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1. Using lower discount rates

will

A. not affect the present value of the future cash

flow.

B. increase the present

value of any future cash flow.

C.

decrease the present value of any future cash

flow.

D.

None of the above.

2. Constant growth: You are interested in investing in a

company that expects to grow steadily at an annual rate of 6

percent for the foreseeable future. The firm paid a dividend of

$2.30 last year. If your required rate of return is 10 percent,

what is the most you would be willing to pay for this stock? (Round

to the nearest dollar

A. $58 B. $61, C. $23, D. $24

3. Which ONE of the following statements is true about

secondary markets in the United States?

A. In terms of total volume of activity and total capitalization

of the firms listed, the NASDAQ is the largest in the world and the

NYSE is the second largest.

B. In terms of the number of companies listed and shares traded on

a daily basis, NASDAQ is larger than the NYSE.

C. Firms listed on the NASDAQ tend to be, on average, larger in

size, and their shares trade more frequently than firms whose

securities trade on NYSE.

D. In the United States, most secondary market transactions are

done over the counter

4. Capital rationing. The profitability index

for a project is 1.18. If the project will produce cash inflows of

$60,000 for the next 12 years, what is the initial outlay for the

project if the appropriate discount rate is 5 percent? (Round to

the nearest $10.)

A. $450,670, B. $627,520, C. $1,016,950, D. None of the

above.

5. The benefits of debt: Packman Corporation

has a reported EBIT of $500, which is expected to remain constant

in perpetuity. If the firm borrows $2,000, its YTM will be 6.5% and

its coupon rate will be 8%. If the companys

marginal tax rate is 30% and its average tax rate is 20%, what are

its after-tax earnings

A. $238, B. $272, C. $259, D. None of the above

6. Which of these is not an example of indirect

bankruptcy costs

A. A firms customers become concerned about

whether or not warranties will be honored.

B. Employees begin to leave the firm.

C. New accountants are brought in to help with the bankruptcy

process.

D. A bankruptcy judge orders new projects to be

halted.