| | | Average accounting return 3. First State Bank offers you a $115,000, 7-year term loan at 10 percent annual interest. What will your annual loan payment be? 4. All else held constant, the present value of an annuity will decrease if you: | | | increase the annuity's future value. | | | | increase the payment amount. | | | | increase the time period. | | | | decrease the discount rate. | | | | decrease the annuity payment 5. Which one of the following statements is correct? | | | From a legal perspective, preferred stock is a form of corporate equity. | | | | All classes of stock must have equal voting rights per share. | | | | Common shareholders elect the corporate directors while the preferred shareholders vote on mergers and acquisitions. | | | | Dividends are tax-free income for individual investors. | | | | Shareholders prefer noncumulative dividends over cumulative dividends. 6. A callable bond: | | | is generally call protected during the entire term of the bond issue. | | | | generally will have a call protection period during the final three years prior to maturity. | | | | may be structured to pay bondholders the current value of the bond on the date of call. | | | | is prohibited from having a sinking fund also. | | | | is frequently called at a price that is less than par value. 7. ___________ignores the TVM (Time Value of Money). | | | NPV | | | | IRR | | | | Discounted cash flow analysis | | | | Payback | | | | Profitability index 8. Bulldogs Co. has 10% coupon bonds on the market that has 8 years left to maturity. The bonds make annual coupon payments. If the YTM on these bonds is 9%, what is the current bond price? Please show all your process. 9. Solar Energy is currently examining a project that will produce cash inflows of $20,807 a year for two years followed by $12,521 in year 3. The cost of the project is $36,447. What is the profitability index if the discount rate is 9 percent? 10. Which one of the following is an ordinary annuity? | | | $75 paid at the beginning of each monthly period for 50 years | | | | $15 paid at the end of each monthly period for an infinite period of time | | | | $40 paid quarterly for 5 years, starting today | | | | $50 paid every year for ten years, starting today | | | | $25 paid weekly for 1 year, starting one week from today 11. Alisha can afford car payments of $291 a month for 60 months. The bank will lend her money to buy a car at 6% APR compounded monthly (0.5% per month). How much money can he afford to borrow? 12. Which one of the following statements is true? | | | The current yield on a par value bond will exceed the bond's yield to maturity. | | | | The yield to maturity on a premium bond exceeds the bond's coupon rate. | | | | The current yield on a premium bond is equal to the bond's coupon rate. | | | | A premium bond has a current yield that exceeds the bond's coupon rate. | | | | A discount bond has a coupon rate that is less than the bond's yield to maturity. 13. _____ bias against long-term projects. | | | Net present value | | | | Internal rate of return | | | | Average accounting return | | | | Profitability index | | | | Payback 14. GiGi Scholarship recently starts to fund annual scholarships for students at SCSU as a gift to the University. The school expects to earn an average rate of return of 5.5 percent and distribute $50,000 annually in scholarships. What was the amount of the gift? 15. Delta Mu Delta just paid its annual dividend of $7 a share. The firm recently announced that all future dividends will be increased by 4% annually. What is one share of this stock worth to you if you require a 10% rate of return? 16. What is the net present value of a project with the following cash flows if the discount rate is 15 percent? 
| | | -$2,687.98 | | | | -$1,618.48 | | | | $1,044.16 | | | | $1,035.24 | | | | $9,593.19 17. Payback period should be used in ___________ project. | | | Low-cost, short-term | | | | High-cost, short-term | | | | Low-cost, long-term | | | | High-cost, long-term | | | | Any size of long-term 18. A project should be rejected when _______ | | | IRR exceeds the requirement | | | | Payback period that is shorter than the requirement period | | | | Positive NPV | | | | Profitability index less than 1.0 | | | | MIRR exceeds the required return | | | | | | | | | | |
