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FINANCE STUDENT 300 FINAL REVISED EXAM 2025
Given the following information, calculate the NPV: Pruchase price is $150,000, setup is $15,000; cash flows are $15,000, $20,000, ($10,000), $30,000, $50,000; required rate of return is 9%. a. $10, b. ($72,934) c. ($76,442) d. ($88,377) - d. ($88,377) Find the IRR for the following project: Outflow is $200,000; required rate of return is 18%; inflows are $50,000, $70,000, $80,000, and $100,000 respectively at the end of each year for the next four years. a. 12% b. 13.7% c. 16.4% d. 30% - c. 16.4% There is an increase in expected inflation. All else equal, bond prices will: a. rise b. fall c. remain unchanged
d. rise then fall to par value - b. fall The price of a preferred stock is $42. It pays a dividend of $5. Calculate the required return: a. 11.9% b. 8.4% c. 0.119% d. 8% - a. 11.9% The DCF valuation model is best described as: a. a P/E model b. a book valuation model c. a liquidity model d. a going concern model - b. a book valuation model One of the most important disadvantages of the corporate form of business is: a. limited owner liability b. ease of transferring ownership c. double taxation d. unlimited owner liability - c. double taxation
d. all of the above statements are true - a. as the length of time until an exepcted cash flow increases, the stock price decreases The income statement: a. is a financial statement that shows the firm's financial position at a particular point in time b. is a financial statement that summarizes a firm's revenues and expenses over a period of time c. is a financial statement that summarizes a firm's revenues and expenses at a patricular point in time d. details the firm's assets and liabilities over a period of time - b. is a financial statement that summarizes a firm's revenues and expenses over a period of time Each of the following items is a liability with the exception of: a. long-term debt b. notes payable c. prepaid expenses d. accrued expenses - c. prepaid expenses Given the following information, calculate earnings per share: Interest Expense - 40, Net Income - 400,
Preferred dividends paid - 65, Common dividends paid - 100, Common Stock Oustanding - 100, a. 1. b. 3. c. 2. d. 3.60 - b. 3. Depreciation: a. is not a true expense b. represents a cash outflow on the cash flow statement c. is deducted from net income d. is a tax deductible non-cash expense - d. is a tax deductible non-cash expense As the discount rate decreases, the present value of a positive cash flow to be received at a particular time in the future: a. gets closer to zero b. gets larger c. stays unchanged d. gets smaller without limit - b. gets larger
As a gift from your parents, you just received $50,000 for your education for the next four years. You can earn an annual rate of 8% on your investments. How much can you withdraw each year (end of year) just using up the $50,000? a. $12, b. $11, c. $11, d. $15,096 - b. $11, You would like to have $500,000 put away in 20 years for your retirement. You plant to put away $14,000 each year (end of year). What is the minimum interest rate that you would need to receive $500,000. a. 6.5% b. 5.72% c. 5% d. 4.5% - b. 5.72% A gallon of milk cost $3.59 today. How much will it cost you to buy a gallon of milk for your gradnchildren in 35 years if infation averages 5% per year? a. $3. b. $6.
c. $12. d. $19.80 - d. $19. Your grandmother is offered a series of $6,000 starting one year from today. The payments will be made at the end of each year of the next 10 years. Similar risk investments are yielding 7%. What should she pay for the investment? a. $60, b. $45, c. $42, d. $30,501 - c. $42, The Dallas Development Corporation is considering the purchase of an apartment project for $100,000. They estimate that they will receive $15,000 at the end of each year for the next 10 years. At the end of the 10th year, the apartment project will be worth nothing. If the company insists on a 9 percent return comounded annually on its investment, is this a good investment? a. no you pay more than its worth b. yes, it's worth more than you pay c. its worth the same either way d. depends on the compounding used - a. no you pay more than its worth
Which of the following is NOT a determinant of interest rates: a. inflation b. liquidity premium c. default premium d. a maturity risk premium e. all the above are determinants - e. all the above are determinants Yield curve plots yield against time. a. true b. false - a. true An upward sloping yield curve: a. has a higher short term than long term rates b. has higher long term rates than short term rates c. is not possible d. cannot be plotted - b. has higher long term rates than short term rates The spread between treasuries and corporate bonds: a. is usually positive
b. is usually negative c. could normally be either positive or negative d. is logarithmic - a. is usually positive If the yield-to-maturity of a bond is less than the coupon rate, the bond will sell at: a. discount b. premium c. par value d. its call price - b. premium Calculate the price of a six-year $1000 face-value bond with a 7% annual coupon rate and a yield-to-maturity of 6% with semi-annual coupon payments. a. $ b. $ c. $ d. $950 - a. $ A bond sold at par with a coupon rate of 7% will have a YTM: a. greater than 7% b. less than 7%
d. rise then fall to par value - b. fall Which of the following events would make it more likely to that a company would choose to call its outstanding callable bonds? a. a reduction in market interest rates b. the company's bonds are downgraded c. an increase in the call preium d. statements a and b are correct e. statements a, b, and c are correct - a. a reduction in market interest rates You just purchased a 15-year bond with a 10 percent annual coupon. the bond has a face value of $1,000 and a current yield of 10.75 percent. Assuming that the yield to maturity of 9.60 percent remains constant, what will be the price of the bond ten years from now? a. less than $ b. between $489 ad $ c. between $996.01 and $ d. between $1080.01 and $1, e. greater than $1,200 - c. between $996.01 and $ Mr. White's company wants to issue new preferred stock. The preferred dividend is $3.21 per share and the stock can be sold for $31. If hte flotation costs are $3, what is the company's cost of preferred stock, Kp?
a. less than 6% the time it takes to receive cash flows sufficient to cover your initial investment b. between 6.00 and 10.00% c. between 10.01% and 13% d. great than 13% - c. between 10.01% and 13% The after tax cost of debt on a 9% $200,000 loan given a 30% tax bracket would be: a. 9% b. 6.3% c. 5% d. 4% - b. 6.3% If the dividends paid on a preferred stock issue are $3 per share and the cost of preferred stock is 12%, calculate the price of the stock. Assume there are no flotation costs. a. $ b. $ c. $ d. $25 - d. $
d. 0.0625% - b. 13.25% The cost of equity capital for a new common stock issue can be best described as: a. kn = [D1/(Po + F)] + g b. kn = [D1/(Po - F)] + g c. kn = [D1/(Po + F)] - g d. kn = (D1 + g)/(Po + F) - b. kn = [D1/(Po - F)] + g An acceptable net present value has a value: a. = or > 0 b. < c. = or < d. equal to the IRR - a. = or > 0 The internal rate of return is best described as that discount rate that: a. equates the NPV and IRR b. makes the NPV equal zero c. equals the required rate of return d. equates all cash flows to the current market rate - b. makes the NPV equal zero
Calculate the IRR for the following investment project: Initial investment is $75,000; inflows are $20,000 for the next five years; required rate of return is 15% (Round your answer to the nearest whole percentage) a. 10% b. 12% c. 14% d. 9% - a. 10% If the NPV of a project is $500 and the required rate of return is 8%, the IRR must be: a. >8% b. =8% c. <8% d. none of the above is necessarily true - a. >8% NPV represents: a. the return of the project b. the percentage change represented by the project c. the dollar change in firm value resulting from undertaking a project
