# 1) Given an expected market return of 12.0%, a beta of 0.75 for Benson Industries, and a risk-free rate of...

## Question:

A) 9.0%

B) 10.0%

C) 4.0%

D) 13.0%

2) Jolly Roger Kite Company has a payment cycle of 17 days, a collection cycle of 31 days, and a production cycle of 12 days. What is the average cash conversion cycle for the Jolly Roger Company?

A) 60 days

B) 2 days

C) 36 days

D) 26 days

3) What is the present value today of an ordinary annuity cash flow of $3,000 per year for forty years at an interest rate of 6.0% per year if the first cash flow is six years from today?

A) $120,000.00

B) $33,730.40

C) $1,327,777.67

D) $45,138.89

4) Ten years ago Bacon Signs Inc. issued twenty-five-year 8% annual coupon bonds with a $1,000 face value each. Since then, interest rates in general have risen and the yield to maturity on the Bacon bonds is now 9%. Given this information, what is the price today for a Bacon Signs bond?

A) $919.39

B) $901.77

C) $1.085.59

D) $1,000

5) Endicott Enterprises Inc. has issued 30-year semiannual coupon bonds with a face value of $1,000. If the annual coupon rate is 14% and the current yield to maturity is 15%, what is the firm's current price per bond?

A) $466.79

B) $934.34

C) $934.20

D) $1,000.00

6) Benson Biometrics Inc., has outstanding $1,000 face value 8% coupon bonds that make semiannual payments, and have 14 years remaining to maturity. If the current price for these bonds is $987.24, what is the annualized yield to maturity?

A) 8.15%

B) 8.64%

C) 8.38%

D) 8.00%

7) Consider the following four-year project. The initial outlay or cost is $180,000. The respective cash inflows for years 1, 2, 3 and 4 are: $100,000, $80,000, $80,000 and $20,000. What is the discounted payback period if the discount rate is 11%?

A) About 2.427 years

B) About 2.000 years

C) About 2.135 years D) About 1.667 years

8) Geronimo, Inc. is considering a project that has an initial after-tax outlay or after-tax cost of $220,000. The respective future cash inflows from its four-year project for years 1 through 4 are: $50,000, $60,000, $70,000 and $80,000. Geronimo uses the net present value method and has a discount rate of 11%. Will Geronimo accept the project?

A) Geronimo rejects the project because the NPV is about -$2,375.60.

B) Geronimo rejects the project because the NPV is about -$12,375.60.

C) Geronimo rejects the project because the NPV is about -$22,375.73.

D) Geronimo accepts the project because the NPV is greater than $10,000.00.

9) Opie, Inc. is considering an eight-year project that has an initial after-tax outlay or after-tax cost of $180,000. The future after-tax cash inflows from its project for years 1 through 8 are the same at $38,000. Opie uses the net present value method and has a discount rate of 11.50%. Will Opie accept the project?

A) Opie accepts the project because the NPV is greater than$12,000.

B) Opie rejects the project because the NPV is about -$11,114.

C) Opie rejects the project because the NPV is less than -$12,000.

D) Opie accepts the project because the NPV is about $11,114.

10) Dice, Inc. is considering a very risky five-year project that has an initial outlay or cost of $70,000. The future cash inflows from its project for years 1, 2, 3, 4, and 5 are all the same at $35,000. Dice uses the internal rate of return method to evaluate projects. Will Dice accept the project if its hurdle rate is 41.00%?

A) Dice will accept this project because its IRR is over 45.50%.

B) Dice will probably accept this project because its IRR is about 41.04%, which is slightly above its hurdle rate.

C) Dice will probably reject this project because its IRR is about 39.74%, which is slightly below its hurdle rate.

D) Dice will accept this project because its IRR is about 41.50%.

11) Find the Modified Internal Rate of Return (MIRR) for the following annual series of cash flows, given a discount rate of 10.50%: Year 0: -$75,000; Year 1: $15,000; Year 2: $16,000; Year 3: $17,000; Year 4: $17,500; and, Year 5: $18,000. 11) ______

A) About 7.35%

B) About 7.88%

C) About 6.35%

D) About 6.88%

12) Pigeon, Inc. is currently considering an eight-year project that has an initial outlay or cost of $80,000. The future cash inflows from its project for years 1 through 8 are the same at $30,000. Pigeon has a discount rate of 13%. Because of concerns about funds being short to finance all good projects, Pigeon wants to compute the profitability index (PI) for each project. What is the PI for Pigeon's current project?

A) About 1.60

B) About 1.80

C) About 1.70

D) About 1.50

13) Baldwin Co. purchases an asset for $50,000. This asset qualifies as a five-year recovery asset under MACRS, with the fixed depreciation percentages as follows: year 1 = 20.00%; year 2 = 32.00%; year 3 = 19.20%; year 4 = 11.52%. Baldwin has a tax rate of 35%. If the asset is sold at the end of four years for $5,000, what is the after-tax cash flow from disposal? 13) ______

A) $3,535.36

B) $6274.00

C) $2,592.00

D) $3,408.22

14) Your firm has issued a 20-year $1,000.00 par value semiannual 10% coupon bond that sells for $1,000 in the market place. The proceeds from the sale of the bond issue is $975.00 per bond. What is your firm's yield to maturity on this new bond issue? Use a financial calculator to determine your answer.

A) 10.30%

B) 10.00%

C) 5.15%

D) 10.16%

15) The following information comes from the Galaxy Construction balance sheet. The value of common stock is $10,000, retained earnings equals $7,000, total common equity equals $17,000, preferred stock has a value of $3,000, and long-term debt totals $15,000. If the cost of debt is 8.00%, preferred stock has a cost of 10.00%, common stock has a cost of 12.00%, and the firm has a corporate tax rate of 30%, calculate the firm's WACC adjusted for taxes.

A) 10.00%

B) 10.11%

C) 9.09%

D) There is not enough information to answer this question.

Cash Conversion Cycle

Cash conversion cycle measures the total time a business takes to convert its cash on hand to produce, pay its suppliers, sell to its customers and collect cash from its customers. The process starts with purchasing of raw materials from suppliers,... Common Stock

Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Net Present Value

What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Internal Rate of Return

Internal Rate of Return of IRR is a capital budgeting tool that is used to assess the viability of an investment opportunity. IRR is the true rate of return that a project is capable of generating. It is a metric that tells you about the investment... Annuity

An annuity is a series of equal payment made at equal intervals during a period of time. In other words annuity is a contract between insurer and insurance company in which insurer make a lump-sum payment or a series of payment and, in return,... Cost Of Debt

The cost of debt is the effective interest rate a company pays on its debts. It’s the cost of debt, such as bonds and loans, among others. The cost of debt often refers to before-tax cost of debt, which is the company's cost of debt before taking... Coupon

A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Discount Rate

Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal... Expected Return

The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these... Face Value

Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the... Maturity

Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest... Par Value

Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,... Payback Period

Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...

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## Principles of Corporate Finance

**ISBN:** 978-0072869460

7th edition

**Authors:** Richard A. Brealey, Stewart C. Myers

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