are yielding 6%. What is the value of the equity in this firm? A. $16.98 B. $34.59 C. $36.67 D. $37.08 E. $51.89

B

Several rumors concerning Wyslow, Inc. stock have started circulating. These rumors are causing the market price of the stock to be quite volatile. Given this situation, you decide to buy both a one-month put and a one month call option on this stock with an exercise price of $15. You purchased the call at a quoted price of $.20 and the put at a price of $2.10. What will be your total profit or loss on these option positions if the stock price is $4 on the day the options expire? A. -$230 B. $870 C. $890 D. $910 E. $1,310

B

Suppose that the spot rate on the Canadian dollar is C$1.18. The risk-free nominal rate in the U.S. is 5 percent while it is only 4 percent in Canada. Which one of the following three-year forward rates best establishes the approximate interest rate parity condition? A. C$1.120 B. C$1.145 C. C$1.192 D. C$1.216 E. C$1.239

B

Suppose that the spot rate on the Canadian dollar is C$1.40. The risk-free nominal rate in the U.S. is 8 percent while it is only 4 percent in Canada. Which one of the following one-year forward rates best establishes the approximate interest rate parity condition? A. C$1.278 B. C$1.344 C. C$1.355 D. C$1.456 E. C$1.512

B

The Adept Co. is analyzing a proposed project. The company expects to sell 2,500 units, give or take 10%. The expected variable cost per unit is $8 and the expected fixed costs are $12,500. Cost estimates are considered accurate within a plus or minus 5% range. The depreciation expense is $4,000. The sale price is estimated at $16 a unit, give or take 2%. The company bases its sensitivity analysis on the expected case scenario. The company conducts a sensitivity analysis using a variable cost of $9. The total variable cost estimate will be: A. $21,375 B. $22,500 C. $23,625 D. $24,125 E. $24,750

B

The Adept Co. is analyzing a proposed project. The company expects to sell 2,500 units, give ortake 10%. The expected variable cost per unit is $8 and the expected fixed costs are $12,500. Cost estimates are considered accurate within a plus or minus 5% range. The depreciation expense is $4,000. The sale price is estimated at $16 a unit, give or take 2%. The company bases its sensitivity analysis on the expected case scenario. The company is conducting a sensitivity analysis on the sales price using a sales price estimate of $17. Using this value, the earnings before interest and taxes will be: A. $4,000 B. $6,000 C. $8,500 D. $10,000 E. $18,500

B

The Can-Do Co. is analyzing a proposed project. The company expects to sell 12,000 units, give or take 4%. The expected variable cost per unit is $7 and the expected fixed cost is $36,000. The fixed and variable cost estimates are considered accurate within a plus or minus 6% range. The depreciation expense is $30,000. The tax rate is 34%. The sale price is estimated at $14 a unit, give or take 5%. The company bases its sensitivity analysis on the expected case scenario. What is the earnings before interest and taxes under the pessimistic case scenario? A. -$566.02 B. -$422.40 C. -$278.78 D. $3,554.50 E. $5,385.60

B

The Mini-Max Company has the following cost information on its new prospective project. Calculate the accounting break-even point. Initial investment: $700 Fixed costs: $200 per year Variable costs: $3 per unit Depreciation: $140 per year Price: $8 per unit Discount rate: 12% Project life: 5 years Tax rate: 34% A. 25 units per year B. 68 units per year C. 103 units per year D. 113 units per year E. None of these

B

The Quick-Start Company has the following pattern of potential cash flows with its planned investment in a new cold weather starting system for fuel injected cars. If the company has a discount rate of 17%, should it decide to invest? A. Yes, NPV = $2.2 million B. Yes, NPV = $21.6 million C. No, NPV = -$1.9 million D. Yes, NPV = $8.6 million E. No, since more than one branch is NPV = 0 or negative, the firm must reject.

