Fin515 midterm exam – done in excel!

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(TCO G) If Company A and Company B are in the same industry and use the same production method, and Company A’s asset turnover is higher than that of Company B, then all else equal we can conclude (Points : 10)

Company A is more efficient than Company B.
Company A has a lower dollar amount of assets than Company B.
Company A has higher sales than Company B.
Company A has a lower ROE than Company B.

 

Question 2. 2. (TCO G) The DuPont Identity expresses the firm’s ROE in terms of (Points : 10)

profitability, asset efficiency, and leverage.
valuation, leverage, and interest coverage.
profitability, margins, and valuation.
equity, assets, and liabilities.

 

Question 3. 3. (TCO B) A certain investment will pay $10,000 in 20 years. If the annual return on comparable investments is 8%, what is this investment currently worth? Show your work. (Points : 20)

 

Question 4. 4. (TCO B) You start saving $100 per month in an account that pays 5% interest, compounded monthly. You make the payment at the beginning of each month and interest is applied at the end of each month. How much money will you have in the account in 5 years? Show your work. (Points : 20)

 

Question 5. 5. (TCO B) A grandfather sets up a trust for his only grandchild. The trust consists of an annuity that will pay $5,000 monthly to the grandchild for 18 years. The annuity pays an annual return of 5% and makes the payments monthly at the end of the month. Return on the annuity is 5% annually. The payments to the grandchild are paid at the beginning of the month. The annuity will have a value of $0 at the end of the 18 years. How much needs to be deposited to set up the annuity? Show your work. (Points : 20)

 

Question 6. 6. (TCO B) An accident victim has received a structured settlement. According to the terms of the agreement, the victim will receive $10,000 per year at the end of each year for the next 10 years. Additionally, the victim will receive $20,000 in 10 years. The victim believes they could get 7% annually on an investment they could make if they had all the money now. What would the money be worth to them if they could get it now? Show your work. (Points : 20)

 

Question 7. 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 project’s NPV? Show your work. (Points : 10)

 

Question 8. 8. (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 project’s payback period? Show your work. (Points : 10)

 

Question 9. 9. (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 project’s IRR? Show your work. (Points : 20)

 

Question 10. 10. (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 project’s discounted payback period? Show your work. (Points : 20)

 

 

 

 

 

 

 

 

 

 

 

Question 11. 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. Projects A and B can be done together. Projects B and C can be done together. But Projects A and C are mutually exclusive. The company has a cost of capital of 12%. Which should the company do and why? You must use at least two capital budgeting methods. Show your work.

 

 

A

B

C

0

-500

-500

-600

1

200

-200

100

2

200

200

100

3

200

200

100

4

200

200

100

5

200

200

100

6

200

200

100

7

-300

-300

100

(Points : 40)

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