Question #1 (1 point) 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 (1 point) 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 (1 point) 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 (1 point) 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 (1 point) 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 (1 point) 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 (1 point) Young companies that grow at a rapid rate tend to be more easy to value than mature, stable companies. True False Question #8 (1 point) 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 (1 point) The value of a business can be different to different investors. True False Question #10 (1 point) 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 preferr
ed stocks Question #11 (1 point) 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 (1 point) 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 (1 point) 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 (1 point) 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 (1 point) 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 (1 point) 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 (1 point) 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 (1 point) 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