Midterm Part 2
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Midterm Exam Part 2 - Results
Attempt 1 of 1
Written Nov 1, 2023 9:29 PM - Nov 1, 2023 11:53 PM
Released Mar 5, 2018 12:01 AM
Attempt Score
18 / 20 - 90 %
Overall Grade (Highest Attempt)
18 / 20 - 90 %
Question 1
0 / 1 point
Answer:
1,167.50
(1,395.88)
Hide ques±on 1 feedback
Feedback after End of Due Date
What is the future value of $1,100, placed in a saving account for four years if
the account pays 6.00%, compounded quarterly? (Your answer should be
correct to two decimal places.)
SOLUTION:
FV
n
= PV[FVF
i,16
]
Question 2
1 / 1 point
Answer:
4,807.09
Hide ques±on 2 feedback
Question 3
0 / 1 point
Answer:
201.21
(216.15)
Hide ques±on 3 feedback
Question 4
1 / 1 point
A dollar to be received in the future is worth more than a dollar in hand today.
Your brother, who is 6 years old, just received a trust fund that will be worth
$23,000 when he is 21 years old. If the fund earns 0.11 interest compounded
annually, what is the value of the fund today? Round to two decimal places.
SOLUTION:
PV = FV / (1+i)^15
If you were to borrow $9,500 over five years at 0.13 compounded monthly,
what would be your monthly payment? Round to two decimal places.
SOLUTION:
First, calculate Present value factor = 1/(1+i)
n
Next, calculate the PV annuity factor = 1 - Present Value Factor/ i
Lastly, solve by dividing CF by the PV annuity factor.
Question 5
1 / 1 point
Why might a person be interested in calculating the covariance for two
stocks?
Question 6
1 / 1 point
Answer:
0.09
Hide ques±on 6 feedback
True
False
The result indicates how far each stock is in distance from the mean.
The result indicates the systematic risk found in each stock.
The result indicates how the two stocks move together in the market.
Use the following information to calculate your company’s expected return.
State
Probability
Return
Boom
20%
0.28
Normal
60%
0.13
Recession
20%
-0.20
Round to two decimal places.
Expected Return = (.20)(BOOM return) + (.60)(NORMAL return) + (.20)
(RECESSION return)
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Question 7
1 / 1 point
Calculating Expected Return for a portfolio is valuable, because it can be used
to forecast the future value of the portfolio and it provides a benchmark for
comparison to actual returns.
Question 8
1 / 1 point
Frazier Manufacturing paid a dividend last year of $2, which is expected to grow at a constant rate of 5%.
Frazier has a beta of 1.3. If the market is returning 11% and the risk-free rate is 4%, calculate the value of
Frazier’s stock.
Hide ques±on 8 feedback
Question 9
1 / 1 point
True
False
$25.93
$31.33
$38.53
$41.63
SOLUTION:
k = 4% + (11% – 4%)1.3 = 13.1%
Po = [2(1.05)]/(.131 – .05) = $25.93
You have invested 30 percent of your portfolio in Jacob, Inc., 40 percent in Bella Co., and 30 percent in Edward Resources. What is the expected return
Answer:
0.09
Hide ques±on 9 feedback
Question 10
1 / 1 point
Which of the following statements are true in regard to the concept of
correlation?
Question 11
1 / 1 point
of your portfolio if Jacob, Bella, and Edward have expected returns
of 0.04, 0.14, and 0.08, respectfully?
Round to two decimal places.
SOLUTION:
E(R
portfolio
) = [x
1 * E(R
1
)] + [x
2
* E(R
2
)] + ....
Where X is the percentage invested and E(R) is the expected return.
The value will always fall between -1 and 1.
A correlation of 0.1 indicates that there is a very small correlation
between the two stocks.
A positive value indicates that when the return on one asset is positive,
the return on the other asset will be positive.
