DEVRY FIN 515 Week 4 Midterm

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DEVRY FIN 515 Week 4 Midterm

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• FIN 515 Week 4 Midterm
• 1. (TCO G) The firms asset turnover measures
• 2. (TCO G) Suppose Novak Company experienced a
  reduction in its ROE over the last year. This
  fall could be attributed to
• 3. (TCO B) You plan on retiring in 20 years. You
  currently have 275,000 and think you will need
  1,000,000 to retire. Assuming you dont deposit
  any additional money into the account, what
  annual return will you need to earn to meet this
  goal?
• 4. (TCO B) You take out a 4 year car loan for
  18,000. The loan has a 4 annual interest rate.
  The payments are made monthly. What are the
  monthly payments? Show your work
• 5. (TCO B) You currently have 10,000 in your
  retirement account. If you deposit 500 per month
  and the account pays 5 interest, how much will
  be in the account in 10 years? Show your work.
• 6. (TCO B) You have a two children, A and B.
  Child A is not going to college but is working in
  a business to learn the ropes. Child A plans on
  opening a business someday. Child B is attending
  college. You put a certain amount of money into an

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account. From this account, Child B will receive
2,000 per month for the next four years.
Whatever is left at that time will go to Child A
to help start the business. You want Child A to
receive 96,000 at that time. The account pays 7
annually, compounded monthly. How much money do
you need to start the account? Show your work.7.
(TCO F) A project requires an initial cash outlay
of 95,000 and has expected cash inflows of
20,000 annually for 9 years. The cost of capital
is 10. What is the projects NPV? Show your
work.8. (TCO F) A project requires an initial
cash outlay of 60,000 and has expected cash
inflows of 15,000 annually for 8 years. The cost
of capital is 10. What is the projects payback
period? Show your work.9. (TCO F) A project
requires an initial cash outlay of 95,000 and
has expected cash inflows of 20,000 annually for
9 years. The cost of capital is 10. What is the
projects IRR? Show your work.10. (TCO F) A
project requires an initial cash outlay of
40,000 and has expected cash inflows of 12,000
annually for 7 years. The cost of capital is 10.
What is the projects discounted payback period?
Show your work.11. (TCO F) Company A has the
opportunity to do any, none, or all of the
projects for which the net cash flows per year
are shown below. The projects are not mutually
exclusive. The company has a cost of capital of
15. Which should the company do and why? You
must use at least two capital budgeting methods.
Show your work. Explain your answer
thoroughly. (1 ) (TCO A) Which of the following
statements is CORRECT? (Points 10) (a) It is
generally more expensive to form a proprietorship
than a corporation because, with a
proprietorship, extensive legal documents are
required.(b) Corporations face fewer regulations
than sole proprietorships.(c) One disadvantage
of operating a business as a sole proprietorship
is that the firm is subject to double taxation,
at both the firm level and the owner
level.(d) One advantage of forming a corporation
is that equity investors are usually exposed to
less liability than in a regular partnership.
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Retained earnings at the end of 2009 were
700,000, but retained earnings at the end of
2010 had declined to 320,000. The company does
not pay dividends. The companys depreciation
expense is its only non-cash expense it has no
amortization charges. The company has no
non-cash revenues. The companys net cash flow
(NCF) for 2010 was 150,000. On the basis of
this information, which of the following
statements is CORRECT? (Points
10)(a) Prestopino had negative net income in
2010.( b ) Prestopinos depreciation expense in
2010 was less than 150,000. (c) Prestopino had
positive net income in 2010, but its income was
less than its 2009 income.(d) Prestopinos NCF
in 2010 must be higher than its NCF in
2009. (e) Prestopinos cash on the balance
sheet at the end of 2010 must be lower than the
cash it had on the balance sheet at the end of
2009. (3) TCO G) Beranek Corp. has 410,000 of
assets, and it uses no debtit is financed only
with common equity. The new CFO wants to employ
enough debt to bring the debt/assets ratio to
40, using the proceeds from the borrowing to buy
back common stock at its book value. How much
must the firm borrow to achieve the target debt
ratio? (Points 10) 155,800164,000172,200
180,810189,851 (4) (TCO B) You deposit
1,000 today in a savings account that pays 3.5
interest, compounded annually. How much will your
account be worth at the end of 25 years? (Points
10)
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• CFs 0 1,000 2,000
  2,000 2,000 (Points 10)
•  
• 5,987
• 6,286
• 6,600
• 6,930
• 7,277
•  
• (6) (TCO B) Suppose you borrowed 12,000 at a
  rate of 9.0 and must repay it in four equal
  installments at the end of each of the next four
  years. How large would your payments be? (Points
  10)
•  
• 3,704.02
• 3,889.23
• 4,083.69
• 4,287.87
• 4,502.26
•  
• (7 ) (TCO D) Which of the following statements is
  CORRECT? (Points 10)
•  
• (a) If a bond is selling at a discount, the yield
  to call is a better measure of return than the
  yield to maturity.(b) On an expected yield
  basis, the expected capital gains yield will
  always be positive because an investor would not
  purchase a bond with an expected capital loss.

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• 1.20 versus zero for T-bonds, and the maturity
  risk premium for all bonds is found with the
  formula MRP (t 1) x 0.1, where t number of
  years to maturity. What is the liquidity premium
  (LP) on Niendorfs bonds? (Points 10)
•  
• 0.49
• 0.55
• 0.61
• 0.68
• 0.75
•  
• (10 ) (TCO C) Assume that investors have recently
  become more risk averse, so the market risk
  premium has increased. Also, assume that the
  risk-free rate and expected inflation have not
  changed. Which of the following is most likely to
  occur? (Points 10)
•  
• (a) The required rate of return for an average
  stock will increase by an amount equal to the
  increase in the market risk premium.
•  
• (b) The required rate of return will decline for
  stocks whose betas are less than 1.0.
•  
• (c) The required rate of return on the market,
  rM, will not change as a result of these changes.
•  
• (d) The required rate of return for each
  individual stock in the market will increase by
  an amount equal to the increase in the market
  risk premium.
•  
• (e) The required rate of return on a riskless
  bond will decline.