B

The accounting break-even production quantity for a project is 5,425 units. The fixed costs are $31,600 and the contribution margin is $6. What is the projected depreciation expense? A. $700 B. $950 C. $1,025 D. $1,053 E. $1,100

B

The assets of Blue Light Specials are currently worth $2,100. These assets are expected to be worth either $1,800 or $2,300 one year from now. The company has a pure discount bond outstanding with a $2,000 face value and a maturity date of one year. The risk-free rate is 5%. What is the value of the equity in this firm? A. $166.67 B. $231.42 C. $385.71 D. $405.00 E. $714.29

B

The current spot rate is C$1.400 and the one-year forward rate is C$1.344. The nominal risk-free rate in Canada is 4 percent while it is 8 percent in the U.S. Using covered interest arbitrage, you can earn an extra _____ profit over that which you would earn if you invested $1 in the U.S. A. $.0000 B. $.0033 C. $.0040 D. $.0833 E. $.0840

B

The expected inflation rate in Switzerland is 2 percent while it is 3 percent in the U.S. A risk-free asset in the U.S. is yielding 3.5 percent. What real rate of return should you expect on a risk-free Swiss security? A. 2.0% B. 2.5% C. 3.0% D. 3.5% E. 4.0%

B

The market price of ABC stock has been very volatile and you think this volatility will continue for a few weeks. Thus, you decide to purchase a one-month call option contract on ABC stock with a strike price of $25 and an option price of $1.30. You also purchase a one-month put option on ABC stock with a strike price of $25 and an option price of $.50. What will be your total profit or loss on these option positions if the stock price is $24.60 on the day the options expire? A. -$180 B. -$140 C. -$100 D. $0 E. $180

B

Three months ago, you purchased a put option on WXX stock with a strike price of $60 and an option price of $.60. The option expires today when the value of WXX stock is $62.50. Ignoring trading costs and taxes, what is your total profit or loss on your investment? A. -$310 B. -$60 C. $0 D. $60 E. $190

B

Three months ago, you purchased a put option on WXX stock with a strike price of $61 and an option price of $.60. The option expires today when the value of WXX stock is $63.50. Ignoring trading costs and taxes, what is your total profit or loss on your investment? A. -$310 B. -$60 C. $0 D. $60 E. $190

B

What is the intrinsic value of the August 25 call? A. $0.10 B. $5.86 C. $6.15 D. $10.00 E. $25.00

B

What is the value of d 2 given the following information on a stock? Stock price $63 Exercise price $60 Time to expiration .50 Risk-free rate 6% Standard deviation 20% d 1 .627841 A. .3133 B. .4864 C. .5460 D. .6867 E. .7349

B

You are expecting a payment of C$100,000 four years from now. The risk-free rate of return is 3 percent in the U.S. and 4 percent in Canada. The inflation rate is 3 percent in the U.S. and 2 percent in Canada. The current exchange rate is C$1 = $.72. How much will the payment four years from now be worth in U.S. dollars? A. $68,887 B. $69,191 C. $69,300 D. $72,222 E. $74,953

B

You purchased four WXO 32 call option contracts at a quoted price of $.34. What is your net gain or loss on this investment if the price of WXO is $35 on the option expiration date? A. $266 B. $1,064 C. $1,093 D. $1,200 E. $2,125

B

You purchased six TJH call option contracts with a strike price of $40 when the option was quoted at $2. The option expires today when the value of TJH stock is $43. Ignoring trading costs and taxes, what is your total profit or loss on your investment? A. $6 B. $600 C. $800 D. $1,200 E. $1,800

B

You sold a put contract on EDF stock at an option price of $.40. The option had an exercise price of $20. The option was exercised. Today, EDF stock is selling for $19 a share. What is your total profit or loss on all of your transactions related to EDF stock assuming that you close out your positions in this stock today? Ignore transaction costs and taxes. A. -$140 B. -$60 C. $40 D. $60 E. $140

B

You want to invest in a riskless project in Sweden. The project has an initial cost of SKr2.1 million and is expected to produce cash inflows of SKr810,000 a year for 3 years. The project will be worthless after the first 3 years. The expected inflation rate in Sweden is 2 percent while it is 5 percent in the U.S. A risk-free security is paying 6 percent in the U.S. The current spot rate is $1 = SKr7.55. What is the net present value of this project in Swedish krona using the foreign currency approach? Assume that the international Fisher effect applies. A. SKr185,607 B. SKr191,175 C. SKr196,910 D. SKr197,867 E. SKr202,818

B

You wrote ten call option contracts on JIG stock with a strike price of $40 and an option price of $.40. What is your net gain or loss on this investment if the price of JIG is $46.05 on the option expiration date? A. -$6,450 B. -$5,650 C. $400 D. $5,650 E. $6,450

