final exam q6
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Brock University *
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Course
FNCE 3P93
Subject
Finance
Date
Jan 9, 2024
Type
Pages
4
Uploaded by ConstableWaterBuffaloMaster1287
1. (2 marks) The present value of the following cash flow stream is $5979 when discounted at 10%
annually.
What is the value of the missing (t = 2) cash flow?
A. $2,201
B. $2,664
C. $3,000
D. $3,506
E. $4,237
2. (2 marks) You are evaluating two annuities. They are identical in every way, except that one is an
ordinary annuity and the other is an annuity due. Which of the following is false?
A. The ordinary annuity will have a lower present value than the annuity due.
B. The ordinary annuity will have a lower future value than the annuity due.
C. The annuity due must have the same present value as the ordinary annuity due.
D. The two annuities differ in present value by the amount (1 + R).
E. The ordinary annuity and the annuity due have the same number of payments over time.
3. (2 marks) You invest 35 percent of your money in Stock A with a beta of 1.2, 35 percent of your money
is Stock B with a beta of 1.1, and the remainder in the risk-free asset. What is the beta of your portfolio?
A. 0.66
B. 0.81
C. 1.03
D. 1.14
E. 1.29
4. (2 marks) A firm is considering a project that will produce perpetual cash flows of $25,000 per year
beginning next year (constant annuity). The project has the same risk as the firm’s overall cost of capital.
Equity costs 15% and the after-tax cost of debt is 6%. If the firm’s D/E ratio is 1.2, what is the most the
firm can afford to pay for the project?
A. $212,250
B. $247,750
C. $276,500
D. $366,250
E. $412,750
5. (2 marks) You own 50 shares of Stock A, which has a price of $12 per share, and 100 shares
of Stock B, which has a price of $3 per share. What is the portfolio weight of Stock A?
A. 25%
B. 33%
C. 50%
D. 67%
E. 75%
6. (2 marks) Suppose a firm uses a constant WACC to make capital investment decisions without any
adjustments for risk. The firm will tend to:
A. accept profitable, low risk projects and reject unprofitable, high risk projects.
B. accept profitable, low risk projects and accept unprofitable, high risk projects.
C. reject profitable, low risk projects and accept unprofitable, high risk projects.
D. reject profitable, low risk projects and reject unprofitable, high risk projects.
E. become less risky over time.
7. (2 marks) Use the following historical average return and standard deviation to answer the question
below.
Assume the return on large Canadian stocks is normally distributed. Assuming a 95% probability, what is
the lowest return you would expect to earn on these investments?
A. -34.64%
B. -24.07%
C. -13.50%
D. -2.93%
E. 7.64%
8. (2 marks) King Noodles’s bonds have a 7.5% coupon rate. Interest is paid quarterly and the bonds have
a maturity of eight years. If the appropriate discount rate is 8% on similar bonds, what is the price of King
Noodles’ bonds?
A. $970.66
B. $970.87
C. $971.27
D. $989.63
E. $993.27
9. (2 marks) The stock of MTY Golf World currently sells for $133.75 per share. The firm has a constant
dividend growth rate of 7% and just paid a dividend of $6.25. If the required rate of return is 12%, what
will the stock sell for one year from now?
A. $127.06
B. $133.75
C. $143.11
D. $149.80
E. $152.78
10. (2 marks) The benefits to diversifying from a one-stock to a two-stock portfolio will be greatest when
the correlation between the two stocks is:
A. –1.0
B. 0.0
C. 0.5
D. 1.0
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E. greater than the ratio of the variances
11. (2 marks) Bill plans to open a do-it-yourself dog-bathing centre in a storefront. The bathing
equipment will cost $160,000. Bill expects the after-tax cash inflows to be $40,000 annually for seven
years, after which he plans to scrap the equipment and retire to the beaches of Jamaica. Assume the
required return is 17%. What is the project’s IRR? Should it be accepted?
A. 12.2%; yes
B. 12.2%; no
C. 16.3%; yes
D. 16.3%; no
E. 17%; indifferent
Related Documents
Related Questions
Assume that you are looking at three perpetuities. Perpetuity 1 (P₁) has annual cash flows of $850 in
Years 1 through infinity (1-x) and a present value at Year 0 of $10.119.047619. Perpetuity 2 (P₂)
has annual cash flows of $620 in Years 11 through infinity (11 - oo) and the same effective rate as
Perpetuity 1. Perpetuity 3 (P3) has annual cash flows of $780 in Years 25 though infinity (25 - 0)
and the same effective rate as Perpetuities 1 and 2. Given this information, determine the value of
all three perpetuities when evaluated at Year 35.
$239.599.69
O $248,272.58
$245,381.62
O$242,490.65
O $254,054.51
arrow_forward
Question: Compute the future value of a $105 cash flow for the following combinations of rates and times.&n...
