PLEASE USE EXCEL FOR CALCULATIONS AND SHOW STEPS!

6. Rachel is due to receive two payments from an insurance company. She will get $1,000 exactly one year from today, and $2,000 two years from today. Instead of the two payments, the insurance company is willing to settle the account by making one lump-sum payment to Rachel today. The insurance company applies a 6% discount rate for the one year cash flow and a 8% discount rate for the two-year cash flow. What dollar amount will Rachel receive today? a. $2,712

2. $2,750
3. $2,675
4. $2,658
5. $3,000

7. As the discount rate increases without limit, the present value of a future cash flow

a. approaches infinity

2. remains unchanged
3. approaches zero
4. approaches negative infinity

8. A perpetuity will pay $1,000 per year, starting 5 years after the perpetuity is purchased. What is the present value of this perpetuity on the date that it is purchased, given that the interest rate is 4%?

a. $1,410

2. $20,582
3. $21,370
4. $34,604

9. Your friend Barbara has a bond that she would like to sell to you. The bond matures in 10 years, has a face value of $1,000 and a coupon interest rate of 6% (paid annually). If you know that the yield to maturity on similar bonds is 8%, what is the maximum price you would be willing to pay for the bond?

1. $865.80
2. $940
3. $1000
4. $1,147.20

11. Dividends-R-Us, Corp. is paying a dividend of $3 a share today. It is expected that the company will continue its policy of increasing its dividend 8% a year every year. If you require a 14% rate of return to invest in this company, what is the maximum amount you would be willing to pay for a share of the companys stock? a. $30.86

2. $50.00
3. $51.33
4. $54.00

12. A firm is planning on paying its first dividend of $2 in three years. After that dividends are expected to grow at 6% per year indefinitely. The stock's required return is 14%. What is the value of a share today? a. $25.00

2. $16.87
3. $19.24
4. $20.99

13. XYZ Corps common stock can be purchased today for $32.25. It is expected to pay $4.25 in dividends next year. You can sell the stock for $38.50 right after receiving the dividend next year. What is the expected return if you purchase the stock today? (Choose the nearest number)

1. 11%
2. 13%
3. 19%
4. 33%

14. XYZ Corp has the same amount of sales every day. Thirty percent (30%) of its customers pay cash immediately upon purchase. Forty percent (40%) of the customers take discount and pay-up on the 10th day after sale. The remaining 30% of the customers pay in exactly 40 days. What is the average days sales outstanding (DSO)? a. 15 days

2. 12 days
3. 30 days
4. 18 days
5. 16 days

16. ABC Corp is considering undertaking a new project. The project is expected to have an IRR of 14%. ABC Corp

1. Should undertake this project if its Return on Assets (ROA) is less than 14%.
2. Undertake this project since the company has already spent $20,000 analyzing whether this project is feasible. c. Should undertake this project if its WACC is less than 14%.

4. Should undertake this project if its Net Profit Margin exceeds 14%.
5. Should undertake the project if its WACC exceeds 14%.

19. Which of the following is a source of cash to the firm?

1. Increase in fixed assets
2. Increase in accounts receivable
3. Reduction in the equity account
4. Reduction of inventory
5. None of the above are a source of cash

20. Break-even analysis is a technique for determining that point at which sales will just cover a. total costs
    2. variable costs
    3. fixed costs
    4. sunk costs
    5. direct costs

25. A current ratio that is above average and a quick (acid-test) ratio that is below average would indicate that the firm a. is using too much debt financing

2. should tighten-up its credit policy
3. is not keeping its costs under control
4. is holding excessive inventory
5. None of the above -- the Current ratio and Quick ratio measure the same thing.

26. Consider ABC Corp. The firm had sales of $2 million last year with a net profit margin of 6%. Its total assets last year was $1 million. What is the firms return on assets (ROA)?

1. Less than 5%
2. Between 5% and 7%
3. Between 7% and 9%
4. Between 9% and 11%
5. More than 11%.

27. Kooks Inc. needs to free-up some cash by managing its inventories. Currently, Kooks has annual cost of goods sold of $1,600,000 and an average inventory balance of $450,000. How much cash will become available if Kooks can shorten its average age of inventory by (8) eight days? (365 days in a year, choose the nearest thousand number). a. $ 35,000
    2. $ 56,000
    3. $ 137,000
    4. $ 200,000
    5. None of the above

Use the financial statements for ABC Corp. shown below to answer questions 24 25. First compute and fill in the blank squares for EBIT, EBT, Taxes, and EAT or Net Income.

INCOME STATEMENT FOR ABC CORP FOR 2010

Sales	$100.00
Cost of Goods Sold	$50.00
Depreciation	$10.00
Earnings Before Interest and Taxes (EBIT)	-------
Interest	$15.00
Earnings Before Taxes (EBT)	-------
Taxes (@30%)	-------
Earnings After Taxes (EAT) or Net Income	-------

28. The Net Income for ABC Corp. in 2010 based on the information given above is: a. $ 7.50

2. $ 15.00
3. $ 17.50
4. $ 25.00
5. $ 27.50

29. The Operating Cash Flow for ABC Corp. in 2009 based on the information given above is: a. $ 7.50

2. $ 15.00
3. $ 17.50
4. $ 25.00
5. $ 27.50

30. An unusually low turnover of accounts receivable, which implies a very long average collection period (or days' sales outstanding), could indicate that the firm

1. Is very easy in its credit policy
2. Is very easy in its collection policy
3. Offers very little discount and thus encourages late payment
4. All of the above