1) In five years your oldest child will be in 8th grade, at which point you and your family plan to vacation in Europe. You estimate that you will need $20,000 for the trip. How much do you need to set aside today if you can place your money in an investment vehicle earning an average of 4.50% per year?

A) $16,058

B) $14,961

C) $16,049

D) $15,073

2) Simpson Construction had sales seven years ago of $2,150,000. This year their sales hit $4,600,000. What has been Simpson's average annual rate of growth of sales?

A) $350,000 per year

B) 30.56%

C) 11.48%

D) None of the above

3) You just won a lottery - CONGRATULATIONS! Your parents have always told you to plan for the future, so since you already have a well-paying job you decide to invest rather than spend your lottery winnings. The payment schedule from the lottery commission is $100,000 after taxes at end of year one and 19 more payments of exactly $100,000 after taxes in equal annual end-of-the-year deposits (i.e., the first of the next 19 deposits is one year from today) into your account paying 7% compounded annually. How much money will be in your account after the last deposit is made?

A) $4,099,549.23

B) $3,637,896.48

C) $4,486,517.68

D) $2,000,000.00

4) You invest $15,000 today, compounded monthly, with an annual interest rate of 8.25%. What amount of interest will you earn in one year?

A) $1,298.98

B) $1,723.23

C) $1,285.38

D) $1,295.38

5) You buy a stock for which you expect to receive an annual dividend of $2.10 for the fifteen years that you plan on holding it. After 15 years, you expect to sell the stock for 32.25. What is the present value of a share for this company if you want a 10% return?

A) $31.41

B) $7.72

C) $23.69

D) $15.97

6) The Belgium Bike Company just paid an annual dividend of $1.12. If you expect a constant growth rate of 4% and have a required rate of return of 13%, what is the current stock price according to the constant growth dividend model?

A) $12.44

B) $13.46

C) $12.94

D) There is not enough information to answer this question

7) In a stream of past dividends, the initial dividend is $0.75 and the most recent dividend is $1.25. The number of years between these two dividends (n) is 8 years. What is the average growth rate during this eight-year period? Use a calculator to determine your answer.

A) 6.59%

B) 6.69%

C) 6.72%

D) 6.62%

8) Boyer Corp. has outstanding borrowings. One of these borrowings is nonconvertible preferred stock (cumulative) with a par value of $75 and an annual dividend rate of 8.25%. This preferred stock is currently selling for $56.46 per share. What is the yield or return (r) on this preferred stock?

A) 10.432%

B) 10.959%

C) 10.395%

D) 10.623%

9) Andre is considering an investment in Pollard's Inc. and has gathered the following information. What is the expected return for a share of the firm's stock?

State of the Economy
Probability of the State
Conditional Expected Return
Vandelay Inc.
Recession
.20
-10%
Steady
.50
10%
Boom
.30
45%

A) 15.00%

B) 16.50%

C) 65.00%

D) 45.00%

10) Richard owns the following portfolio of securities. What is the beta for the portfolio?

Company
Beta
Percent of Portfolio
Apple
2.50
25%
Wells Fargo
0.65
50%
Ebay
1.70
25%

A) 1.38

B) 1.62

C) 0.65

D) 1.00

11) Given an expected market return of 12.0%, a beta of 0.75 for Benson Industries, and a risk-free rate of 4.0%, what is the expected return for Benson Industries?

A) 9.0%

B) 10.0%

C) 4.0%

D) 13.0%

12) Jolly Roger Kite Company has a payment cycle of 17 days, a collection cycle of 31 days, and a production cycle of 12 days. What is the average cash conversion cycle for the Jolly Roger Company?

A) 60 days

B) 2 days

C) 36 days

D) 26 days

13) What is the present value today of an ordinary annuity cash flow of $3,000 per year for forty years at an interest rate of 6.0% per year if the first cash flow is six years from today?

A) $120,000.00

B) $33,730.40

C) $1,327,777.67

D) $45,138.89

14) Ten years ago Bacon Signs Inc. issued twenty-five-year 8% annual coupon bonds with a $1,000 face value each. Since then, interest rates in general have risen and the yield to maturity on the Bacon bonds is now 9%. Given this information, what is the price today for a Bacon Signs bond?

A) $919.39

B) $901.77

C) $1.085.59

D) $1,000

15) Endicott Enterprises Inc. has issued 30-year semiannual coupon bonds with a face value of $1,000. If the annual coupon rate is 14% and the current yield to maturity is 15%, what is the firm's current price per bond?

