Question 1

The IRS is reevaluating the asset life categories used for ACRS depreciation. The trucks that JK Industries use are currently classified by the IRS as having an asset life of 7 years. Because these trucks actually last for 10 years, the firms managers would prefer the IRS to reclassify them as 10-year assets so the firm can keep them longer, spread the cost of depreciation over more years and hence increase earnings. (True, False, Uncertain and explain your response)

Question 2

If a firm uses the Discounted Payback rule, it will never accept a negative NPV project. (True, False, Uncertain and explain your response)

Question 3

Managers desire for job security and firm growth conflict with maximizing value for shareholders. (True, False, Uncertain and explain your response)

Question 4

It is often stated that anyone with a pencil can calculate financial ratios, but it takes a brain to interpret them. What kinds of things should the analyst keep in mind when evaluating the financial statements of a given firm?

Question 5

When risk averse investors choose portfolios and assets to include in them, volatility is not the way they should measure risk. (True, False, Uncertain and explain your response)

Question 6

Rau Inc. has 7.0 percent coupon bonds on the market with 9 years to maturity. The bonds make semi-annual payments and currently sell for 80 percent of par. What is the YTM?

You will upload an Excel spreadsheet that shows all of your work and the solution.

Question 7

JJ Enterprises is considering the purchase of a new machine that will produce thumb drives. The new machine will require an initial investment of $100,000 and has an economic life of five years and will be fully depreciated by the straight line method. The machine will produce 15,000 thumb drives per year with each costing $2.00 to make. Each will be sold at $4.50. Assume JJ Enterprises uses a discount rate of 14 percent and has a tax rate of 34 percent. What is the NPV of the project and should JJ Enterprises make the purchase.

You will upload an Excel spreadsheet that shows all of your work and the solution.

Question 8

You are building a pipeline which will generate its first annual cash flow of $2m exactly 5 years from today. As it ages, the volume it transports, and hence the cash flows it creates, will decline by 3% per year. Exactly 27 years from today, this pipeline will be scrapped, and the Environmental Protection Agency will require you to spend $50m then to dismantle it. The pipelines OCC is 9%. Whats the lowest price that you would consider selling it for?

Question 9

The returns on QRC stock and an investors portfolio over three years are given in the table below.

1. Based on this data, compute the volatility of the portfolio and briefly describe how to interpret it.

2. Based on this data, calculate the correlation between QRC and the portfolio, and briefly describe what it means. Show your work.

3. Suppose the portfolio represents the portfolio of all wealth. What is QRCs market beta?

Year	QRC	Portfolio
1	5.0%	19.0%
2	-3.0%	14.0%
3	13.0%	9.0%

You will upload a Word Document that shows all of your work and the solution.

Question 10

What is the price of a T-Bond with exactly 24.5 years to maturity and coupons with rate 5.875% paid semi-annually? Its yield is 6.5% BEY (Bond Equivalent Yield is semi-annually compounded).

You will upload a Word Document that shows all of your work and the solution.

Please answer all questions and show excel files workings with formulas for those that require. Thank you.