Fin 3716 Midterm Exam

The payback period looks at a project only until the costs have been recovered. This analysis tool is often ignored because it does not take into consideration the time value of money. The time value of money limitation of the payback period can be modified by using the discounted cash flows of a project for the analysis of when the outflows will be recovered.

1. This is a closed book exam. You may only have pens, pencils and a calculator at

In April of 1979, a U.S. court finds the Beatle 's former manager _________ guilty of tax evasion and he is sentenced to serve two months of a two-year sentence in prison.

EEC calculated the amount of time involved the anticipation of its cost ($3 million). The timeline in recovering their cost of investment ($2 million) initially for the foundation of this investment any profit made in the future of this investment will be justified as a profit for the company. If EEC can anticipate a fast return on its investment it is a profitable wise decision in making the investment financial, it is considered to be an easier way of formulating investments financially. On the basis of one year all cash flows is added together equal to the sum of $2 million originally invested, then it is divided by the annual cash flow of $500,000. The calculation of the payback period would equal four years. After this time frame any financial proceeds will be considered profitable for the company. I conclude that the timeframe is adequate in comparison of the investment in this worthwhile investment financial venture for the company.

(TCO A) Jean and Jim have liquid assets of $3,600 and other assets of $42,800. Their total liabilities equal $26,000. What is their net worth? (Show all work.)

A financing project should be accepted if, and only if, the NPV is exactly equal to zero.

The balance sheet (BS) is significant to a business due to its ability to provide a “snapshot” of a company’s assets and liabilities at any given time. This financial document is a cursory representation of a business’s health. The use of comparative BS whether it be yearly, quarterly, or monthly provides the interested parties a tool to observe trends that are positive, negative, or neutral to a company’s financial health (Finkler, Jones, and Koyner,2013) .

The statement of cash flows answers the following questions about cash: (a) Where did the cash come from during the period? (b) What

Sonja is seriously injured in an auto accident. After six months, she is still unable to return to work. She has no income from her job, and the insurance premium payments are financially burdensome. In this case Sonja has an ordinary life insurance with the waiver-of-premium attached so after six months all premiums would be waived if Sonja is totally disabled. Under some policies, a retroactive refund of the premium paid during the first six months would be paid. (Rejda, George, McNamara, 2014).

9. You are analyzing the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would lower the calculated value of the investment?

4. The present value of material cost for the duration of the first cycle [0, t1]

Short paragraph answers should do the trick; a few questions will need more. Put as much as you can into your own words.

1. Two commonly used methods of financial analysis are payback and present value. Payback determines the length of time for an investment to return its original cost (1). Using the assumptions stated below the payback of the Jiminy Nick wind turbine with a cost of about $3.3 million would return the investment in about four years time. Net present value summarizes the initial cost of an investment, the estimated annual cash flows, and expected salvage value, taking into account the time value of money (1). A NPV calculation for the scenario SED is reviewing equals $7,697,286 minus the investment costs of $3,318,000 totaling $4,379,286.

It is expressed in time or years. It is normally defined as the period, usually expressed in years, which it takes the cash inflows from an investment project to equal the cast outflows.

One of the critical problems confronting management and the board of Pioneer Petroleum Corporation was the determination of a minimum acceptable rate of return on new capital investments, The company’s basic capital budgeting approach was to accept all proposed investments with a positive net present value when discounted at the appropriate cost of capital. At issue was how the appropriate discount rate would be determined.