Quiz 1

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George Mason University *

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303

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Finance

Date

Feb 20, 2024

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Uploaded by ConstableInternetMole18

Question 1 Babette wants to buy a car that is available at two dealerships. The price of the car is the same at both dealerships. Jones Motors would let her make quarterly payments of $6,500.00 for 4 years at a quarterly interest rate of 3.68 percent. Her first payment to Jones Motors would be due immediately. If Lewis Cars would let her make equal monthly payments of $3,600.00 at a monthly interest rate of 2.26 percent and if her first payment to Lewis Cars would be in 1 month, then how many monthly payments would Babette need to make to Lewis Cars? Selected Answer: 14.29 (plus or minus 0.3 payments) Answers: 30.45 (plus or minus 0.3 payments) 31.45 (plus or minus 0.3 payments) 14.29 (plus or minus 0.3 payments) 14.67 (plus or minus 0.3 payments) 13.50 (plus or minus 0.3 payments) Question 2 Four years ago, XZY deposited $2,920 in an account that has earned and will earn 8.70 percent per year in compound interest. If ABC deposits $3,540 in an account in 1 year from today that earns simple interest, then how much simple interest per year must ABC earn to have the same amount of money in 10 years from today as XZY will have in 10 years from today? Answer as an annual rate. Selected Answer: 18.36% (plus or minus .05 percentage points) Answers: 20.30% (plus or minus .05 percentage points) 10.00% (plus or minus .05 percentage points) 9.00% (plus or minus .05 percentage points) 18.36% (plus or minus .05 percentage points) Question 3

Chester owns a tanning salon that is expected to produce annual cash flows forever. The tanning salon is worth $750,700.00 and the cost of capital is 12.86%. Annual cash flows are expected with the first one due in one year and all subsequent ones growing annually by 3.90%. What is the amount of the annual cash flow produced by the tanning salon in 1 year expected to be? Selected Answer: $83,783.48 (plus or minus $10) Answers: $125,817.32 (plus or minus $10) $83,783.48 (plus or minus $10) $67,262.72 (plus or minus $10) $8,378,348.21 (plus or minus $10)  Question 4 Jeanette took out a loan from the bank today for X. She plans to repay this loan by making payments of $100.00 per month for a certain amount of time. If the interest rate on the loan is 0.66 percent per month, she makes her first $100.00 payment later today, and she makes her final monthly payment of $100.00 in 12 months, then what is X, the amount of the loan? Selected Answer: An amount less than $1,153.00 or an anmount greater than $1,324.00 Answers: An amount less than $1,153.00 or an anmount greater than $1,324.00 An amount equal to or greater than $1,153.00 but less than $1,199.00 An amount equal to or greater than $1,199.00 but less than $1,245.00 An amount equal to or greater than $1,245.00 but less than $1,275.00 An amount equal to or greater than $1,275.00 but less than $1,324.00 Question 5

Three years ago, Joseph invested $12,200.00. Today, he has $17,000.00. If Joseph earns the same annual rate implied from the past and current values of his invsetment, then in how many years from today does he expect to have exactly $36,500.00 Selected Answer: 6.91 years (plus or minus 0.05 years) Answers: 8.55 years (plus or minus 0.05 years) 7.60 years (plus or minus 0.05 years) 9.91 years (plus or minus 0.05 years) 6.91 years (plus or minus 0.05 years) Question 6 You own building Y and building H. The next cash flow for each building is expected in 1 year. Building Y has a cost of capital of 2.00 percent and is expected to produce annual cash flows of $201,369.00 forever. Building H is worth $1,468,052.00 and is expected to produce annual cash flows of $517,100.00 forever. Which assertion is true? Selected Answer: Building H is more valuable than building Y and building Y is more risky than building H Answers: Building H is more valuable than building Y and building Y is more risky than building H Building Y is more valuable than building H and building H is more risky than building Y Building H is more valuable than building Y and building H is more risky than building Y Building Y is more valuable than building H and building Y is more risky than building H Building Y and building H either have the same value, the same level of risk, or both the same value and level of risk. Question 7

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Wisconsin Fashion Stores is planning to sell its Wisconsin Rapids, Mount Pleasant, and Wausau stores. The firm expects to sell each of the three stores for the same, positive cash flow of $D. The firm expects to sell its Wisconsin Rapids store in K years, its Mount Pleasant store in K years, and its Wausau store in X years. The cost of capital for the Wisconsin Rapids and Mount Pleasant stores is I percent and the cost of capital for the Wausau store is R percent. We know that K < X > 0 and I < R > 0. The cash flows from the sales are the only cash flows associated with the various stores. Based on the information in the preceding paragraph, which one of the following assertions is true? Selected Answer: Two of the three stores have equal value and those two stores are more valuable than the third store or all three stores have the same value Answers: The Wisconsin Rapids store is the most valuable of the 3 stores The Wausau store is the most valuable of the 3 stores Two of the three stores have equal value and those two stores are more valuable than the third store or all three stores have the same value The Mount Pleasant store is the most valuable of the 3 stores Question 8 Leonard bought a new hot tub today from Situation Hot Tubs. What is the present value of the cash flows associated with this transaction if the discount rate is 7.50 percent, he will receive a rebate of $563.00 from Situation Hot Tubs in 3 years, and he will pay $3,299.00 to Situation Hot Tubs in 6 years? Note: the correct answer is less than zero. Selected Answer: $-1684.43(plus or minus 10$) Answers: $-1772.82(plus or minus 10$) $-1574.63(plus or minus 10$) $-2590.82(plus or minus 10$) $-1684.43(plus or minus 10$) Question 9

Rita has an investment worth $95,554.80. The investment will make a special payment of X to Rita in 2 months from today and the investment also will make regular, fixed monthly payments of $1,290.00 to Rita forever. The expected return for the investment is 2.43 percent per month and the first regular, fixed monthly payment of $1,290.00 will be made to Rita in one month from today. What is X, the amount of the special payment that will be made to Rita in 2 months? Selected Answer: An amount equal to or greater than $42,550.00 but less than $47,100.00 Answers: An amount less than $42,550.00 or an anmount greater than $111,650.00 An amount equal to or greater than $42,550.00 but less than $47,100.00 An amount equal to or greater than $47,100.00 but less than $52,650.00 An amount equal to or greater than $52,650.00 but less than $74,350.00 Question 10 What is the value of a building that is expected to generate fixed annual cash flows of $2,629.00 every year for a certain amount of time if the first annual cash flow is expected in 2 years and the last annual cash flow is expected in 8 years and the appropriate discount rate is 16.80 percent? Selected Answer: None of the above is within $10 of the correct answer Answers: $8880.03 (plus or minus $10) $7602.77 (plus or minus $10) $8121.02 (plus or minus $10)