1. Kay owns two annuities that will each pay $500 a month for the next 12 years. One payment is received at the beginning of each month while the other is received at the end of each month. At a discount rate of 7.25 percent, compounded monthly, what is the difference in the present values of these annuities?

$289.98

$312.50

$299.01

$308.00

$265.42

2. Tool Makers manufactures equipment for use by other firms. The initial cost of one customized machine is $850,000 with an annual operating cost of $10,000, and a life of 3 years. The machine will be replaced at the end of its life. What is the equivalent annual cost of this machine if the required rate of return is 15 percent and we ignore taxes?

$347,647.78

$375,797.41

$340,008.02

$351,610.29

$382,280.42

3. A project will produce an operating cash flow of $7,300 a year for three years. The initial investment for fixed assets will be $11,600, which will be depreciated straight-line to zero over the assets 4-year life. The project will require an initial $500 in net working capital plus an additional $500 every year with all net working capital levels restored to their original levels when the project ends. The fixed assets can be sold for an estimated $2,500 at the end of the project, the tax rate is 34 percent, and the required rate of return is 12 percent. What is the net present value of the project?

$9,896.87

$7,532.27

$8,398.29

$7,072.72

$6,353.41

4. A credit card compounds interest monthly and has an effective annual rate of 12.67 percent. What is the annual percentage rate?

11.99%

12.00%

11.87%

5. You need some money today and the only friend you have that has any is your miserly' friend. He agrees to loan you the money you need, if you make payments of $20 a month for the next six months. In keeping with his reputation, he requires that the first payment be paid today. He also charges you 1.5% interest per month. How much total interest does he expect to earn?

$3.63

$5.96

$1.34

$4.35

$3.94

11.93%

12.35%

6. Project A is opening a bakery at 10 Center Street. Project B is opening a specialty coffee shop at the same address. Both projects have unconventional cash flows, that is, both projects have positive and negative cash flows that occur following the initial investment. When trying to decide which project to accept, given sufficient funding to accept either, you should rely most heavily on the _____ method of analysis.

net present value

discounted payback

internal rate of return

payback

profitability index

7.

Schroeder Electronics is considering a project which will require the purchase of $5.68 million in new equipment that will be depreciated straight-line to a zero book value over the 5-year life of the project. Schroeder desires a 12 percent rate of return and the tax rate is 35 percent. What is the value of the depreciation tax shield in Year 5 of the project?

$228,406.12

$1,136,000.00

$397,600.00

$225,608.92

$334,800.00

8.

You are comparing two annuities with equal present values. The applicable discount rate is 6.5 percent. One annuity will pay $2,000 annually, starting today, for 20 years. The second annuity will pay annually, starting one year from today, for 20 years. What is the annual payment for the second annuity?

$2,225

$2,130

$2,000

$2,075

$2,405