30 multiple choice questions. All work done in excel pls. Thanks!
1. Suppose that an investment pays $10000 in 10 periods. If you require a periodic discount rate of 8%, what are you willing to pay for the investment? a. 80.00 b. 108.00 c. 463.19 d. 466.51 e. 500.00 f. 925.93 g. None of these 2. Suppose that an investment pays $1000 at some point in the future. If you are willing to pay $500 and you require a return of 8%, approximately when does the future cash flow arrive (calculate to one decimal place)? a. 0.6 periods b. 3.9 periods c. 6.2 periods d. 6.7 periods e. 9.0 periods f. 20.7 periods g. Infinity (never) h. None of these 3. Suppose that you are willing to pay $1000 for an investment that pays $350 every year for a certain number of years (starting in one year). If your required rate of return is 30%, how many payments are there (estimate to one decimal place)? a. 7.4 b. 8.2 c. 9.6 d. 12.4 e. Infinite f. None of these 4. What is the value of an investment that pays $600 every year for 9 years if the first payment occurs today and the discount rate is 10% APR compounded annually? a. 3800.95 b. 4355.41 c. 5235.45 d. 5759.02 e. 6334.93 f. 6659.02 g. None of these 5. What is the value of an investment that pays $600 every year forever if the first payment occurs one year from today and the discount rate is 10% APR compounded continuously? a. 5705.00 b. 6000.00 c. 6600.00 d. 7404.59 e. Infinite f. None of these 6. What is the value of an investment that pays $600 every other year forever if the first payment occurs one year from today and the discount rate is 10% APR compounded annually? a. 2597.4 b. 2857.14 c. 3000.00 d. 3142.86 e. 3300.00 f. 6000.00 g. None of these 7. Use the following information for the next three questions: t=0 t=1 t=2 t=3 Weaponized Pumpkins -350 400 75 75 Jabberwocky -350 0 0 750 Calculate the NPV for Pumpkins at a discount rate of 15% a. Less than 0 b. Between 0 and 30 c. Between 30 and 60 d. Between 60 and 90 e. Between 90 and 120 f. More than 120 8. What is the IRR for Jabberwocky? a. Between 0 and 5% b. Between 5 and 10% c. Between 10 and 15% d. Between 15 and 20% e. Between 20 and 25% f. Exactly 25.00% g. Between 25 and 30% h. More than 30% 9. What is the crossover rate? a. 0 b. 11.3% c. 22.5% d. 33.7% e. 49.5% f. None of these 10. Use the following information for the next three questions. You are an analyst in the corporate finance department of Pet Products, Inc. You have been asked to analyze a potential new product to be introduced. The beef-flavored water will be called “Meaty Drink.” The beef flavoring will be artificial so as not to close the market to vegetarian pets. · To date, $125000 has been spent on product testing in small focus groups · Estimates suggest that sales of $250,000 each year for the next six years are likely (after which time the project will be terminated) · Variable costs will be a constant 23% of sales · In terms of its physical footprint, the entire project can be squeezed into a small portion of a warehouse already in use without detrimentally affecting other projects · The parent company is about halfway through a 99-year lease on the last and warehouse building. With the addition of the new project to the warehouse, some on-going rent costs (which are already being incurred due to existing projects) will be allocated pro rara to the “Meaty Drink” project. Because the total annual rent costs are currently $100,000 and the new project represents 20% of the firm, $20,000 of the total rent will be charged against the new project, starting at the end of the first full year (i.e., at time t = 1). Other than the rent, there are no other fixed operating costs. · New equipment required at the outset will cost $100,000 to be depreciated straight line to 0 over its ten-year accounting (and tax) life · You estimate that the equipment can be resold in six years for $60,000 · To maintain proper inventory, there will be net working capital requirements of $99,000 (incurred at beginning of the project), all of which will be recaptured at termination · Assume the firm has a tax rate of 40% What is the net cash flow (i.e., including any tax consequences) from the sale of the equipment at the end of year six? a. 20,000 b. 24,000 c. 40,000 d. 52,000 e. 60,000 f. 64,000 g. 68,000 h. None of these 11. What is the annual operating cash flow at time t=2? a. Less than 0 b. 97,500 c. 109,500 d. 117,500 e. 119,500 f. 127,500 g. None of these 12. What is the total cash flow at the project’s beginning (time t=0)? a. +99,000 b. -99,000 c. -100,000 d. -124,000 