A) $466.79

B) $934.34

C) $934.20

D) $1,000.00

16) Benson Biometrics Inc., has outstanding $1,000 face value 8% coupon bonds that make semiannual payments, and have 14 years remaining to maturity. If the current price for these bonds is $987.24, what is the annualized yield to maturity?

A) 8.15%

B) 8.64%

C) 8.38%

D) 8.00%

17) Consider the following four-year project. The initial outlay or cost is $180,000. The respective cash inflows for years 1, 2, 3 and 4 are: $100,000, $80,000, $80,000 and $20,000. What is the discounted payback period if the discount rate is 11%?

A) About 2.427 years

B) About 2.000 years

C) About 2.135 years

D) About 1.667 years

18) Geronimo, Inc. is considering a project that has an initial after-tax outlay or after-tax cost of $220,000. The respective future cash inflows from its four-year project for years 1 through 4 are: $50,000, $60,000, $70,000 and $80,000. Geronimo uses the net present value method and has a discount rate of 11%. Will Geronimo accept the project?

A) Geronimo rejects the project because the NPV is about -$2,375.60.

B) Geronimo rejects the project because the NPV is about -$12,375.60.

C) Geronimo rejects the project because the NPV is about -$22,375.73.

D) Geronimo accepts the project because the NPV is greater than $10,000.00.

19) Opie, Inc. is considering an eight-year project that has an initial after-tax outlay or after-tax cost of $180,000. The future after-tax cash inflows from its project for years 1 through 8 are the same at $38,000. Opie uses the net present value method and has a discount rate of 11.50%. Will Opie accept the project?

A) Opie accepts the project because the NPV is greater than$12,000.

B) Opie rejects the project because the NPV is about -$11,114.

C) Opie rejects the project because the NPV is less than -$12,000.

D) Opie accepts the project because the NPV is about $11,114.

20) Dice, Inc. is considering a very risky five-year project that has an initial outlay or cost of $70,000. The future cash inflows from its project for years 1, 2, 3, 4, and 5 are all the same at $35,000. Dice uses the internal rate of return method to evaluate projects. Will Dice accept the project if its hurdle rate is 41.00%?

A) Dice will accept this project because its IRR is over 45.50%.

B) Dice will probably accept this project because its IRR is about 41.04%, which is slightly above its hurdle rate.

C) Dice will probably reject this project because its IRR is about 39.74%, which is slightly below its hurdle rate.

D) Dice will accept this project because its IRR is about 41.50%.

21) Find the Modified Internal Rate of Return (MIRR) for the following annual series of cash flows, given a discount rate of 10.50%: Year 0: -$75,000; Year 1: $15,000; Year 2: $16,000; Year 3: $17,000; Year 4: $17,500; and, Year 5: $18,000.

A) About 7.35%

B) About 7.88%

C) About 6.35%

D) About 6.88%

22) Pigeon, Inc. is currently considering an eight-year project that has an initial outlay or cost of $80,000. The future cash inflows from its project for years 1 through 8 are the same at $30,000. Pigeon has a discount rate of 13%. Because of concerns about funds being short to finance all good projects, Pigeon wants to compute the profitability index (PI) for each project. What is the PI for Pigeon's current project?

A) About 1.60

B) About 1.80

C) About 1.70

D) About 1.50

23) Baldwin Co. purchases an asset for $50,000. This asset qualifies as a five-year recovery asset under MACRS, with the fixed depreciation percentages as follows: year 1 = 20.00%; year 2 = 32.00%; year 3 = 19.20%; year 4 = 11.52%. Baldwin has a tax rate of 35%. If the asset is sold at the end of four years for $5,000, what is the after-tax cash flow from disposal?

A) $3,535.36

B) $6274.00

C) $2,592.00

D) $3,408.22

25) The following information comes from the Galaxy Construction balance sheet. The value of common stock is $10,000, retained earnings equals $7,000, total common equity equals $17,000, preferred stock has a value of $3,000, and long-term debt totals $15,000. If the cost of debt is 8.00%, preferred stock has a cost of 10.00%, common stock has a cost of 12.00%, and the firm has a corporate tax rate of 30%, calculate the firm's WACC adjusted for taxes.

A) 10.00%

B) 10.11%

C) 9.09%

D) There is not enough information to answer this question.