Rory has $2500 but needs $5000 to purchase a new golf cart. If he can invest his money at a rate of 12% per year approximately how many years will it take the money in Rory’s account to grow to $5000? Use the Rule of 72 to determine your answer. Note: The golf cart’s price may have changed by the time Rory’s account reaches a value of $5000.
A) 2 years
B) 6 years
C) 4 years
D) 8 years
Blackburn Inc. has issued 30-year $1000 face value 10% annual coupon bonds with a yield to maturity of 9.0%. The annual interest payment for the bond is ________.
A) $100
B) $45
C) $50
D) $90
You want to invest in a stock that pays $5.00 annual cash dividends for the next four years. At the end of the four years you will sell the stock for $20.00. If you want to earn 12% on this investment what is a fair price for this stock if you buy it today?
A) $25.42
B) $40.00
C) $27.90
D) $43.90
Consider the following four-year project. The initial after-tax outlay or after-tax cost is $1000000. The future after-tax cash inflows for years 1 2 3 and 4 are: $400000 $300000 $200000 and $200000 respectively. What is the payback period without discounting cash flows?
A) 3.5 years
B) 4.0 years
C) 2.5 years
D) 3.0 years
A firm is considering purchasing two assets. Asset A will have a useful life of 15 years and cost $3 million; it will have installation costs of $400000 but no salvage or residual value. Asset B will have a useful life of 6 years and cost $1.3 million; it will have installation costs of $180000 and a salvage or residual value of $300000. Which asset will have a greater annual straight-line depreciation?
A) Asset B has $40000 more in depreciation per year.
B) Asset B has $30000 more in depreciation per year.
C) Asset A has $30000 more in depreciation per year.
D) Asset A has $40000 more in depreciation per year.
Which of the following would NOT be considered a cost of debt financing?
A) The required return on a bank loan
B) The yield-to-maturity of a bond issue
C) The required return on money borrowed from a venture capitalist
D) The required return on preferred stock
Which of the following is an advantage of the dividend growth approach over the SML in estimating the required return on equity?
A) It is easy to fit flotation costs into the dividend growth model but not the SML.
B) The dividend growth model uses market information but the SML does not.
C) Dividend growth is known whereas estimating beta for the SML is an art form.
D) All are advantages of the dividend growth model for estimating the required return on equity.
For March Heavenly Hotel will have cash receipts of $365000 and cash disbursements of $370000. If its beginning cash is $4000 and its reserves are $3000 what will be its shortfall in cash for the month?
A) There is no shortfall in cash but an excess of cash.
B) -$5000
C) -$3000
D) -$4000
Surf City Inc. has decided on a 3-for-1 stock split. If the firm currently has 900000 shares outstanding how many shares will be outstanding after the stock split?
A) 1200000 shares
B) 2700000 shares
C) 300000 shares
D) 3600000 shares
Tiger Training Inc. has decided on a 4-for-1 REVERSE stock split. If the firm currently has 1600000 shares outstanding how many shares will be outstanding after the stock split?
A) 3200000 shares
B) 200000 shares
C) 400000 shares
D) 6400000 shares
In the United States we can buy a pair of shoes for $58. These shoes are identical in every way shape and form to a pair of shoes from Japan that be purchased for 7200 including shipping costs. From whom should we order the shoes if we can exchange $1 for 120?
A) Buy from the U.S. as we save $2.00.
B) Buy from Japan as we save $2.00.
C) Buy from Japan as we save $4.00.
D) Buy from the U.S. as we save $4.00.
Assume that you are the manager of a U.S. company and you face an exchange rate of 120 per $1. Whenever you receive an order rather than ship from your production facilities you call in the order to a Japanese company and have the bill shipped to you directly. If the bill shipped to you is 7500 and you can collect $62 per item sold to your customer what would be your loss per item if you pay the Japanese company 7500?
A) -$0.60 per item
B) -$0.50 per item
C) -$0.75 per item
D) -$0.80 per item
A home improvement firm has quoted a price of $9800 to fix up John’s backyard. Five years ago John put $7500 into a home improvement account that has earned an average of 5.25% per year. Does John have enough money in his account to pay for the backyard fix-up?
A) Yes; John now has $10519 in his home improvement account.
B) No; John has only $9687 in his home improvement account.
C) Yes; John now has exactly $9800 in his home improvement account.
D) There is not enough information to answer this question.
Your firm has issued ten-year zero-coupon bonds with a $1000 face value. If the bonds are currently selling for $514.87. What is the yield to maturity? (Assume semi-annual discounting.)
A) 6.86%
B) 10.45%
C) 6.75%
D) This question cannot be answered because there is no coupon payment provided.