B

You wrote ten call option contracts on JIG stock with a strike price of $41 and an option price of $.60. What is your net gain or loss on this investment if the price of JIG is $46.05 on the option expiration date? A. -$5,050 B. -$4,450 C. $410 D. $4,450 E. $5,050

B

A firm is reviewing a project with a labor cost of $8.90 per unit, raw materials cost of $21.63 a unit, and fixed costs of $8,000 a month. Sales are projected at 10,000 units over the three-month life of the project. What are the total variable costs of the project? A. $216,300 B. $297,300 C. $305,300 D. $313,300 E. $329,300

C

A project has a contribution margin of $5, projected fixed costs of $10,000, a projected variable cost per unit of $12, and a projected present value break-even point of 6,000 units. What is the operating cash flow at this level of output? A. $2,000 B. $10,000 C. $20,000 D. $30,000 E. $120,000

C

A project has a contribution margin of $5, projected fixed costs of $12,000, a projected variable cost per unit of $12, and a projected present value break-even point of 5,000 units. What is the operating cash flow at this level of output? A. $1,000 B. $12,000 C. $13,000 D. $68,000 E. $73,000

C

Assume that $1 can buy you either ¥107 or £.55. If a TV in London costs £500, what will that identical TV cost in Tokyo if absolute purchasing power parity exists? A. ¥95,255 B. ¥96,667 C. ¥97,273 D. ¥98,008 E. ¥118,889

C

Given the following information, calculate the present value break-even point. Initial investment: $2,000 Fixed costs: $2,000 per year Variable costs: $6 per unit Depreciation: $250 per year Price: $20 per unit Discount rate: 10% Project life: 4 years Tax rate: 34% A. 100 units per year B. 143 units per year C. 202 units per year D. 286 units per year E. None of these

C

J&L, Inc. stock has a current market price of $55 a share. The one-year call on J&L stock with a strike price of $55 is priced at $2.50 while the one-year put with a strike price of $55 is priced at $1. What is the risk-free rate of return? A. 2.71% B. 2.76% C. 2.80% D. 2.84% E. 2.87%

C

Several rumors concerning Wyslow, Inc. stock have started circulating. These rumors are causing the market price of the stock to be quite volatile. Given this situation, you decide to buy both a one-month put and a one month call option on this stock with an exercise price of $15. You purchased the call at a quoted price of $.40 and the put at a price of $2.30. What will be your total profit or loss on these option positions if the stock price is $4 on the day the options expire? A. $190 B. $230 C. $830 D. $910 E. $1,500

C

The Adept Co. is analyzing a proposed project. The company expects to sell 2,500 units, give or take 10%. The expected variable cost per unit is $8 and the expected fixed costs are $12,500. Cost estimates are considered accurate within a plus or minus 5% range. The depreciation expense is $4,000. The sale price is estimated at $16 a unit, give or take 2%. The company bases its sensitivity analysis on the expected case scenario What is the amount of the fixed cost per unit under the pessimistic case scenario? A. $4.55 B. $5.00 C. $5.83 D. $6.02 E. $6.55

C

The Can-Do Co. is analyzing a proposed project. The company expects to sell 12,000 units, give or take 4%. The expected variable cost per unit is $7 and the expected fixed cost is $36,000. The fixed and variable cost estimates are considered accurate within a plus or minus 6% range. The depreciation expense is $30,000. The tax rate is 34%. The sale price is estimated at $14 a unit, give or take 5%. The company bases its sensitivity analysis on the expected case scenario. What is the earnings before interest and taxes under the optimistic case scenario? A. $22,694.40 B. $24,854.40 C. $37,497.60 D. $52,694.40 E. $67,947.60

C

The Meldrum Co. is analyzing a proposed project. The company expects to sell 3,000 units, give or take 15%. The expected variable cost per unit is $8 and the expected fixed costs are $12,500. Cost estimates are considered accurate within a plus or minus 5% range. The depreciation expense is $4,000. The sale price is estimated at $18 a unit, give or take 2%. The company bases its sensitivity analysis on the expected case scenario. The company is conducting a sensitivity analysis on the sales price using a sales price estimate of $17. Using this value, the earnings before interest and taxes will be: A. $7,500 B. $8,000 C. $10,500 D. $14,000 E. $23,500

