MCQ'S

11) A project has an expected net present value of $50,000 with a standard deviation of the net present value of $20,000. Assume that NPV is normally distributed. What is the probability that the project will have a negative NPV?

a.34.5%

b.0.62%

c.49.38%

d.99.38%

12) The Percolator Company has the following capital structure:

Common stock ($5 par, 250,000 shares)

$1,250,000

Contributed capital in excess of par

$5,000,000

Retained earnings

$4,000,000

The company declares a 10% stock dividend. The pre-stock dividend market price of the company's stock is $50. Determine the balance in the retained earnings account after the stock dividend.

a.$1,375,000

b.$1,250,000

c.$4,000,000

d.$2,750,000

13) All of the following are methods of adjusting a project for total risk EXCEPT ___.

a.the certainty equivalent approach

b.sensitivity analysis

c.the carpe diem approach

d.simulation analysis

14) IKON is financed entirely with equity, and its beta is 1.31. If the current risk-free rate is 6.25% and the expected market return is 12.8%, what is IKON's required rate of return on a project of average risk?

a.14.83%

b.17.65%

c.8.58%

d.12.81%

15) simulation analysis for a new acquisition has indicated that the expected NPV is $50 million with a standard deviation of $40 million. Assume that NPV is normally distributed. What is the probability that the project will be unacceptable?

a.89.44%

b.21.19%

c.10.56%

d.39.44%

16) An insurance company offers you an end-of-year annuity of $48,000 per year for the next 20 years. They claim your return on the annuity is 9 percent. What should you be willing to pay today for this annuity?

a.$429,600

b.$398,144

c.$438,192

d.$408,672

17) Al Corbin is 25 years old today and wishes to accumulate enough money over the next 35 years to provide for a 20-year retirement annuity of $100,000 at the beginning of each year, starting with his 60th birthday. He can save $2,000 at the end of each of the next 10 years and $3,000 each year for the following 10 years. How much must he save each year at the end of years 21 through 35 to obtain his goal? Assume that the average rate of return over the entire period will be 10%.

a.$9,642

b.$24,289

c.$12,321

d.$26,969

18) Firms carry out share repurchase agreements in a number of ways, including all of the following EXCEPT they __.

a.buy treasury shares

b.buy from shareholders through a tender offer

c.buy outstanding shares in the open market

d.negotiate a purchase privately from large holders, particularly institutions

19) Finding the discounted current value of $1,000 to be received at the end of each of the next 5 years requires calculating the __.

a.present value of an annuity due

b.future value of an annuity

c.present value of an annuity

d.future value of an annuity due

20) Bond refunding occurs when a company redeems a callable issue and sells a(n) __.

a.equity issue, thereby reducing outstanding debt

b.lower-cost issue

c.preferred issue with a low dividend rate

d.None of these are correct