Wednesday

April 23, 2014

April 23, 2014

Posted by **Christian** on Monday, August 6, 2012 at 3:04pm.

1. _________C__________ is the interest rate in which NPV equals zero.

a. Required Rate of Return

b. Annual percentage rate (APR)

c. Internal Rate of Return

d. Yield to maturity

2. Weighted Average Cost of Capital (WAAC) is a formula that indicates________B______?

a. The interest rate

b. The interest rate that is the required rate of return demanded by investors

c. An interest rate representing the ratio of the required rate of interest of investors and the borrowing rate of interest

d. The weighted average of the borrowing rate of interest

3. What is the value of $10,000 5 years from now in today’s value if the interest rate is zero? B

a. $9,000

b. $10,000

c. $11,000

d. $0

4. What is PV? And FV? C

a. Positive Value and Futuristic Value

b. Prehistoric value Favre Value

c. Present value Future Value

d. Philanthropic Value and Favorite Value

5. What is the interest rate of a loan given the following data: Cost of item $20,000, down payment of $5,000, 4 year loan compounded monthly, monthly payment is $366.19

6. When using your calculator when using the CFj key, you should _______________?

a. Solve for IRR, then solve for NPV

b. Solve for PV, then find the interest rate

c. Solve for NPV, then solve for IRR

d. Find NPV, and accept the project under all conditions

7. Find the Weighted Average Cost of Capital:

Required Rate of Return 8%

Bank lending rate for loans is 10%

Tax rate is 35%

Asset Cost is $50,000

$10,000 of the asset will be paid for by equity

8. Solve this lump sum problem. How much would $1200 be worth in 4 years at monthly compound interest of 4%?

9. Solve for the following annuity problem. What would the payment be if you borrowed $23,000 for 6 years at 9% interest, compounded monthly?

10. Susan is planning to start a business and is seeking your help. She plans on investing $10,000 and borrowing $40,000. The bank will loan her the money at 9% interest and her $10,000 she is taking out of the bank was earning 5% on a certificate of deposit. Her tax rate is 40%. Further, the information she provided you after she had completed her research is the following:

After all expenses are paid, Susan plans on losing $5,000 the first year. However, she plans on having a positive cash flow of $10,000 in year 2, $10,000 in year 3, $20,000 in year 4, and $30,000 in year 5.

Find the weighted average cost of capital, and solve for NPV and IRR. State if the project should be accepted and if Susan should start the business, why or why not?

11. Record the following cash flows on the timeline from the capital budgeting scenario:

Management wants to streamline operations and combine two departments. In doing so, they will save $10,000 per year on the office rent they normally pay for one of the departments staff. Further, they will be able to eliminate 4 employees salary who make $50,000 per year. Although, management will increase the salary of 2 employees who will have more responsibilities by $20,000 per year. How much savings will be each year over the next 5 years? (write each item on a timeline)

12. Solve for the following multiple cash flow problem. Year 1= $20,000, Year2= $10,000, Year 3= $40,000, Year 4= $10,000, Year 5= $20,000. At an interest rate of 8%, compounded annually, what is the cash flow streams value today?

13. Find WACC with the following data. Cost of Capital is 6%, Required Rate of Return is 3%. Tax rate is 30%, The project cost is $100,000 and the amount financed is $50,000.

14. Which car loan is a better deal?

Option 1: Price of car $25,000 Price of car $27,000

Interest rate 6.9% interest rate 1.9%

Term of loan: 5 years Term of loan: 7 years

Payment: ? Payment: ?

Which loan is a better deal? Why?

Asked by Christian 4 days ago 34 minutes left to answer.

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