C

The Meldrum Co. is analyzing a proposed project. The company expects to sell 3,000 units, give or take 15%. The expected variable cost per unit is $8 and the expected fixed costs are $12,500. Cost estimates are considered accurate within a plus or minus 5% range. The depreciation expense is $4,000. The sale price is estimated at $18 a unit, give or take 2%. The company bases its sensitivity analysis on the expected case scenario. What is the amount of the fixed cost per unit under the pessimistic case scenario? A. $4.17 B. $4.66 C. $5.15 D. $5.35 E. $6.02

C

The Meldrum Co. is analyzing a proposed project. The company expects to sell 3,000 units, give or take 15%. The expected variable cost per unit is $8 and the expected fixed costs are $12,500. Cost estimates are considered accurate within a plus or minus 5% range. The depreciation expense is $4,000. The sale price is estimated at $18 a unit, give or take 2%. The company bases its sensitivity analysis on the expected case scenario. What is the contribution margin under the expected case scenario? A. $8 B. $8.32 C. $10 D. $16 E. $18

C

The Quorum Company has the following cost information on its new prospective project. Calculate the present value break-even point. Initial investment: $700 Fixed costs are $300 per year Variable costs: $3 per unit Depreciation: $100 per year Price: $8 per unit Discount rate: 12% Project life: 3 years Tax rate: 34% A. 80 units per year B. 95 units per year C. 139 units per year D. 144 units per year E. 152 units per year

C

The accounting break-even production quantity for a project is 5,600 units. The fixed costs are $39,650 and the contribution margin is $8. What is the projected depreciation expense? A. $4,480 B. $5,100 C. $5,150 D. $5,320 E. $5,600

C

The current market value of the assets of ABC, Inc. is $86 million. The market value of the equity is $43.28 million. What is the market value of the firm's debt? A. Cannot be determined from the information given. B. $21.36 million C. $42.72 million D. $64.08 million E. $129.28 million

C

The current spot rate for the Norwegian krone is $1 = NKr6.83. The expected inflation rate in Norway is 3 percent and in the U.S. 2 percent. A risk-free asset in the U.S. is yielding 4.5 percent. What real rate of return should you expect on a risk-free Norwegian security? A. 4.5% B. 5.0% C. 5.5% D. 6.0% E. 6.5%

C

What is the value of a 9-month call with a strike price of $45 given the Black-Scholes Option Pricing Model and the following information? Stock price $48 Exercise price $45 Time to expiration .75 Risk-free rate .05 N(d 1 ) .718891 N(d 2 ) .641713 A. $2.03 B. $4.86 C. $6.69 D. $8.81 E. $9.27

C

What is the value of one November 35 put contract? A. $70 B. $460 C. $510 D. $4,600 E. $5,100

C

Wilson's Meats has computed its fixed costs to be $.60 for every pound of meat it sells given an average daily sales level of 500 pounds. It charges $3.89 per pound of top-grade ground beef. The variable cost per pound is $2.99. What is the contribution margin per pound of ground beef sold? A. $0.30 B. $0.60 C. $0.90 D. $2.99 E. $3.89

C

You are expecting a payment of 500,000PLN 3 years from now. The risk-free rate of return is 4 percent in the U.S. and 2 percent in Poland. The inflation rate is 4 percent in the U.S. and 1 percent in Poland. Currently, you can buy 380PLN for 100USD. How much will the payment 3 years from now be worth in U.S. dollars? A. $138,700 B. $138,900 C. $139,800 D. $142,300 E. $144,169

C

You purchased four WXO 30 call option contracts at a quoted price of $.34. What is your net gain or loss on this investment if the price of WXO is $33.60 on the option expiration date? A. -$1,576 B. -$136 C. $1,304 D. $1,440 E. $1,576

C

You purchased six TJH call option contracts with a strike price of $40 when the option was quoted at $1.30. The option expires today when the value of TJH stock is $41.90. Ignoring trading costs and taxes, what is your total profit or loss on your investment? A. $60 B. $320 C. $360 D. $420 E. $540

C

You want to import $45,000 worth of rugs from India. How many rupees will you need to pay for this purchase if one rupee is worth $.0218? A. 1,843,010Rs B. 2,032,018Rs C. 2,064,220Rs D. 2,075,002Rs E. 2,076,289Rs

