Question 1. What is the future value of $1,400, placed in a saving account for four years if the account pays 0.09, compounded quarterly? 2. Your brother, who is 6 years old, just received a trust fund that will be worth $22,000 when he is 21 years old. If the fund earns 0.11 interest compounded annually, what is the value of the fund today? 3. If you were to borrow $9,100 over five years at .12 compounded monthly, what would be your monthly payment? 4. Your uncle promises to give you $500 per quarter for the next five years. How much is his promise worth right now if the interest rate is 0.08 compounded quarterly? 5. A stock has an expected return of 0.11 and a variance of 0.22. What is its coefficient of variation? 6. Use the following information to calculate your company’s expected return. State Probability Return Boom 20% .35 Normal 60% .14 Recession 20% -0.20 7.You have invested in stocks J and M. From the following informatino, determine the beta for your portfolio. Expected Amount of Return Investment Beta Stock J 0.09 $100,000 1.29 Stock M 0.11 $300,000 .79 8. Frazier Manufacturing paid a dividend last year of $2, which is expected to grow at a constant rate of 5%. Frazier has a beta of 1.3. If the market is returning 11% and the risk-free rate is 4%, calculate the value of Frazier’s stock. a) $25.93 b) $31.33 c) $38.53 d) $41.63 9. You have invested 30 percent of your portfolio in Jacob, Inc., 40 percent in Bella Co., and 30 percent in Edward Resources. What is the expected return of your portfolio if Jacob, Bella and Edward have expected returns of 0.10, 0.13 and 0.04, respectfully? 10. The covariance of the returns between Willow Stock and Sky Diamond Stock is 0.0700. The variance of Willow is 0.2460, and the variance of Sky Diamond is 0.1050. What is the correlation coefficient between the returns of the two stocks? 11. A project has the following cash flows: 0 1 2 3 ($500) $140 $200 $270 What is the project’s NPV if the interest rate is $6%? 12. Assume the following facts about a firm’s financing in the next year. Calculate the weighted cost of the capital of this project: Proportion of Capital Projected funded by debt = 45% Proportion of Capital Projects Funded by equity – 55% Return Recevied by Bondholders = 0.10 Return Received by Stockholders – 0.14 13. A project requires an initial outlay of $100,000, and is expected to generate annual net cash inflows of $28,000 for the next 5 years. Dteremine the payback period of the project a) .28 years b) 1.4 years c) 3.57 years d) 17.86 years 14. An investment project requires an initial outlay of $100,000 and is expected to generate annual cash inflows of $28,000 for the next 5 years. (round to the nearest tenth of the percentage) Determine the (Internal Rate of Return) IRR for the project using a financial calculator. a) 12.0% b) 3.6% c) 12.6% d) 12.4% 15. Capital budgeting analysis of mutually exclusive projects A and B yields the following: Project A Project B IRR 18% 22% NPV $270,000 $255,000 Payback Period 2.5 years 2.0 years Management should choose: a) Project b because most executives prefer the IRR method b) Project b because two out of three methods choose it c) Project a because NPV is the best method d) either project because the results aren’t consistent 16. Christopher Electronics bought new machinery for the $5, 015,000 million. This is expected to result in additional cash flows of $1,210,000 million over the next 7 years. What is the payback period for this project? Their acceptance period is five years. 17. AMP, Inc., has invested $2,165,800 on equipment. The Firm uses payback period criteria of not accepting any project that takes more than four years to recover costs. The company anticipates cash flows of $427,386, $512,178, $563,755, $764,997, &816,500, and $825,375 over the next six years. What is the payback period?
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