1. If a firm wants to grow at a rate faster than its sustainable growth rate, it could _____. I. issue new equity shares II. increase its debt ratio III. increase its dividend payout ratio IV. reduce its return on sales A. I and II only B. III and IV only C. I, II and III only D. II and III only E. I, II, III and IV

2. The box Store has an inventory period of 50 days, a receivables period of 55 days and a payables period of 40 days. Compute the cash cycle time. A. 35 days B. 45 days C. 65 days D. 105 days E. 145 days

3. What is the sustainable growth rate for a firm with net income of $2.5 million, cash dividends of $1.5 million, and a current and expected return on equity of 18%? A. 18.0% B. 15.4% C. 10.8% D. 7.2% E. 4.9%

4. As of the most recent fiscal year end, Box GoTo (BGT) had total assets of $500 million, a current and expected ROE of 13%, a dividend payout ratio of 35%, and a ratio of equity to total asset of 40%. BGT projects sales growth of 15% for the current year. What is BGT's estimated total external financing need? A. zero B. $75 million C. $58.1 million D. $46.7 million E. $32.75 million

5. Consider the situation where you have won a $10 million lottery to be received in 25 annual equal payments of $400,000. What will happen to the present value of these winnings if the interest rate increases during the next 25 years? A. it will not change B. it will be worth more C. it will be worth less

6. When you receive your monthly statement regarding your bank credit card, it shows that the monthly rate of interest is 1.8%. What is the annual effective rate of interest you are being charged on your credit card? A. 22.87% B. 23.87% C. 14.98% D. 1.8% E. 21.6%

7. Calculate the NPV of the following cash flows: you invest $3,000 today and receive back $300 one year from now, $700 two years from now and $1,100 four years from now. (Note: nothing three years from now) Assume that the interest rate is 7%. A. $1,269 B. -$4,731 C. -$1,269 D. $4,731 E. $5,470

8. The earnings of BGB Computers have grown from $3.20 (yr0) to $6.90 (yr6) in 6 years. Determine the annual compound rate (CAGR). A. 8.8% B. 12.1% C. 13.7% D. 46% E. 16.6%

9. A rule of thumb with using the internal rate of return is to invest in a project if the IRR is _____________ than the opportunity cost of capital. A. greater B. less C. less than or equal to D. indeterminate relative to

10. Consider a zero coupon bond (one with zero interest payments). If the bond has a maturity value in seven years of $1000 and you would currently pay $850 for the bond, what is the yield to maturity? A. -3.5% B. -2.35% C. 23.5% D. 2.35% E. 17.6%

11. If you purchased a $10,000 certificate of deposit (CD) today with a nominal annual interest rate of 12%, with monthly compounding, what would be the CD worth when it matures in 6 years? A. $20,471 B. $21,159 C. $20,191 D. $20,208 E. $10,615

12. The manufacturing manager of CyberProducts Inc. estimates that she can save the company $16,000 cash per year over the next 8 years by implementing a recycling plan. What is the value of the savings today if the appropriate interest rate for the firm is 9%? Assume cash flows occur at the end of the year. A. $68,460 B. $117,600 C. $73,020 D. $115,500 E. $88,557

13. You take out a $350,000, 30 year mortgage (monthly payments and compounding) at an annual 8 percent rate. The scheduled monthly payment will be what amount (rounded to nearest dollar)? A. $28,000 B. $2,591 C. $2,568 D. $2,333 E. $12,911

14. If the exchange rate between the U.S. dollar and the Japanese yen is $0.00745 per yen, the dollar interest rate is 6% per year, and the Japanese interest rate is 7% per year, what is the "break-even" value of the future dollar/yen exchange rate one year from now (the rate at which the returns will have equal value)? A. $135.49 per yen B. $135.23 per yen C. $0.00752 per yen D. $0.00738 per yen E. $0.00745 per yen

15. What is the real interest rate (rounded to nearest 100th of a percent) if the nominal interest rate is 9% per year and the rate of inflation is 6% per year? A. 6.75% B. 2.75% C. 2.83% D. 8.50% E. 9.00%