C

You want to invest in a project in Canada. The project has an initial cost of C$1.2 million and is expected to produce cash inflows of C$600,000 a year for 3 years. The project will be worthless after the first 3 years. The expected inflation rate in Canada is 4 percent while it is only 3 percent in the U.S. The applicable interest rate in Canada is 8 percent. The current spot rate is C$1 = $.69. What is the net present value of this project in Canadian dollars using the foreign currency approach? A. C$335,974 B. C$342,795 C. C$346,258 D. C$349,721 E. C$356,750

C

Your firm is considering a project with a five-year life and an initial cost of $120,000. The discount rate for the project is 12%. The firm expects to sell 2,100 units a year. The cash flow per unit is $20. The firm will have the option to abandon this project after three years at which time it expects it could sell the project for $50,000. At what level of sales should the firm be willing to abandon this project? A. 420 units B. 1,041 units C. 1,479 units D. 1,618 units E. 2,500 units

C

A project has an accounting break-even point of 2,000 units. The fixed costs are $4,200 and the depreciation expense is $400. The projected variable cost per unit is $23.10. What is the projected sales price? A. $20.80 B. $21.00 C. $21.20 D. $25.40 E. $25.60

D

A project has earnings before interest and taxes of $5,750, fixed costs of $50,000, a selling price of $13 a unit, and a sales quantity of 11,500 units. Depreciation is $7,500. What is the variable cost per unit? A. $6.75 B. $7.00 C. $7.25 D. $7.50 E. $7.75

D

From the information below, calculate the accounting break-even point. Initial investment: $2,000 Fixed costs are $2,000 per year Variable costs: $6 per unit Depreciation: $250 per year Price: $20 per unit Discount rate: 10% Project life: 4 years Tax rate: 34% A. 88 units per year B. 100 units per year C. 143 units per year D. 161 units per year E. None of these

D

GS, Inc. stock is selling for $28 a share. A 3-month call on GS stock with a strike price of $30 is priced at $1.50. Risk-free assets are currently returning 0.3% per month. What is the price of a 3-month put on GS stock with a strike price of $30? A. $0.50 B. $2.02 C. $2.73 D. $3.23 E. $4.02

D

In the spot market, $1 is currently equal to A$1.42. The expected inflation rate is 3 percent in Australia and 2 percent in the U.S.. What is the expected exchange rate one year from now if relative purchasing power parity exists? A. A$1.4058 B. A$1.4062 C. A$1.4286 D. A$1.4342 E. A$1.4484

D

In the spot market, $1 is currently equal to £.55. The expected inflation rate in the U.K. is 4 percent and in the U.S. 3 percent. What is the expected exchange rate two years from now if relative purchasing power parity exists? A. £.5391 B. £.5445 C. £.5555 D. £.5611 E. £.5667

D

The Adept Co. is analyzing a proposed project. The company expects to sell 2,500 units, give or take 10%. The expected variable cost per unit is $8 and the expected fixed costs are $12,500. Cost estimates are considered accurate within a plus or minus 5% range. The depreciation expense is $4,000. The sale price is estimated at $16 a unit, give or take 2%. The company bases its sensitivity analysis on the expected case scenario What is the contribution margin under the expected case scenario? A. $2.67 B. $3.00 C. $7.92 D. $8.00 E. $8.72

D

The Adept Co. is analyzing a proposed project. The company expects to sell 2,500 units, give or take 10%. The expected variable cost per unit is $8 and the expected fixed costs are $12,500.Cost estimates are considered accurate within a plus or minus 5% range. The depreciation expense is $4,000. The sale price is estimated at $16 a unit, give or take 2%. The company bases its sensitivity analysis on the expected case scenario What is the sales revenue under the optimistic case scenario? A. $40,000 B. $43,120 C. $44,000 D. $44,880 E. $48,400

D

The Can-Do Co. is analyzing a proposed project. The company expects to sell 12,000 units, give or take 4%. The expected variable cost per unit is $7 and the expected fixed cost is $36,000. The fixed and variable cost estimates are considered accurate within a plus or minus 6% range. The depreciation expense is $30,000. The tax rate is 34%. The sale price is estimated at $14 a unit, give or take 5%. The company bases its sensitivity analysis on the expected case scenario. What is the contribution margin for a sensitivity analysis using a variable cost per unit of $8? A. $3 B. $4 C. $5 D. $6 E. $7

