Question $1$

The par value of a bond is usually $$100.$

True $/$ False

Question $2$

Coupon rate can be calculated by dividing the annual coupon payment by the face value.

True $/$ False

Question $3$

If the YTM $>$ coupon rate then the bond value is below the par value and it is a discount bond.

True $/$ False

Question $4$

Debt of state and local governments are known as treasury securities$.$

True $/$ False

Question $5$

A taxable bond has a yield of $8\%,$ and a municipal bond has a yield of $7\%.$ If you are in a $30\%$ tax bracket, you would prefer the municipal bond.

True $/$ False

Question $6$

Preemptive right can be defined as first shot at new stock issue to maintain proportional ownership if desired.

True $/$ False

Question $7$

The firm should accept a project if its NPV is less than zero.

True $/$ False

Question $8$

Consider a bond with a coupon rate of $10\%$ and annual coupons. The par value is $$1,000,$ and the bond has $5$ years to maturity. The yield to maturity is $12\%.$ What is the value of the bond?

$$918\mathrm{.}74$

$$926\mathrm{.}40$

$$1,045\mathrm{.}34$

$$1,072\mathrm{.}89$

Question $9$

Large portion of technology stocks trade on NYSE.

True $/$ False

Question $10$

Book value equals initial cost plus accumulated depreciation.

True $/$ False

Question $11$

Marginal cost is the cost to produce one more unit, and is same as the variable cost per unit.

True $/$ False

Question $12$

Total dollar return is simply the capital gain or loss due to change in price. It does not take into account income, such as dividends, from the investment.

True $/$ False

Question $13$

The greater the uncertainty, the greater the volatility.

True$/$ False

Question $14$

Market risk is also known as diversifiable risk.

True$/$ False

Question $15$

The required return is best estimated by computing the yield$-$to$-$maturity on the existing debt.

True $/$ False

Question $16$

Which of the following is $($are$)$ associated with bonds?

price risk

credit risk

reinvestment risk

all of the above

Question $17$

The contract between the bond issuing company and the bondholders is known as:

the annual report

the verbal report

bond indenture

bond par value

Question $18$

What is the NPV if a new project has the following cash flows:

CF $0$: $-$$$150,000$

CF $1$: $$40,000$

CF $2$: $$60,000$

CF $3$: $$70,000$

CF $4$: $$50,000$

CF $5$: $$30,000$

Required Rate of Return $=8\%$

$$27,843\mathrm{.}21$

$$32,956\mathrm{.}40$

$$43,762\mathrm{.}38$

$$51,214\mathrm{.}61$

Question $19$

Costs that were accrued in the past and are no longer recoverable are known as:

opportunity cost

reinvestment cost

variable cost

sunk cost

Question $20$

Costs of lost options can be classified as:

opportunity cost

reinvestment cost

variable cost

sunk cost

Question $21$

If a firm's EBIT is $$1,000,000,$ depreciation is $$200,000,$ and the taxes are $$300,000,$ what is the firm's operating cash flow?

$$600,000$

$$700,000$

$$800,000$

$$900,000$

Question $22$

If an equipment is bought by a firm for $$100,000,$ its salvage value is $$25,000$ and straight line depreciation is used for $5$ years, what is the appropriate depreciation schedule?

$$15,000$ every year

$$20,000$ every year

$$25,000$ every year

$$30,000$ every year

Question $23$

If a stock pays a dividend of $$3\mathrm{.}00$ per share and the stock price is $$20,$ what is the dividend yield?

$10\%$

$15\%$

$20\%$

$30\%$

Question $24$

You $1,000$ shares of a company for $$40,$ and you received dividends of $$5\mathrm{.}00$ per share. If you sell the $1,000$ shares for $$42,$ what is your total dollar return?

$$2,000$

$$5,000$

$$7,000$

$$8,000$

Question $25$

Generally, which of the following provide the highest return?

stocks

corporate bonds

municipal bonds

treasury bonds

Mr$.$ Miyagi is very excited because sales for his nursery and plant company are expected to double from $$540,000$ to $$1,080,000$ next year. Mr$.$ Miyagi notes that net assets $($Assets $$ Liabilities$)$ will remain at $60$ percent of sales. His firm will enjoy an $11$ percent return on total sales. He will start the year with $$140,000$ in the bank and is bragging about the Jaguar and luxury townhouse he will buy.

a$)$ Compute his likely cash balance or deficit for the end of the year. Start with beginning cash and subtract the asset buildup $($equal to $60$ percent of the sales increase$)$ and add in profit.

Note: Negative amount should be indicated by a minus sign.

Asset buildup $=\%$ ratio of net assets x $($next year sales $-$ initial sales$)$

Return on sales $=\%$return x next year sales

Beginning cash:

Asset buildup:

Profit:

$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$

Ending Cash:

b$)$ Does his optimistic outlook for his cash position appear to be correct?

You must show work to get credit.