Problem 1: You will receive a $100,000 inheritance in 20 years. You can invest that money today at 6% compounded annually. What is the present value of your inheritance?
a. $27,491.25
b. $29,767.15
c. $31,180.47
d. $35,492.34
e. $100,000
Problem 2: Your grandfather place $2,000 in a trust fund for you. In 10 years the fund will be worth $5,000. What is the rate of return on the trust fund?
a. 5.98%
b. 8.76%
c. 9.60%
d. 9.98%
e. 10.14%
Problem 3: Your parents agree to pay half of the purchase price of a new car when you graduate from college. You will graduate and buy the car two years from now. You have $6,000 to invest today and can earn 10% on invested funds. If your parents match the amount you have in two years, what is the maximum you can spend on the new car?
a. $7,260
b. $11,948
c. $12,000
d. $13,250
e. $14,520
Problem 4: You need to borrow $18,000 to buy a truck. The current loan rate is 9.9% compounded monthly and you wan to pay the loan off in equal monthly payments over 5 years. What is the size of your monthly payment?
a. $363.39
b. $374.04
c. $381.56
d. $394.69
e. $455.66
Problem 5: What is the market value of a bond that will pay a total of forty semiannual coupons of $50 each over the remainder of its life? Assume the bond has a $1,000 face value and an 8% YTM.
a. $634.86
b. $642.26
c. $1,135.90
d. $1,197.93
e. $1,215.62
Problem 6: Calculate the NPV of the following project using a discount rate of 12%: Yr 0 = -$500; Yr 1 = -$50; Yr 2 = $50; Yr 3 = $200; Yr 4 = $400; Yr 5 = $400.
a. $0.00
b. $61.22
c. $118.75
d. $208.04
e. $269.21
Problem 7. You purchase a machine for $12,000, depreciated straight-line to a salvage value of $2,000 over its four-year life. If the machine is sold at the end of the third year for $6,000, what the after-tax proceeds from the sale, assuming your tax rate is 34%?
a. $1,010
b. $3,510
c. $5,010
d. $5,490
e. $6,990
Problem 8: What is the expected market return if the expected return on asset A is 16% and the risk-free rate is 7%? Asset A has a beta of 1.2.
a. 9.5%
b. 14.5%
c. 16.5%
d. 17.5%
e. 20.5%
Problem 9: Given the following: the risk-free rate is 8% and the market risk premium is 8.5%. Which projects should be accepted if the firm's beta is 1.27.
Project I --- Beta .65 - Expected Return 12%
Project II -- Beta .90 - Expected Return 17%
Project III - Beta 1.40 - Expected Return 19%
a. I only
b. II only
c. III only
d. I and II only
e. None of the projects are acceptable
Problem 10: Your firm decides to increase the time allowed customers to pay their bills from 30 to 40 days. All else the same, this action will _______ and _______.
a. increase the firm's operating cycle; increase the firms cash cycle
b. increase the firm's cash cycle; increase the firm's inventory cycle
c. increase the firm's accounts payable period; increase the firm's operating cycle
d. increase the firm's inventory cycle; increase the firm's operating cycle
e. increase the firm's accounts receivable period, increase the firm's inventory cycle
Use the following financial statement information to answer questions #41.
Item Beginning Ending
Inventory $800 $950
Accounts receivable $1,100 $1,200
Accounts payable $750 $650
Credit sales $8,420
Cost of goods sold $6,250
Problem 11: What is the inventory turnover?
a. 6.6 times
b. 7.1 times
c. 7.8 times
d. 8.9 times
e. 10.5 times