D

The Can-Do Co. is analyzing a proposed project. The company expects to sell 12,000 units, give or take 4%. The expected variable cost per unit is $7 and the expected fixed cost is $36,000. The fixed and variable cost estimates are considered accurate within a plus or minus 6% range. The depreciation expense is $30,000. The tax rate is 34%. The sale price is estimated at $14 a unit, give or take 5%. The company bases its sensitivity analysis on the expected case scenario. What is the operating cash flow for a sensitivity analysis using total fixed costs of $32,000? A. $14,520 B. $16,520 C. $22,000 D. $44,520 E. $52,000

D

The Meldrum Co. is analyzing a proposed project. The company expects to sell 3,000 units, give or take 15%. The expected variable cost per unit is $8 and the expected fixed costs are $12,500. Cost estimates are considered accurate within a plus or minus 5% range. The depreciation expense is $4,000. The sale price is estimated at $18 a unit, give or take 2%. The company bases its sensitivity analysis on the expected case scenario. The company conducts a sensitivity analysis using a variable cost of $9. The total variable cost estimate will be: A. $22,950 B. $24,000 C. $25,500 D. $27,000 E. $31,050

D

The Meldrum Co. is analyzing a proposed project. The company expects to sell 3,000 units, give or take 15%. The expected variable cost per unit is $8 and the expected fixed costs are $12,500. Cost estimates are considered accurate within a plus or minus 5% range. The depreciation expense is $4,000. The sale price is estimated at $18 a unit, give or take 2%. The company bases its sensitivity analysis on the expected case scenario. What is the sales revenue under the optimistic case scenario? A. $54,400 B. $55,080 C. $62,100 D. $63,342 E. $65,030

D

The Mini-Max Company has the following cost information on its new prospective project. Calculate the present value break-even point. Initial investment: $700 Fixed costs are $200 per year Variable costs: $3 per unit Depreciation: $140 per year Price: $8 per unit Discount rate: 12% Project life: 3 years Tax rate: 34% A. 68 units per year B. 75 units per year C. 84 units per year D. 114 units per year E. None of these

D

The camera you want to buy costs $399 in the U.S. If absolute purchasing power parity exists, the identical camera will cost _____ in Canada if the exchange rate is C$1 = $.7349. A. $266.67 B. $293.23 C. $505.09 D. $542.93 E. $566.67

D

The common stock of Winsson, Inc. is currently priced at $52.50 a share. One year from now, the stock price is expected to be either $54 or $60 a share. The risk-free rate of return is 4%. What is the value of one call option on Winsson stock with an exercise price of $55? A. $0.39 B. $0.41 C. $0.45 D. $0.48 E. $0.51

D

The current spot rate is C$1.362 and the one-year forward rate is C$1.371. The nominal risk-free rate in Canada is 6 percent while it is 3.5 percent in the U.S. Using covered interest arbitrage you can earn an extra _____ profit over that which you would earn if you invested $1 in the U.S. A. $.0018 B. $.0045 C. $.0120 D. $.0180 E. $.0240

D

The expected inflation rate in Finland is 2 percent while it is 4 percent in the U.S. A risk-free asset in the U.S. is yielding 5.5 percent. What real rate of return should you expect on a risk-free Finnish security? A. 2.0% B. 2.5% C. 3.0% D. 3.5% E. 4.0%

D

Three weeks ago, you purchased a July 45 put option on RPJ stock at an option price of $3.20. The market price of RPJ stock three weeks ago was $42.70. Today, RPJ stock is selling at $44.75 a share and the July 45 put is priced at $.80. What is the intrinsic value of your put contract? A. -$295 B. -$210 C. $0 D. $25 E. $110

D

Tru-U stock is selling for $36 a share. A 3-month call on Tru-U stock with a strike price of $40 is priced at $1. Risk-free assets are currently returning 0.25% per month. What is the price of a 3- month put on Tru-U stock with a strike price of $40? A. $2.98 B. $3.00 C. $4.03 D. $4.70 E. $4.90

D

You just returned from some extensive traveling throughout the Americas. You started your trip with $10,000 in your pocket. You spent 1.4 million pesos while in Chile. You spent another 40,000 bolivars in Venezuela. Then on the way home, you spent 34,000 pesos in Mexico. How many dollars did you have left by the time you returned to the U.S. given the following exchange rates? Venezuela .0882 ? Mexico ? 1919.39 Chile ? 633.31 A. $3,887 B. $4,039 C. $4,117 D. $4,244 E. $4,299

