Q1.

Your company purchased a piece of land five years ago for $150,000 and subsequently added $175,000 in improvements. The current book value of the property is $225,000. There are two options for future use of the land: 1) the land can be sold today for $450,000 on a net after-tax basis; 2) your company can destroy the past improvements and build a factory on the land. In consideration of the factory project, what amount (if any) should the land be valued at?

Select one:

a. The property should be valued at zero since it is a sunk cost.

b. The present book value of $225,000.

c. The original $150,000 purchase price of the land itself.

d. The sales price of $450,000 less the book value of the improvements.

e. The after-tax sales value of $450,000.

Q2.

You are going to withdraw $1,000 at the end of each year for the next three years from an account that pays interest at a rate of 9% compounded annually. The account balance will reduce to zero when the last withdrawal is made. How much money will be in the account immediately after the second withdrawal is made?

Select one:

a. $925.93

b. $982.29

c. $1,000.00

d. $917.43

e. $2,000.00

Q3.

For a project with an initial investment of $42,000 and cash inflows of $10,000 a year for six years, calculate NPV given a required return of 12%/year.

Select one:

a. -$775

b. -$886

c. -$1,205

d. $1,699

e. -$347

Q4.

A firm has a tax rate of 35%, an unlevered rate of return of 12%, total debt of $2,000, and an EBIT of $290.00. What is the unlevered value of the firm?

Select one:

a. 1,346

b. $1,571

c. $2,143

d. $393

e. $27

Q5.

A new project will cause accounts payable to increase by $70,000, accounts receivable to increase by $70,000 and inventory to decrease by $10,000. Which one of the following statements is true?

Select one:

a. The change in inventory is a use of cash.

b. Net working capital will decrease.

c. The change in accounts payable is a use of cash.

d. The project will decrease the amount of cash provided to customers.

e. The project will not affect net working capital.

Q6.

If you are lending money, which one of the following rates would you prefer?

Select one:

a. 12% compounded semi-annually

b. 12% compounded daily

c. 12% paid annually

d. 12% compounded quarterly

e. 12% compounded monthly