Finance Assignment
1. Ben likes to invest $9,750 today to support his post-secondary education. He thinks that he can generate 7.5 percent return, compounded annually, on his money for the next 7 years. After that, he wants to be more conservative, so only expects to earn 3.8 percent, compounded annually. How much money will he have in his account in 10 years from now, assuming this is the only deposit he makes into the account?
$18,091.72
$18,145.26
$19,450.45
$20,457.15
2.
Find the present vale of the following stream of cash flows assuming that the firm's cost is 14% and that these amounts are received at the end of each year.
Year Amount
1 - 5 $20,000/yr
6 - 10 $35,000/yr
$135,450
$187,500
$126,465
$131,067
$98,690
3. If the NPV of a project is positive, then the project's IRR ________ the required rate of return.
must be greater than
must be less than
could be greater or less than
cannot be determined without actual cash flows
4. The firm has following financial information:
December 2010 December 2011
Net income $2,000 $3,500
Accounts receivable 850 850
Accumulated depreciation 2,125 2,500
Common stock 4,500 5,250
Paid-in capital 7,500 8,250
Retained earnings 1,500 2,250
Accounts payable 650 650
Based on the information in Table 1, calculate the after tax cash flow from operations for 2011 (no assets were disposed of during the year, and there was no change in interest payable or taxes payable)
$4,500
$3,875
$3,900
$2,980
5. Below are the expected after-tax cash flows for Projects Y and Z. Both projects have an initial cash outlay of $20,000 and a required rate of return of 17%.
Project Y Project Z
Year 1 $12,000 $10,000
Year 2 $8,000 $10,000
Year 3 $6,000 0
Year 4 $2,000 0
Year 5 $2,000 0
Project Z's IRR is: 12.51%
less than zero. 0%.
less than 17%.
6. Wright's Warehouse has the following projections for Year 1 of a capital budgeting project.
Year 1 Incremental Projections:
Sales $150,000
Variable Costs $100,000
Fixed Costs $25,000
Depreciation Expense $10,000
Tax Rate 40%
Calculate the operating cash flow for Year 1.
$52,000
$19,000
$72,000
$12,000
7. The firm like to finance its assets with40% debt and 60% equity. They are planning to invest in a project which will necessitate raising new capital. New debt will be issued at a before-tax yield of 12%, with a coupon rate of 10%. The equity will be provided by internally generated funds. No new outside equity will be issued. If the required rate of return on the firm's stock is 12% and its marginal tax rate is 35%, compute the firm's cost of capital.
10.32%
7.2%
13.5%
12.5%
8. We recieved $1,500 at the beginning of year 1, $3,000 at the beginning of year 2, and $4,500 at the beginning of year 3. If these cash flows are deposited at 11 percent, what will be their combined future value at the end of year 3?
$12,520
$9,413
$8,342
$8,735
$10,743
9. The degree of operating leverage is defined as:
% change in EBIT/ % change in contribution margin
% change in EBIT/ % change in variable cost
% change in sales/ % change in EBIT
% change in EBIT/ % change in sales
10. What price must a company typically pay to buy another company? The price will:
include some premium over the current market value of the target's equity.
include some discount relative to the current market value of the target's equity.
be the book value of the target's equity.
be the market value of the target's equity.
11. If a loan is compounded monthly, the effective annual rate will always be ____________ the nominal rate.
equal to
less than
greater than
greater than
you cannot tell without further information.