1. Rocona Inc. is considering a new project that it considers to be a little riskier than its current operations. Thus, management has decided to add an additional 2 % to their company's overall cost of capital when evaluating this project. The project has an initial cash outlay of $42,000 and projected cash inflows of $15,000 in year one, $25,000 in year two, and $12,000 in year three. The firm uses 35 % debt and 65 % common stock as its capital structure. The company's cost of equity is 13 % while the after-tax cost of debt for the firm is 6 %. What is the projected net present value of the new project? Select one:

2. a. -$127.08

3. b. $26.18

4. c. -$520.29

d. $413.39

e. $906.49

2. The Palace One placed an order today for one million Thai baht of furniture from Thailand. The furniture will be delivered and paid for one year from today. The spot price of the baht is 44.15. The annual inflation rate in Canada is 3% while the inflation rate in Thailand is 10%. The Palace One elects to accept all of the exchange rate risks. How much should The Palace One expect to pay for the shipment of furniture when it arrives?

Select one:

a. $21,168

b. $22,708

c. $20,349

d. $22,650

e. $23,173

3. Nina Corporation issued 10,000 units of $1,000 face value bonds that mature in 20 years and have a 4% coupon rate that is paid semi-annually. If the bonds were sold at 103.5% of their face value, calculate the yield to maturity at the end of year 8.

Select one:

a. 3.64%

b. 3.58%

c. 3.50%

d. 3.71%

e. 3.75%

4. The spot rate of the U.S. dollar is C$1 = $.94US while the forward rate for one year is C$1 = $.92US. The nominal risk-free rate is 3% in the U.S. and 2% in Canada. How much profit can you make given this situation using covered interest arbitrage?

Select one:

a. $0.05

b. $0.01

c. -$0.04

d. -$0.01

e. $0.03

5. A 10-year, 8% coupon bond pays interest annually. The bond has a face value of $1,000. What is the percentage change in the price of this bond if the market yield rises to 9% from the current rate of 8.5%?

Select one:

a. - 3.71%

b. - 4.23%

c. - 4.08%

d. - 2.98%

e. - 3.24%

6. You are considering a project with an initial cost of $27,900. What is the payback period for this project if the cash inflows are $14,650, $16,190, $12,480, and $9,500 a year over the next four years, respectively?

Select one:

a. 1.90 years

b. 0.90 year

c. 0.82 year

d. 1.82 years

e. 1.11 years

7. The current exchange rate for the Canadian dollar is $.91US. The inflation rate in the U.S. is 2.5% while it is 3.5% in Canada. What is the expected spot rate in two years?

Select one:

a. $0.86

b. $0.95

c. $0.93

d. $0.91

e. $0.88