(2 bookmarks)
Compute the future value of a $105 cash flow for the following combinations of rates and times. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
a. r = 8%; t = 10 years
b. r = 8%; t = 20 years
c. r = 4%; t = 10 years
d. r = 4%; t = 20 years
arrow_forward
7. Future value of annuities
There are two categories of cash flows: single cash flows, referred to as "lump sums," and annuities. Based on your understanding of annuities,
answer the following questions.
Which of the following statements about annuities are true? Check all that apply.
When equal payments are made at the beginning of each period for a certain time period, they are treated as an annuity due.
When equal payments are made at the beginning of each period a certain time period, they are treated as ordinary annuities.
An ordinary annuity of equal time earns less interest than an annuity due.
Annuities are structured to provide fixed payments for a specified period of time.
Which of the following is an example of an annuity?
O A lump-sum payment made to a life insurance company that promises to make a series of equal payments later for some period of time
O An investment in a certificate of deposit (CD)
Katie had a high monthly food bill before she decided to cook at home…
arrow_forward
Suppose you receive cashflows of $10 at year 1, $12 at year 2, $14 at year 3 and $16 at year 4. What would be the value of the cashflows at year 2 at a 5% annual interest rate? MUST SHOW FULL WORK (NO EXCELL)
a.
38.3458
b.
50.3458
c.
42.0000
d.
12.0000
e.
49.3621
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The appropriate discount rate for the following cash flows is 8.5 percent compounded
quarterly.
Year
Cash Flow
1
2815
990
1,520
What is the present value of the cash flows? (Do not round intermediate calculations
and round your answer to 2 decimal places, e.g., 32.16.)
Present value
234
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4. A set of cash flows are given in the table below. Using the principles of equivalence, determine the value "Y"
for an interest rate of 10% compounded annually to make a break-even.
Year
1
2 3 4
5-10
Cash flow in $ -5,000 00 0-1,000 Y
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20. Assume that $100 is received at the beginning of year 1, and that $200 is received at the beginning of year 2, and that $300 is received at the beginning of year 3. If these cash flows are deposited at 12 percent, their combined future value at the end of year 3 is ________.of year 3 is ________.A) $1,536B) $ 672C) $ 727D) $1,245
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Suppose you are given the following cash flow stream. If the interest rate is 20 percent, what
is the future value of this cash flow stream at the end of Year 3?
Year CF
10
$0
1
$344
2
$314
3
$290
Enter your answer rounded off to two decimal places. Do not enter $ in the answer box.
arrow_forward
7. Future value of annuities
There are two categories of cash flows: single cash flows, referred to as “lump sums,” and annuities. Based on your understanding of annuities, answer the following questions.
Which of the following statements about annuities are true? Check all that apply.
An annuity due is an annuity that makes a payment at the beginning of each period for a certain time period.
Ordinary annuities make fixed payments at the beginning of each period for a certain time period.
An annuity is a series of equal payments made at fixed intervals for a specified number of periods.
An annuity due earns more interest than an ordinary annuity of equal time.
Which of the following is an example of an annuity?
A lump-sum payment made to a life insurance company that promises to make a series of equal payments later for some period of time
An investment in a certificate of deposit (CD)
Katie had a high monthly food bill…
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A cash flow at time zero (now) of $9,982 is equivalent to another cash flow that is an EOY annuity of $2,500 over five years. Each of these two cash-flow series is equivalent to a third series, which is a uniform gradient series. What is the value of G for this third series over the same five-year time interval? (a) $994 (b) $1,150 (c) $1,250 (d) $1,354 (e) Not enough information given.
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Cullumber Inc. owns and operates a number of hardware stores in the Atlantic region. Recently, the company decided to open another
store in a rapidly growing area of Nova Scotia. The company is trying to decide whether to purchase or lease the building and related
facilities. Currently, the cost of funds for Cullumber is 10%.
Purchase: The company can purchase the site, construct the building, and purchase all store fixtures. The cost would be
$1,840,000. An immediate down payment of $405,000 is required, and the remaining $1,435,000 would be paid off
over five years with payments of $347,000 per year (including interest payments made at the end of the year). The
property is expected to have a useful life of 12 years, and then it will be sold for $590,000. As the owner of the
property, the company will pay $51,000 in occupancy expenses at the end of each year.
Lease:
First National Bank has agreed to purchase the site, construct the building, and install the appropriate fixtures for…
arrow_forward
Compute the future value of a $135 cash flow for the following combinations of rates and times. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
a. r = 7%; t = 10 years
b. r = 7%; t = 20 years
c. r = 3%; t = 10 years
d. r = 3%; t = 20 years
arrow_forward
Find the equivalent equal payment series (A) such that the two cash flows are equivalent at 7% compounded annually.