D

You own a call option on Jasper Co. stock that expires in one year. The exercise price is $42.50. The current price of the stock is $56.00 and the risk-free rate of return is 3.5%. Assume that the option will finish in the money. What is the current value of the call option? A. $13.04 B. $13.50 C. $13.97 D. $14.94 E. $15.46

D

You own two call option contracts on ABC stock with a strike price of $15. When you purchased the contracts the option price was $1.20 and the stock price was $15.90. What is the total intrinsic value of these options if ABC stock is currently selling for $14.50 a share? A. -$280 B. -$180 C. -$100 D. $0 E. $100

D

You sold ten put option contracts on PLT stock with an exercise price of $31.20 and an option price of $1.20. Today, the option expires and the underlying stock is selling for $33 a share. Ignoring trading costs and taxes, what is your total profit or loss on this investment? A. -$3,300 B. -$1,200 C. $120 D. $1,200 E. $3,300

D

You sold ten put option contracts on PLT stock with an exercise price of $32.50 and an option price of $1.10. Today, the option expires and the underlying stock is selling for $34.30 a share. Ignoring trading costs and taxes, what is your total profit or loss on this investment? A. -$2,900 B. -$1,100 C. $700 D. $1,100 E. $2,900

D

Assume that ¥107.62 equal $1. Also assume that 7.5415Skr equal $1. How many Japanese yen can you acquire in exchange for 6,200 Swedish krona? A. ¥419 B. ¥434 C. ¥41,719 D. ¥46,757 E. ¥88,476

E

At a production level of 6,000 units a project has total costs of $120,000. The variable cost per unit is $14.50. What is the amount of the total fixed costs? A. $25,165 B. $28,200 C. $30,570 D. $32,000 E. $33,000

E

Big Ed's Electrical has a pure discount bond that comes due in one year and has a face value of $1,000. The risk-free rate of return is 4%. The assets of Big Ed's are expected to be worth either $800 or $1,300 in one year. Currently, these assets are worth $1,140. What is the current value of the debt of Big Ed's Electrical? A. $222.46 B. $370.77 C. $514.28 D. $769.23 E. $917.54

E

Currently, $1 will buy C$1.36 while $1.10 will buy €1. What is the exchange rate between the Canadian dollar and the euro? A. C$1 = €1.10 B. C$1 = €.9091 C. C$1 = €1.2364 D. C$1.36 = €1.10 E. C$1.36 = €.9091

E

From the information below, calculate the accounting break-even point. Initial investment: $2,000 Fixed costs are $2,000 per year Variable costs: $68 per unit Depreciation: $300 per year Price: $25 per unit Discount rate: 10% Project life: 4 years Tax rate: 34% A. 88 units per year B. 89 units per year C. 92 units per year D. 135 units per year E. 136 units per year

E

Kurt Neal and Son is considering a project with a discounted payback just equal to the project's life. The projections include a sales price of $11, variable cost per unit of $8.50, and fixed costs of $4,500. The operating cash flow is $6,200. What is the break-even quantity? A. 1,800 units B. 2,480 units C. 3,057 units D. 3,750 units E. 4,280 units

E

Last week, you purchased a call option on Denver, Inc. stock at an option price of $1.05. The stock price last week was $28.10. The strike price is $27.50. What is the intrinsic value per share if Denver, Inc. stock is currently priced at $29.03? A. -$1.05 B. $0 C. $.48 D. $.93 E. $1.53

E

Ralph and Emma's is considering a project with total sales of $17,500, total variable costs of $9,800, total fixed costs of $3,500, and estimated production of 400 units. The depreciation expense is $2,400 a year. What is the contribution margin per unit? A. $4.50 B. $10.50 C. $14.14 D. $19.09 E. $19.25

E

Ryan Industries is considering a project with a discounted payback just equal to the project's life. The projections include a sales price of $12, variable cost per unit of $9, and fixed costs of $5,000. The operating cash flow is $8,000. What is the break-even quantity? A. 1,900 units B. 2,679 units C. 3,250 units D. 4,000 units E. 4,333 units

