Question 10

Use the following information to answer the question(s) below.

Nielson Motors is considering an opportunity that requires an investment of $1,000,000 today and will provide $250,000 one year from now, $450,000 two years from now, and $650,000 three years from now.

If the appropriate interest rate is 15%, then Nielson Motors should:

not invest in this opportunity since the NPV is negative.

not invest in this opportunity since the NPV is positive.

invest in this opportunity since the NPV is negative.

invest in this opportunity since the NPV is positive.

Question 11

Use the information for the question(s) below.

Alaska North Slope Crude Oil (ANS) $71.75/Bbl

West Texas Intermediate Crude Oil (WTI) $73.06/Bbl

As an oil refiner, you are able to produce $76 worth of unleaded gasoline from one barrel of Alaska North Slope (ANS) crude oil. Because of its lower sulfur content, you can produce $77 worth of unleaded gasoline from one barrel of West Texas Intermediate (WTI) crude.

Another oil refiner is offering to trade you 10,150 Bbls of Alaska North Slope (ANS) crude oil for 10,000 Bbls of West Texas Intermediate (WTI) crude oil. Assuming you currently have 10,000 Bbls of WTI crude, the added benefit (cost) to you if you take the trade is closest to:

($1400)

$1400

($3908)

$3908

Question 12

Use the information for the question(s) below.

Alaska North Slope Crude Oil (ANS) $71.75/Bbl

West Texas Intermediate Crude Oil (WTI) $73.06/Bbl

As an oil refiner, you are able to produce $76 worth of unleaded gasoline from one barrel of Alaska North Slope (ANS) crude oil. Because of its lower sulfur content, you can produce $77 worth of unleaded gasoline from one barrel of West Texas Intermediate (WTI) crude.

Assuming you currently have 10,000 Bbls of WTI crude, the added benefit (cost) to you if you were to sell the 10,000 Bbls of WTI crude and use the proceeds to purchase and refine ANS crude is closest to:

($1400)

$1400

($3908)

$3908

Question 13

Walgreen Company (NYSE: WAG) is currently trading at $48.50 on the NYSE. Walgreen Company is also listed on NASDAQ and assume it is currently trading on NASDAQ at $48.75. Does an arbitrage opportunity exists and if so how would you exploit it and how much would you make on a block trade of 100 shares?

No, no arbitrage opportunity exists.

Yes, buy on NASDAQ and sell on NYSE, make $25.

Yes, buy on NYSE and sell on NASDAQ, make $25.

Yes, buy on NASDAQ and sell on NYSE, make $250.

Question 14

When we express the value of a cash flow or series of cash flows in terms of dollars today, we call it the ________ of the investment. If we express it in terms of dollars in the future, we call it the ________.

ordinary annuity; annuity due

present value; future value

discount factor; discount rate

future value; present value

Question 15

You are considering purchasing a new home. You will need to borrow $250,000 to purchase the home. A mortgage company offers you a 15 year fixed rate mortgage (180 months) at 3% APR. If you borrow the money from this mortgage company, your monthly mortgage payment will be closest to:

$2,535

$1,726.45

$7,536.85

$1,660

Question 16

You are saving for retirement. To live comfortably, you decide that you will need $2.5 million dollars by the time you are 65. If today is your 30th birthday, and you decide, starting today, and on every birthday up to and including your 65th birthday, that you will deposit the same amount into your savings account. Assuming the interest rate is 5%, the amount that you must set aside each year on your birthday is closest to:

$26,086

$26,260

$71,430

$27,680

Question 17

You have some property for sale and have received two offers. The first offer is for $89,500 today in cash. The second offer is the payment of $35,000 today and an additional guaranteed $70,000 two years from today. If the applicable discount rate is 11.5 percent, which offer should you accept and why?

You should accept the $89,500 today because it has the higher net present value.

You should accept the $89,500 today because it has the lower future value.

You should accept the second offer because it has the larger net present value.

You should accept the first offer as it is a lump sum payment.

It does not matter which offer you accept as they are equally valuable.

Question 18

You just won the grand prize in a national writing contest! As your prize, you will receive $1,000 a month for 15 years. If you can earn 7 percent on your money, what is this prize worth to you today?

$86,126.35

$14,285.16

$85,333.33

$111,255.95

$14,322.55

Question 19

You would like to establish a trust fund to provide $140,000 a year forever for your heirs. The expected rate of return is 5.45 percent. How much money must you deposit today to fund this gift?

$2,521,212

$2,458,122

$2,600,000

$2,568,807

$2,500,000