(Keep 2 decimal places in numerical results) thanks
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K Calculate the present value of the following future cash flows, rounding all calculations to the nearest dollar (Click the icon to view Present Value of $1 table) (Click the icon to view Present Value of Ordinary Annuity of $1 table) $12,000 received in five years with interest of 7% $12,000 received in each of the following five years with interest of 7% Payments of $7,000, $8,000, and $5,500 received in years 3, 4 and 5, respectively, with interest of 9% 11. 12. 13. 11. Calculate the present value of $12,000 received in five years with interest of 7% (Enter any factor amounts to three decimal places, X.XXX.) Present value X X Year 3 Year 4 Year 5 Total 12. Calculate the present value of $12,000 received in each of the following five years with interest of 7% (Enter any factor amounts to three decimal places, X.XXX.) Present value of an annuity X 13. Calculate the present value for payments of $7,000, $8,000, and $5,500 received in years 3, 4 and 5, respectively, with interest of 9%…
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Investment X offers to pay you $6,100 per year for 9 years, whereas Investment Y offers to pay you $8,400 per year for 5 years.
If the discount rate is 7 percent, what is the present value of these cash flows?
Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.
If the discount rate is 23 percent, what is the present value of these cash flows?
Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.
arrow_forward
What is the equivalent uniform annual payment for the following cash flows if the interest rate is 10%?
Populate the following table and compute the equivalent uniform annual payment. Show all work and
provide an explanation. Do not use Excel.
[Hint: This problem is a mix of annuity, gradient, and a single future cash flows.]
ΕΟΥ
1
2
3
4
5
6
7
8
9
10
Cash Flows
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
$10,000
$14,000
Annuity
Gradient
Future
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What discount rate would make you indifferent between recieving $3515.00 per year forever and $5920.00 per year for 30.00 years? Assume the first payment of both cash flow streams occurs in one year. (Answer format: percentage, round to two decimal places)
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What is the present value of a perpetuity of $8,447 per year given an interest rate of 8.2%, assuming that the first cash flow occurs today (that is, in year 0)? Record your answer as a dollar amount rounded to 2 decimal places , but do not include a dollar sign or any commas in your answer . For example , enter $ 12,327.24987 as 12327.25 .
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kk.
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7. Future value of annuities
There are two categories of cash flows: single cash flows, referred to as "lump sums," and annuities. Based on your understanding of annuities,
answer the following questions.
Which of the following statements about annuities are true? Check all that apply.
O An annuity is a series of egual payments made at fixed intervals for a specified number of periods.
O Ordinary annuities make fixed payments at the beginning of each period for a certain time period.
O An annuity due is an annuity that makes a payment at the beginning of each period for a certain time period.
O An annuity due earns more interest than an ordinary annuity of equal time.
Which of the following is an example of an annuity?
O An investment in a certificate of deposit (CD)
A lump-sum payment made to a life insurance company that promises to make a series of equal payments later for some period of time
Luana loves shopping for clothes, but considering the state of the economy, she has decided…
arrow_forward
For each of the following annuities, calculate the present value. (Do not round
intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Present Value Annuity Payment
$
2,000
$
1,280
$
11,580
30,150
69
$
Years
7
17
25
Interest Rate
9 %
8
10
12
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Edward Lewis is an accounting major at a midwestern state university located approximately 60 miles from a major city. Many of the
students attending the university are from the metropolitan area and visit their homes regularly on the weekends. Edward, an
entrepreneur at heart, realizes that few good commuting alternatives are available for students doing weekend travel. He believes
that a weekend commuting service could be organized and run profitably from several suburban and downtown shopping mall
locations. Edward has gathered the following investment information.
Five used vans would cost a total of $76,194 to purchase and would have a 3-year useful life with negligible salvage value.
Edward plans to use straight-line depreciation.
1.
2.
Ten drivers would have to be employed at a total payroll expense of $47,400.
Other annual out-of-pocket expenses associated with running the commuter service would include Gasoline $16,100,
Maintenance $3,200, Repairs $4,100, Insurance $3,800, and…
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A complex annuity makes the following payments. However, the cash flow in Period 4 is
missing. The total present value of all cash flows including the missing cash flow in Period 4
is $674.58. The appropriate discount rate / period is 10%. Find the missing cash flow.
0
1
100
2
100
3
100
4
???
5
100
6
100
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PLEASE ANSWER LETTER B AND C ONLY
THANK YOU!
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For each of the following situations involving annuities, solve for the unknown. Assume that interest is compounded annually and that
all annuity amounts are received at the end of each period. (/= interest rate, and n= number of years)
Note: Use tables, Excel, or a financial calculator. Round your final answers to nearest whole dollar amount. (FV of $1. PV of $1. FVA
of $1. PVA of $1. EVAD of $1 and PVAD of $1)
1. $
2
3
4.
15
Present
Value
Answer is complete but not entirely correct.
Annuity Amount
2.200
145,000
190,000
72.523
45,787
8,784
558,865
480,945
520,000
240,000
8%
1.0%
9%
2.5%
10%
n=
5
4
30
8
4
arrow_forward
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