What is the future value of $1,100, placed in a saving account for four years if the account pays 6.00%, compounded quarterly?
What is the future value of $1,100, placed in a saving account for four years if the account pays 6.00%, compounded quarterly? (Your answer should be correct to two decimal places.)
Question 2Your brother, who is 6 years old, just received a trust fund that will be worth $23,000 when he is 21 years old. If the fund earns 0.10 interest compounded annually, what is the value of the fund today? Round to two decimal places.
Question 3If you were to borrow $9,000 over five years at 0.14 compounded monthly, what would be your monthly payment? Round to two decimal places.
Question 4A dollar to be received in the future is worth more than a dollar in hand today.
True
False
Question 5Why might a person be interested in calculating the covariance for two stocks?
The result indicates how far each stock is in distance from the mean.
The result indicates the systematic risk found in each stock.
The result indicates how the two stocks move together in the market.
Question 6Use the following information to calculate your company’s expected return.
State
Probability
Return
Boom
20%
0.32
Normal
60%
0.12
Recession
20%
-0.17
Round to two decimal places.
Question 7Calculating Expected Return for a portfolio is valuable, because it can be used to forecast the future value of the portfolio and it provides a benchmark for comparison to actual returns.
True
False
Question 8Frazier Manufacturing paid a dividend last year of $2, which is expected to grow at a constant rate of 5%. Frazier has a beta of 1.3. If the market is returning 11% and the risk-free rate is 4%, calculate the value of Frazier’s stock.
$25.93
$31.33
$38.53
$41.63
Question 9You have invested 30 percent of your portfolio in Jacob, Inc., 40 percent in Bella Co., and 30 percent in Edward Resources. What is the expected return of your portfolio if Jacob, Bella, and Edward have expected returns of 0.05, 0.19, and 0.17, respectfully?
Round to two decimal places.
Question 10Which of the following statements are true in regard to the concept of correlation?
The value will always fall between -1 and 1.
A correlation of 0.1 indicates that there is a very small correlation between the two stocks.
A positive value indicates that when the return on one asset is positive, the return on the other asset will be positive.
All of the above
Question 11A project has the following cash flows:
0
1
2
3
($500)
$160.00
$200
$310.00
What is the project’s NPV if the interest rate is 6%?
Round to two decimal places.
Question 12Medela’s Entertainment Systems is setting up to manufacture a new line of video game consoles. The cost of the manufacturing equipment is $1,750,000. Expected cash flows over the next four years are $725,000, $850,000, $1,200,000, and $1,500,000. Given the company’s required rate of return of 15 percent, what is the NPV of this project?
$1,169,806
$2,919,806
$4,669,806
$3,122, 607
Question 13A project requires an initial outlay of $100,000, and is expected to generate annual net cash inflows of $28,000 for the next 5 years. Determine the payback period for the project.
.28 years
1.4 years
3.57 years
17.86 years
Question 14An investment project requires an initial outlay of $100,000, and is expected to generate annual cash inflows of $28,000 for the next 5 years. (round to the nearest tenth of the percentage) Determine the (Internal Rate of Return) IRR for the project using a financial calculator
12.0%
3.6%
12.6%
12.4%
Question 15Capital budgeting analysis of mutually exclusive projects A and B yields the following:
Project A
Project B
IRR
18%
22%
NPV
$270,000
$255,000
Payback Period
2.5 yrs
2.0 yrs
Management should choose:
Project B because most executives prefer the IRR method
Project B because two out of three methods choose it
Project A because NPV is the best method
either project because the results aren’t consistent
Question 16Christopher Electronics bought new machinery for $5,075,000 million. This is expected to result in additional cash flows of $1,215,000 million over the next 7 years. What is the payback period for this project? Their acceptance period is five years.
Round to two decimal places.
Question 17Which of the following represents a potential drawback of using the payback period calculation for capital budgeting decisions?
A project is accepted if its payback period is below some pre-specified threshold.
The rule does not consider cash flows after the payback period.
The technique can serve as a risk indicator.
All of the Above
Question 1818) A common-size financial statement is one in which each number is expressed
as a percentage of some base number for the firm (such as total assets or revenues)
as a percentage of an industry average (such as rate of return)
as a percentage of a stock market average (such as market capitalization)
as a percentage of a national average (such as per capita GDP)
Question 19Return on Equity (ROE) is defined as:
Gross Income / Total Assets
Revenues / Total Debt
Net Income / Stockholder’s Equity
(Revenues – COGS) / Total Liabilities
Question 20Which of the following ratios is incorrect?
Current ratio = Current assets / Current liabilities
Quick ratio = (Current assets – Inventory) / Current liabilities
Inventory turnover = (Cost of goods sold) / Inventory
Days Sales Outstanding = 365 / Accounts payable turnover
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