16. Suppose your child is 9 years old and you are planning to open a fund to provide for the child's college education. Currently, tuition for one year of college is $22,000. How much must you invest now in order to pay enough for the first year of college nine years from now, if you think you can earn a rate of interest that is 4% more than the inflation rate? Assume that tuition moves with inflation. A. $8,500 B. $10,129 C. $16,988 D. $15,457 E. $21,154

17. You have determined the present value of an expected cash inflow stream. Which of the following would cause the stream to have a higher present value? A. The discount rate increases. B. Total cash flows remain the same but are paid over a shorter period of time. C. The discount rate decreases. D. Statements (b) and (c) are both correct. E. Statements (a) and (b) are both correct.

18. Lucinda is currently thirty years old and she plans to retire at age sixty (30 more years to work). She is expected to live to age eighty-five (25 years of retirement). Her labor income is $45,000 per year and she intends to maintain a constant level of real consumption spending over the next fifty-five years. Assuming a real interest rate of 4% per year, no taxes, and no growth in real labor income, what is the value of Lucinda's human capital? A. $35,196 B. $40,005 C. $994,888 D. $778,141 E. $45,000

19. Let us suppose you have a choice between investing in a bank savings account which pays 9% compounded annually (Bank Yearly) and one which pays 8.5% compounded daily (Bank Daily). (Assume this is based on 365 days). What is the Bank Daily effective annual rate (EAR), and using only effective annual rates, which bank would you prefer? (round EARs to 100th of a percent) A. 8.87%, Bank Yearly B. 8.87%, Bank Daily C. 9.00%, either Bank Yearly or Bank Daily (indifferent) D. 8.50%, Bank Daily E. 8.50%, Bank Yearly

20. You are 60 years old and are considering whether it pays to buy an annuity from an insurance company. For a cost of $25,000, the insurance company will pay you $3,000 per year for the rest of your life starting one year from now. Assume you can earn 8% per year on your money in a bank account and you expect to live until age 80 (another 20 years). What implied interest rate is the insurance company paying you and should you buy the annuity? A. Greater than 10%; Yes, buy B. Greater than 10%; No, don't buy C. Less than 8%; Yes, buy D. Less than 8%; No, don't buy E. Between 8% & 10%; No, don't buy

21-25 are short answer

21. You have just taken out a $300,000, 30 year mortgage (monthly payments and compounding) at an annual 8 percent rate. Scheduled monthly payments are $2,201.29. You decide to pay an additional $100 each month towards the mortgage (you make the scheduled payment plus an extra $100 each month). How many payments must you make before the mortgage is paid off? (round up to the next whole payment) 22. If you can at most afford $1,200 a month and current annual mortgage rates are 6%, what is the most you can borrow to be repaid over 30 years? (Assume monthly payments/compounding and round your final answer to the nearest dollar) 23. You want to buy a new Subaru Forester. You plan to borrow the entire purchase price of $25,000. Subaru offers two choices: (i) an immediate $1500 rebate and financing at the regular rate of 7.2% APR for 48 months, or (ii) low percentage financing for 48 months. What financing rate (stated per annum, APR) would make you be indifferent between the rebate and the low percentage loan? (assume monthly compounding & payments and round your final answer to 100th of a percent) 24. Your financial planning client wishes to have investment savings in 20 years that will provide $1.0 million dollars of purchasing power, measured in today's (real) dollars. The current balance of the client's investment account is $75,000. Nominal investment rates of return are 9.2% per annum, the expected inflation rate is 4% per annum, and the real rate of return is 5% per annum. In todays (real) dollars, how much must the client save per month starting at the end of the current month to accomplish this goal, given these rates of return? Assume monthly compounding. (round your final answer to the nearest dollar) 25. What is the value today of a security that promises to pay $1,000 in one quarter, with payments increasing at 1% per quarter thereafter? Payments are made each quarter forever. Our opportunity cost of capital is 12% per annum. (round your final answer to the nearest dollar)