# Quiz

2. The firm is replacing an old printing press with a new one. The old press is being sold for \$250,000 and it has a net book value of \$55,000. Assume that National Geographic is in the 40% income tax bracket. How much will National Geographic net from the sale? (Points : 10)
\$140,000
\$172,000
\$215,000
\$112,112

3. The firm can purchase a new assembler for \$20,573 that will provide an annual net cash flow of \$6,000 per year for five years. Calculate the net present value of the assembler if the required rate of return is 12%. (Round your answer to the nearest \$10.) (Points : 5)
\$7,621
\$4,568
\$1,156
\$1,056

4. The firm has \$6 million of debt outstanding with a coupon rate of 10 percent. Currently the yield to maturity on these bonds is 14 percent. If the firm’s tax rate is 40 percent, what is cost of debt to J & B? (Points : 10)
14.0 percent
8.4 percent
12.0 percent
6.0 percent

5. If you invest \$775 every six months at 8 percent compounded semi-annually, how much would you accumulate at the end of 9 years? (round to nearest dollar) (Points : 10)
\$10,065
\$21,731
\$10,193
\$19,875

6. Colby & Company bonds pay semi-annual interest of \$50. They mature in 10 years and have a par value of \$1,000. The market rate of interest is 8%. The market value of Colby Bonds is: (round to nearest dollar) (Points : 5)
\$1,136
\$1,000
\$743
\$827

7. Which of the following should be included in the initial outlay? (Points : 5)
shipping and installation costs
increased working capital requirements
cost of employee training associated specifically with the asset being evaluated
all of the above

8. The firm will purchase a machine that will cost \$2,575,000. Required modifications will cost \$375,000. The firm will need to invest \$75,000 for additional inventory. The machine has an IRS approved useful life of 7 years; it is presumed to have no salvage value. The firm plans to depreciate the machine by using the straight-line method. The machine is expected to increase the firm’s sales revenues by \$1,890,000 per year; operating costs excluding depreciation are estimated at \$454,600 per year. Assume that the firm’s tax rate is 40%. What is the annual operating cash flow? (Points : 15)
\$413,440
\$1,626,440
\$922,400
\$1,029,811

9. Dawn Swift discovered that twenty years ago, the average tuition for one year at an Ivy League school was \$4,500. Today, the average cost is \$29,000. What is the growth rate in tuition cost over this 20-year period? Round off to the nearest 0.1%. (Points : 10)
15.5%
10.6%
9.8%
4.2%

10. The expected dividend is \$2.00 for a share of stock priced at \$20. What is the cost of retained earnings if the long-term growth in dividends is projected to be 8 percent? (Points : 5)
25.0 percent
8.0 percent
18.0 percent
10.0 percent

11. Last year Mike bought 100 shares of Dallas Corporation for \$53 per share. During the year he has received dividends of \$1.45 per share. The stock is currently selling for \$60 per share. What rate of return did Mike earn over the year? (Points : 10)
11.7%
13.2%
15.9%
14.1%

12. The most expensive source of capital is: (Points : 5)
new common stock
debt
retained earnings
preferred stock

13. Which of the following provides the greatest annual interest? (Points : 5)
8.5% compounded monthly
8% compounded daily
9% compounded annually

14. Depreciation expenses affect tax-related cash flows by (Points : 5)
increasing taxable income, thus increasing taxes
decreasing taxable income, thus reducing taxes
decreasing taxable income, with no effect on cash flow since depreciation is a non-cash expense
none of the above

15. Given the following expected returns and standard deviation of assets B, M, Q and D, which asset should the prudent financial manager select?

(Points : 5)
Asset Q
Asset B
Asset M
Asset D

16. At 8 percent compounded annually, how long will it take \$750 to double? (Points : 10)
12 years
48 months
10 years
9 years

17. A \$1,000 par value 10-year bond with a 10 percent coupon rate recently sold for \$900. The yield to maturity is: (Points : 10)
10 percent
cannot be determined
less than 10 percent
greater than 10 percent

18.Regarding the tax treatment of payments to securities holders, it is true that _______________, while ____________________. (Points : 5)
interest and preferred stock dividends are tax-deductible; while common stock dividends are not tax-deductible
common stock dividends and preferred stock dividends are tax-deductible; while interest is not tax-deductible
interest and preferred stock dividends are not tax-deductible; while common stock dividends are tax-deductible
common stock dividends and preferred stock dividends are not tax-deductible; while interest is tax-deductible