Expert answer:Need business and finance help with Exam1 – Financ
Answer & Explanation:11142015.docx The question in yellow only
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QUESTION 1
ABC Company has 6 percent bonds outstanding that mature in 13 years. The bonds can be called
in 3 years at a call price of $1150. The bonds pay interest semiannually and have a face value of
$1,000. Currently, the bonds are selling for $993 each. What is the yield to call (YTC)?
Enter your answer in percentages rounded off to two decimal points.
QUESTION 2
ABC Company offers a 5% coupon bond with a current market price of $850.25. The yield to
maturity is 7.34%. The face value is $1,000. Interest is paid semiannually. What is the number of
years until the bond matures?
Enter your answer rounded off to TWO decimal points.
QUESTION 3
ABC Inc. is considering an investment of $1,750 million with after-tax cash inflows of $332
million per year for six years and an additional after-tax salvage value of 87 million in Year 6.
The required rate of return is 8%. What is the investment’s Profitability Index (PI)?
Enter your answer rounded off to two decimal points.
QUESTION 4
What is the project’s initial investment outlay based on the following information: The
machinery could be purchased for $29,501. Shipping and installation costs would cost another
$9,450. The project would require an initial investment in net working capital of $5,158. The
company’s tax rate is 30%.
Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer
box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.
QUESTION 5
Suppose the nominal rate is 12.6% and the inflation rate is 3.91%. Solve for the real rate. Use the
Fisher Effect formula.
Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the
answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.
QUESTION 6
ABC Company purchased a new machinery 4 years ago for $55,786. Today, it is selling this
equipment for $11,952. What is the after-tax salvage value if the tax rate is 31 percent?
The MACRS allowance percentages are as follows, commencing with year one: 20.00, 32.00,
19.20, 11.52, 11.52, and 5.76 percent.
Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer
box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.
QUESTION 7
The risk-free rate is 4.7%, the market risk premium is 11.9%, and the stock’s beta is 0.39. What
is the required rate of return on the stock, E(Ri)?
Use the CAPM equation.
Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box.
For example, if your answer is 0.12345 then enter as 12.35 in the answer box.
QUESTION 8
You have a $68,474 portfolio that consists of $19,327 invested in Stock A, $21,647 invested in
Stock B, $6,261 invested in Stock C, and the remainder in Stock D. The portfolio has a return of
24.4 percent. The return for Stock A is 10.7 percent, for Stock B is 23.6 percent, and for Stock C
is 7.8 percent. What is the return for Stock D?
Enter your answer as a percentage rounded off to two decimal points. Do not enter % in the
answer box. For example, if your answer is 12.345% then enter as 12.35 in the answer box.z
QUESTION 9
Over the past six years, a stock had annual returns of 10 percent, 5 percent, 7 percent, 8 percent,
2 percent, and -11 percent, respectively. What is the standard deviation of these returns?
Enter your answer as a percentage rounded off to two decimal points. Do not enter % in the
answer box. For example, if your answer is 12.345% then enter as 12.35 in the answer box.
QUESTION 10
You have invested $78,024 portfolio in three securities. The three securities comprise of the riskfree asset, Stock A, and Stock B. The beta of stock A is 2.3 while the beta of stock B is 0.4. 10%
of the portfolio is invested in the risk-free security. What is the dollar amount invested in stock B
if the beta of the portfolio is 1.2?
Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer
box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.
QUESTION 11
One year ago, you puchased 172 shares of ABC stock for $51.21 per share. During the year, you
received a dividend of $5.66 per share. Today, you sold all your shares for $55.29. What are the
percentage return on your investment?
Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the
answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.
QUESTION 12
Based on the following information, what is the portfolio beta?
Stock Value
Beta
A
$46,643
0.56
B
$30,604
3.41
C
$23,859
3.2
D
$3,730
2.31
Enter your answer rounded off to two decimal points. For example, if your answer is
12.345 then enter as 12.35 in the answer box.
QUESTION 13
What is the NPV of this project if the required rate is 6%?
Year
CF
0
-$1,893
1
$871
2
$1,646
3
$960
Enter your answer rounded off to two decimal points. Do not enter $ or comma in the
answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer
box.
QUESTION 14
A 12-year project is expected to generate annual sales of $270,081, variable costs of $32,642,
and fixed costs of $39,056. The annual depreciation is $12,153 and the tax rate is 33 percent.
What is the annual operating cash flow?
Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer
box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.
QUESTION 15
What is the Profitability Index (PI) of this project if the required rate is 12%?
Year
CF
0
-$2,273
1
$697
2
$511
3
$1,494
4
$467
5
$919
Enter your answer rounded off to two decimal points. For example, if your answer is
12.345 then enter as 12.35 in the answer box
QUESTION 16
ABC Company is considering an investment that will cost the company $644 at time=0. The
after-tax cash flows are expected to be $114 each year for 10 years. What is the payback period?
Enter your answer rounded off to two decimal points.
QUESTION 17
ABC Company is considering a new project. The project is expected to generate annual sales of
$82,420, variable costs of $24,955, and fixed costs of $18,328. The depreciation expense each
year is $17,930 and the tax rate is 38 percent. What is the annual operating cash flow?
Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer
box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.
QUESTION 18
A project has an initial requirement of $76,937 for equipment. The equipment will be
depreciated to a zero book value over the 5-year life of the project. The investment in net
working capital will be $13,441. All of the net working capital will be recouped at the end of the
5 years. The equipment will have an estimated salvage value of $11,216. The annual operating
cash flow is $33,713. The cost of capital is 10 percent. What is the project’s net present value if
the tax rate is 29 percent?
Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer
box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.
QUESTION 19
Five years ago, ABC Company invested $46,243 million in a machinery. The investment in net
working capital was $3,935 which would be recovered at the end of the project. Today, ABC
Company is selling the machinery for $21,922 million. The book value of the machinery is
$15,643 million. The tax rate is 24 percent. What are the terminal cash flows in Year 5?
Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer
box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.
QUESTION 20
A project requires $16,659 of equipment that is classified as a 7-year property. What is the
depreciation expense in Year 4 given the following MACRS depreciation allowances, starting
with year one: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46 percent?
Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer
box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.
QUESTION 21
If a security’s intrinsic value is higher than its market value, the security appears to be
_________________________.
•
•
•
undervalued
overvalued
fairly valued
QUESTION 22
What is the internal rate of return (IRR) of this project given the following cash
flows?
Year
CF
0
-$2,200
1
$ 900
2
$ 800
3
$ 600
4
$ 700
5
$1,090
Enter your answer rounded off to two decimal points. Do not enter % in the answer
box. For example, if your answer is 12.345% then enter as 12.35 in the answer box.
Which of the following income or expense items should be ignored when estimating
cash flows for investment projects?
(choose only one option)
financing costs
opportunity costs
operating expenses
incremental sales
QUESTION 24
The square-root of the variance is:
covariance
correlation coefficient
half-variance
standard deviation
beta
QUESTION 25
ABC Company has $1,000 face value bonds outstanding. These bonds pay interest semiannually,
mature in 5 years, and have a 6 percent coupon. The current price of the bond is $1010. What is
the yield to maturity?
Enter yur answer in percentages rounded off to two decimal points. Do not enter % in the answer
box.
QUESTION 26
Project A requires an initial investment of $5,000 at t = 0. Project A has an expected life of 4
years with cash inflows of $2,000, $2,500, $1,500, $1,500 at the end of Years 1, 2, 3, and 4
respectively. The project has a required return of 12%. What is the equivalent annual annuity?
Enter your answer rounded off to two decimal points.
…
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