e. -225,000 f. -324,000 g. None of these 13. Timmy took out a 30-year, $1,000,000 mortgage 10 years ago. At the time, his rate was 6% APR with monthly compounding and monthly payments. If Timmy wanted to pay off his balance today, how much would he have to pay? a. About $836,000 to $837,000 b. About $719,000 to $720,000 c. About $666,000 to $667,000 d. About $280,000 to $281,000 e. About $99,000 to $100,000 f. None of these 14. What is Beta? a. b. c. d. A measure of an asset’s firm specific risk e. A measure of an asset’s idiosyncratic risk f. Both A and F g. Both C and D h. None of the above 15. What is alpha? a. b. A measure of an asset’s systemic risk c. A measure of an asset’s idiosyncratic risk d. e. Both A and B f. Both A and C g. None of the above 16. How should US firms choose whether to finance themselves with debt or equity a. As long as investors can short the stock, it doesn’t matter because investors can replicate any leverage structure with call and put options on the firm’s debt b. Debt as much as possible, because equity is riskier and bears a higher required return c. Equity as much as possible, because debt is riskier and decreases firm value d. A mix of debt and equity such that the marginal cost of equity returns is equal to the marginal benefit of debt consolidation cash flows e. Always 100% debt, so that firms can maximize the probability of financial distress f. Never 100% debt, so that firms can avoid interest tax shields g. None of the above is a good description of how US firms should choose their debt-equity mix 17. An all-equity firm is considering the following investment projects. Which of these projects would be correctly or incorrectly accepted or rejected if the firm’s overall cost of capital of 14% were used as a hurdle rate? Assume that the risk free rate is 5% and the expected return on the market is 15% Project Beta Exp Return Ajax 0.45 9.2% Borax 1.05 14.1% Clorox 1.28 16.4% a. Should reject Ajax, Borax, and Clorox; will incorrectly accept Ajax, Borax, and Clorox b. Should reject Borax and Clorox; will incorrectly accept Borax and Clorox; will incorrectly reject Ajax c. Should reject Borax and Clorox; will incorrectly accept Borax; will incorrectly reject Ajax d. Should reject Ajax, Borax, and Clorox; will incorrectly accept Borax and Clorox e. Should reject Borax and Clorox; will incorrectly accept Borax; will incorrectly reject Ajax; will incorrectly accept Clorox f. Should accept Ajax and Clorox; will incorrectly reject Ajax and Clorox; will incorrectly accept Borax g. None of the above is correct 18. Consider two stocks: Stock Arco has a standard deviation of returns of 30% per year, while Stock Boffo has a standard deviation of returns of 60% per year. Assume the stocks are uncorrelated. Which of the following is the most correct? a. In an efficient market, Boffo will have higher expected returns than Arco b. In an efficient market, Arco will have higher expected returns than Boffo c. An equally weighted portfolio will have a standard deviation of returns between 30% and 60% d. An equally weighted portfolio will have a standard deviation of returns less than 30% e. An equally weighted portfolio will have an expected return that is higher than both that of Arco and Boffo individually f. It is possible to construct a portfolio of the two (each having weight not less than 0) with standard deviation less than 30%, but that portfolio is not equally weighted. g. Exactly two of the above are true. 19. Use the following information for the next 3 problems: What is the firm’s net capital spending? a. 1120 b. 175 c. 85 d. 70 e. None of these 20. What is the firm’s change in net working capital? a. 265 b. -170 c. 145 d. 390 e. -145 f. None of these 21. If the firm’s current market value of equity is 1420, what is the firm’s Altman Z score? a. 0.0 b. 1.1 c. 2.2 d. 3.3 e. 4.4 f. None of these 22. Higher WACC is… a. Bad because WAVV reflects a cost to the firm b. Good because investors are earning higher returns on average c. Good because it means the firm has minimized agency costs d. Bad because it means the debt tax shields are higher than optimal e. Good because distress costs minimized f. None of these is correct 23. IPOs are underpriced because… a. Issuers like the high returns b. Underwriters have conflicts of interest with the issuer c. Institutional investors prefer to purchase secondary shares d. The selling group receives the underwriting fee e. None of these is close 24. Use this information for the next two questions: Compute the beta for “A” a. 0 is greater than or