E

The Highlight Company has the following cost information on its new prospective project. Calculate the accounting break-even point. Initial investment: $800 Fixed costs: $300 per year Variable costs: $4 per unit Depreciation: $140 per year Price: $8 per unit Discount rate: 12% Project life: 5 years Tax rate: 34% A. 62 units per year B. 75 units per year C. 100 units per year D. 103 units per year E. 110 units per year

E

The common stock of Mercury Motors is selling for $43.90 a share. U.S. Treasury bills are currently yielding 4.5%. What is the current value of a one-year call option on Mercury Motors stock if the exercise price is $37.50 and you assume the option will finish in the money? A. $6.12 B. $6.40 C. $6.69 D. $7.67 E. $8.01

E

The spot rate for the British pound currently is £.55 per $1. The one-year forward rate is £.58 per $1. A risk-free asset in the U.S. is currently earning 3 percent. If interest rate parity holds, approximately what rate can you earn on a one-year risk-free British security? A. 4.01% B. 4.31% C. 6.22% D. 6.87% E. 8.62%

E

Today, you can exchange $1 for £.5428. Last week, £1 was worth $1.88. If you had converted £100 into dollars last week you would now have a: A. profit of $2.05. B. loss of $2.01. C. profit of £2.01. D. loss of $2.05. E. profit of £2.05.

E

Today, you can get either 140 Canadian dollars or 1,140 Mexican pesos for 100 U.S. dollars. Last year, 100 U.S. dollars was worth 139 Canadian dollars and 1,160 Mexican pesos. Which one of the following statements is correct given this information? A. $100 invested in Canadian dollars last year would now be worth 1,148.20 Mexican pesos. B. $100 invested in Mexican pesos last year would now be worth $98.28. C. $100 invested in Mexican pesos last year would now be worth $102.03 D. $1,200 invested in Canadian dollars last year would now be worth $1,208.63. E. $1,200 invested in Canadian dollars last year would now be worth $1,191.43.

E

What is the cost of five November 25 call option contracts on KNJ stock given the following price quotes? A. $615 B. $660 C. $2,500 D. $3,075 E. $3,300

E

You are analyzing a project with an initial cost of £80,000. The project is expected to return £10,000 the first year, £40,000 the second year and £50,000 the third and final year. The current spot rate is £.56. The nominal risk-free return is 5 percent in the U.K. and 7 percent in the U.S. The return relevant to the project is 8 percent in the U.K. and 9.25 percent in the U.S. Assume that uncovered interest rate parity exists. What is the net present value of this project in U.S. dollars? A. $7,787 B. $8,002 C. $8,312 D. $8,511 E. $8,885

E

You currently own a one-year call option on Way-One, Inc. stock. The current stock price is $26.50 and the risk-free rate of return is 4%. Your option has a strike price of $20 and you assume that it will finish in the money. What is the current value of your call option? A. $6.25 B. $6.50 C. $6.76 D. $7.13 E. $7.27

E

You own five put option contracts on XYZ stock with an exercise price of $25. What is the total intrinsic value of these contracts if XYZ stock is currently selling for $24.50 a share? A. -$250 B. -$50 C. $0 D. $50 E. $250

E

Your firm is considering a project with a five-year life and an initial cost of $120,000. The discount rate for the project is 12%. The firm expects to sell 2,100 units a year. The cash flow per unit is $20. The firm will have the option to abandon this project after three years at which time it expects it could sell the project for $50,000. You are interested in knowing how the project will perform if the sales forecasts for years four and five of the project are revised such that there is a 50% chance that the sales will be either 1,400 or 2,500 units a year. What is the net present value of this project given your sales forecasts? A. $23,617 B. $23,719 C. $25,002 D. $26,877 E. $28,746

E

A proposed project has fixed costs of $3,600, depreciation expense of $1,500, and a sales quantity of 1,300 units. What is the contribution margin if the projected level of sales is the accounting break-even point? A. $3.92 B. $4.14 C. $4.50 D. $4.80 E. $5.00

a

You sold a put contract on EDF stock at an option price of $.50. The option had an exercise price of $21. The option was exercised. Today, EDF stock is selling for $20 a share. What is your total profit or loss on all of your transactions related to EDF stock assuming that you close out your positions in this stock today? Ignore transaction costs and taxes. A. -$150 B. -$60 C. -$50 D. $60 E. $150

c