Question 1

A firm is considering three projects. Project A requires an initial investment of $80,000 and is expected to have an NPV of $80,000. Project B requires an initial investment of $160,000 and is expected to have an NPV of $80,000. Project C requires an initial investment of $240,000 and is expected to have an NPV of $80,000. Rank each project from highest profitability index to lowest, left to right.

BAC
ACB
CBA
ABC

Question 2

Kelty Inc. manufactures a line of high end back packs. Their average selling price is $180 per unit with a variable cost of $60 per unit. Kelty's annual fixed expense is $480,000 per year. What is the EBITDA break-even point in units for the company?

4,000
3,000
2,000
5,000

Question 3

Hazlitt Inc. is considering investing $50,000 in a project that will result in a cash flow of $12,000 at the end of the first year. It is expected that the cash flow will increase each year by 20%. What is the approximate payback period for this project?

3.7 years
3.3 years
4.2 years
4.8 years


Question 4

Birmingham Corporation's advisors indicate that the risk-free rate equals 4%, and the market return equals 9%. If Birmingham's required return on common stock is 12%, then what is the stock's beta?

0.9
1.0
1.5
1.6

Question 5

You buy a new piece of equipment for $75,000, and you receive a cash inflow of $18,500 per year for 6 years. What is the internal rate of return?

16.3%
14.8%
18.2%
12.5%

Question 6

Assume a company anticipates selling 5,000 units a year. Each order will cost the company $50 to place; and the price per unit is $20 with a 10% carrying cost to maintain the average inventory. Please find the EOQ.

500
1000
250
750

Question 7

Young companies that grow at a rapid rate tend to be more easy to value than mature, stable companies.
True
False

Question 8

Assume a vanilla bond pays $60 of coupon interest semiannually and has a face value of $1,000. What is the coupon rate?

1.2%
12%
0.6%
6%

Question 9

The value of a business can be different to different investors.

True
False

Question 10

What type of stocks belong to companies that are considered to have exceptional investment opportunities but don't currently pay dividends?
value stocks
income stocks
growth stocks
preferred stocks

Question 11

Purple Pillow Inc. is going to borrow $2,000,000 from its bank at an APR of 8%. The bank requires its customers to maintain a 3% compensating balance. What is the effective interest rate on this bank loan?

8.25%
8.75%
7.75%
7.00%

Question 12

You are interested in buying the preferred stock of a company that pays a dividend of $0.70 every quarter. If you discount such cash flows at 8%, what is the value of this stock?

$70.00
$17.50
$4.00
$35.00

Question 13

Romeo Systems will invest $250,000 in a temporary project that will generate $50,000 at the end of the first year, $90,000 at the end of the second year, and $160,000 at the end of the third year. The firm will be required to spend $50,000 to close down the project at the end of three years. If the cost of capital is 8%, find what is the net present value of the project and should the investment be undertaken?

$470 the project should be undertaken
-$39,222 the project should not be undertaken
$39,222 the project should be undertaken
-$470 the project should not be undertaken

Question 14

Amanda's Antiques finances 40% of her business with common stock, 15% with preferred stock and 45% with debt. If the cost of common stock is 12%, the cost of preferred stock is 14%, and the after-tax cost of debt financing is 8%, what is Amanda's weighted average cost of capital?

13.2%
10.5%
7.5%
12.7%

Question 15

For the constant-growth dividend model to work properly, the constant-growth rate for dividends must be equal to the required rate of return.

True
False

Question 16

Please determine the current value of Pollos's bond. The semi-annual coupon payment is $60 (received twice a year), the required return is 8%, the par value is $1,000 and the time to maturity is 10 years.

$803.64
$865.80
$1,162.22
$1,271.81

Question 17

Whenever a bond's coupon rate is the same as the market rate of interest on similar bonds, the bond will sell at (a)
discount
premium
par
not enough information provided

Question 18

You are considering a project that has an initial outlay of $700,000. The project is expected to result in annual cash flows of $360,000 for the next four years. Assuming a cost of capital of 10%, what is the profitability index of the project?

1.63
1.95
1.38
2.06