2231 Words9 Pages

Fin 3320

Practice Questions1 – Total Course

1. Your wealthy uncle has set up a special account that will give you $500,000 on your 35th birthday. Assuming you are age 21 (thus 14 years from receiving this), what is the present value of this gift if the appropriate discount rate is 8.0%? (Ch5)

a. $170,231

b. $282,449

c. $442,619

d. $191,206

e. $734,664

2. You need $10,900 for the down payment on a new car. You presently have $5,000 in savings for which you expect to earn 6% (annual rate, compounded monthly). If you deposit a further $500 each month to this account, how long, approximately, before you will accumulate enough to meet your down payment requirement? (Ch6)

a. 17.6 Years

b. 8 Months

c. 11 Months

d. 16 Months

e. 1.84 Years

3. Which*…show more content…*

Dividends are expected to grow at 25% rate for the next 3 years, with the growth rate then leveling at a constant 4% thereafter. The required return is

12% and the company just paid a $2.50 annual dividend. What is the current share price?

(Ch 8)

a. $34.92

b. $54.56

c. $68.14

d. $92.12

e. $126.21

3

14. You are considering two independent projects both of which have been assigned a discount rate of 14% percent. Based on the project NPV, what is your recommendation concerning these projects? (Ch 9)

Year

0

1

2

a.

b.

c.

d.

e.

Project A

Cash Flow

-$40,000

$22,000

$28,000

Year

0

1

2

Project B

Cash Flow

-$39,000

$28,000

$21,000

You should accept both projects.

You should reject both projects.

You should accept project A and reject project B.

You should accept project B and reject project A.

You should accept project A and be indifferent to project B.

15. Referring to the above question and table, if the projects under consideration are mutually exclusive, then what would your answer be? (Ch 9)

a.

b.

c.

d.

e.

You should accept both projects.

You should reject both projects.

You should accept project A and reject project B.

You should accept project B and reject project A.

You should accept project A and be indifferent to project B.

16. Drake Builders, Inc. purchased a lot in Tucson, Arizona 10 years ago at a cost of $380,000.

At the time of the purchase, the company spent $15,000 to level the lot and another

$20,000 to install storm drains. Today, that lot

Practice Questions1 – Total Course

1. Your wealthy uncle has set up a special account that will give you $500,000 on your 35th birthday. Assuming you are age 21 (thus 14 years from receiving this), what is the present value of this gift if the appropriate discount rate is 8.0%? (Ch5)

a. $170,231

b. $282,449

c. $442,619

d. $191,206

e. $734,664

2. You need $10,900 for the down payment on a new car. You presently have $5,000 in savings for which you expect to earn 6% (annual rate, compounded monthly). If you deposit a further $500 each month to this account, how long, approximately, before you will accumulate enough to meet your down payment requirement? (Ch6)

a. 17.6 Years

b. 8 Months

c. 11 Months

d. 16 Months

e. 1.84 Years

3. Which

Dividends are expected to grow at 25% rate for the next 3 years, with the growth rate then leveling at a constant 4% thereafter. The required return is

12% and the company just paid a $2.50 annual dividend. What is the current share price?

(Ch 8)

a. $34.92

b. $54.56

c. $68.14

d. $92.12

e. $126.21

3

14. You are considering two independent projects both of which have been assigned a discount rate of 14% percent. Based on the project NPV, what is your recommendation concerning these projects? (Ch 9)

Year

0

1

2

a.

b.

c.

d.

e.

Project A

Cash Flow

-$40,000

$22,000

$28,000

Year

0

1

2

Project B

Cash Flow

-$39,000

$28,000

$21,000

You should accept both projects.

You should reject both projects.

You should accept project A and reject project B.

You should accept project B and reject project A.

You should accept project A and be indifferent to project B.

15. Referring to the above question and table, if the projects under consideration are mutually exclusive, then what would your answer be? (Ch 9)

a.

b.

c.

d.

e.

You should accept both projects.

You should reject both projects.

You should accept project A and reject project B.

You should accept project B and reject project A.

You should accept project A and be indifferent to project B.

16. Drake Builders, Inc. purchased a lot in Tucson, Arizona 10 years ago at a cost of $380,000.

At the time of the purchase, the company spent $15,000 to level the lot and another

$20,000 to install storm drains. Today, that lot

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