All of the above
A project has the following cash flows:
0
1
2
3
Answer:
70
Hide ques±on 11 feedback
Question 12
1 / 1 point
Medela's Entertainment Systems is setting up to manufacture a new line of
video game consoles. The cost of the manufacturing equipment is
$1,750,000. Expected cash flows over the next four years are $725,000,
$850,000, $1,200,000, and $1,500,000. Given the company's required rate of
return of 15 percent, what is the NPV of this project?
Question 13
1 / 1 point
A project requires an initial outlay of $100,000, and is expected to generate
annual net cash inflows of $28,000 for the next 5 years. Determine the
payback period for the project.
($500)$140.00$200$310.00
What is the project’s NPV if the interest rate is 6%?
Round to two decimal places.
(-Cash Flow Year 0)+(CF Year 1/(1+rate))+(CF Year 2/(1+rate)^2)+(CF Year
3/(1+rate)^3)
$1,169,806
$2,919,806
$4,669,806
$3,122, 607
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Question 14
1 / 1 point
An investment project requires an initial outlay of $100,000, and is expected
to generate annual cash inflows of $28,000 for the next 5 years. (round to
the nearest tenth of the percentage) Determine the (Internal Rate of Return)
IRR for the project using a financial calculator
Hide ques±on 14 feedback
Question 15
1 / 1 point
.28 years
1.4 years
3.57 years
17.86 years
PB = $100,000 / $28,000 = 3.57 years
12.0%
3.6%
12.6%
12.4%
$100,000/$28,000 = 3.571
From Annuity table, PVFA
k,5
= 3.571, which falls between 3.605 (12%) and
3.517 (13%).
k = 12.38% (calculator) or 12.4% (rounded)
Capital budgeting analysis of mutually exclusive projects A and B yields the
following:
Project A
Project B
IRR
18%
22%
NPV
$270,000$255,000
Payback
Period
2.5 yrs
2.0 yrs
Management should choose:
Question 16
1 / 1 point
Answer:
4.22
Hide ques±on 16 feedback
Project B because most executives prefer the IRR method
Project B because two out of three methods choose it
Project A because NPV is the best method
either project because the results aren’t consistent
Christopher Electronics bought new machinery for $5,150,000 million. This is
expected to result in additional cash flows of $1,220,000 million over the next
7 years. What is the payback period for this project? Their acceptance period
is five years.
Round to two decimal places.
Question 17
1 / 1 point
Which of the following represents a potential drawback of using the payback
period calculation for capital budgeting decisions?
Question 18
1 / 1 point
18) A common-size financial statement is one in which each number is expressed
Question 19
1 / 1 point
Return on Equity (ROE) is defined as:
Payback Period = Years before cost recover + (Remaining cost to
recover/Cash flow during the year)
A project is accepted if its payback period is below some pre-specified
threshold.
The rule does not consider cash flows after the payback period.
The technique can serve as a risk indicator.
All of the Above
as a percentage of some base number for the firm (such as total assets or
revenues)
as a percentage of an industry average (such as rate of return)
as a percentage of a stock market average (such as market capitalization)
as a percentage of a national average (such as per capita GDP)
Gross Income / Total Assets
Revenues / Total Debt
Net Income / Stockholder’s Equity
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Question 20
1 / 1 point
Which of the following ratios is incorrect?
Done
(Revenues – COGS) / Total Liabilities
Current ratio = Current assets / Current liabilities
Quick ratio = (Current assets – Inventory) / Current liabilities
Inventory turnover = (Cost of goods sold) / Inventory
Days Sales Outstanding = 365 / Accounts payable turnover
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Risk Premium on average
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Using the IRR approach to capital budgeting, should
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IRR
Cost of Capital (Required Return)
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B Between -4.0% and 0.0%
C Between 0.0% and 4.0%
D Between 4.0% and 10.0%
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Assignment Problem
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Journalize the following business transactions in general journal form. Identify each transaction by number. You may omit explanations of
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Complete Name:
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Score:
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I. Matching Type :
Column A
Column B
matter how slow
2. On motivating a team
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