How much are you willing to pay for one share of stock if the company
1) How much are you willing to pay for one share of stock if the company just paid an $.80 annual
dividend, the dividends increase by 4% annually and you require an 8% rate of return?
$20.00
$21.63
$20.40
$19.23
$20.80
2)
What is the expected return on this portfolio?
9.67%
9.78%
10.87%
10.59%
9.50%
3) Your bank offers you a $100,000 line of credit with an interest rate of 2.5% per quarter. The loan agreement also requires that 4% of the
unused portion of the credit line be deposited in a non-interest bearing account as a compensating balance. Your short-term investments are
paying 1.25% per quarter. What is your effective annual interest rate if you borrow the whole $100,000 for the entire year? Assume that both the
funds you borrow and the funds you invest use compound interest.
10.00%
10.25%
10.38%
10.50%
10.67%
4) Your firm has a net cash inflow for the quarter of -$30 (negative). The beginning cash balance is $15. Company policy is to maintain a minimum
cash balance of $5 and borrow only the amount that is necessary to maintain that balance. How much does your firm need to borrow to have a
zero cumulative surplus?
$10
$15
$20
$25
$30
5) You are considering two projects with the following cash flows:
Which of the following statements are true concerning these two projects?
I. Both projects have the same future value at the end of year 4, given a positive rate of return.
II. Both projects have the same future value given a zero rate of return.
III. Both projects have the same future value at any point in time, given a positive rate of return.
IV. Project A has a higher future value than project B, given a positive rate of return.
II only
IV only
I and III only
II and IV only
I, II, and III only
6) You own some equipment which you purchased three years ago at a cost of $135,000. The equipment is 5-year property for
MACRS. You are considering selling the equipment today for $82,500. Which one of the following statements is correct if your tax
rate is 34%?
The book value today is $8,478.
The tax due on the sale is $14,830.80.
The taxable amount on the sale is $38,880.
You will receive a tax refund of $13,219.20 as a result of this sale.
The book value today is $64,320.
7) Frank’s Formals rents apparel throughout the year. They have experienced non-payment by about 15% of their
customers with an average loss of $400. Frank’s wants to stem their losses by using an instant electronic credit check on
the customer. These checks will cost them $15 on each of the 1,000 customers. The opportunity cost is 2.0% for the
credit period. Should they pursue the credit check?
No, because the $15,000 cost is too high.
No, because a $400 loss is minor.
Yes, because the net gain is $30,000.
Yes, because the net gain is $45,000.
Yes, because the net gain is $60,000.
