A 30-year, $115,000 mortgage has a nominal annual rate of 7%. All payments are made at the end of each month.

1. What is the monthly payment on the mortgage? A. $776.89 B. $765.10 C. $772.29 D. $760.66 E. $774.10

2. Which of the following statements is CORRECT?

A. There is a tax disadvantage to incorporation, and there is no way any corporation can escape this disadvantage, even if it is very small.

B. Corporate shareholders are exposed to unlimited liability.

C. It is usually easier to transfer ownership in a corporation than it is to transfer ownership in a sole proprietorship.

D. Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax advantages of incorporation.

E. Corporations generally face fewer regulations than sole proprietorships.

2. You can buy a perpetuity that pays $1,000 annually, and your required rate of return on this investment is 15%. You should be indifferent to buying or not buying the investment if it were offered at a price of A. $5,000.00 B. $8,728.50 C. $6,000.00 D. $6,666.67 E. $7,500.00

3. Which of the following would indicate an improvement in a company's financial position, holding other things constant? A. The current and quick ratios both decline. B. The EBITDA coverage ratio increases. C. The total assets turnover decreases. D. The TIE declines. E. The DSO increases.

4. Coolidge Cola is forecasting the following income statement:

Sales $30,000,000 Operating costs excluding depr and amort 20,000,000 EBITDA $10,000,000 Depreciation and amortization 5,000,000 Operating income (EBIT) $ 5,000,000 Interest expense 2,000,000 Taxable income (EBT) $ 3,000,000 Taxes (40%) 1,200,000 Net income $ 1,800,000

Assume that depreciation is Coolidge's only non-cash revenue or expense. Congress is considering a proposal allowing companies to depreciate their equipment at a faster rate. If approved, Coolidge's new depreciation expense would be $8,000,000, although there would be no effect on the economic value of the company's equipment, nor would it affect the company's tax rate, which would remain at 40%. If this proposal were implemented, what would be the company's net cash flow? A. $4,000,000 B. $9,800,000 C. $2,000,000 D. $8,000,000 E. $6,800,000

5. Which of the following statements is CORRECT? A. The use of debt financing will tend to lower the basic earning power ratio, other things held constant. B. All else equal, increasing the debt ratio will increase the ROA. C. If two firms have identical sales, interest rate paid, operating costs, and assets, but they differ in the way they are financed, the firm with less debt will generally have the higher expected ROE. D. Bond financing is better than stock financing for investors because income from bonds is taxed on a more favorable basis than income from stock. E. A firm that employs financial leverage will have a higher equity multiplier than an otherwise identical firm that has no debt in its capital structure.

6. After graduation, you plan to work for 10 years and then visit Australia. You expect to save $1,000 a year for the first 5 years and $2,000 annually for the next 5 years. These savings cash flows will start in one year. In addition, your family has just given you a $5,000 graduation gift. If your gift and all future contributions are put into an account that pays 8% compounded annually, what will your financial "stake" be when you leave for Australia 10 years from now? A. $21,432 B. $20,000 C. $16,651 D. $31,148 E. $28,393