Net Present Value and Percent

2206 words 9 pages
Fin 3320
Practice Questions1 – Total Course
1. Your wealthy uncle has set up a special account that will give you $500,000 on your 35th birthday. Assuming you are age 21 (thus 14 years from receiving this), what is the present value of this gift if the appropriate discount rate is 8.0%? (Ch5)
a. $170,231
b. $282,449
c. $442,619
d. $191,206
e. $734,664
2. You need $10,900 for the down payment on a new car. You presently have $5,000 in savings for which you expect to earn 6% (annual rate, compounded monthly). If you deposit a further $500 each month to this account, how long, approximately, before you will accumulate enough to meet your down payment requirement? (Ch6)
a. 17.6 Years
b. 8 Months
c. 11 Months
d. 16 Months
e. 1.84 Years
3. Which
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What amount should be used as the initial cash flow for this project? (Ch10)
a. $1,900,000
b. -$1,835,000
c. -$2,550,000
d. -$2,295,000
e. $2,085,000
17. Consider a profitable company with an asset that cost $500,000 that is being depreciated straight-line to zero over its 8-year depreciable tax life. The asset is to be used in a 5-year project; and then be sold for $90,000. If the relevant tax rate is 35%, what is the after tax cash flow from the sale of this asset (after-tax salvage)? (Ch 10)
a. $68,250
b. $124,125
c. $140,175
d. $69,825
e. None of the above

4

18. Fabrique Inc. common stock is currently trading at $30.00 a share. The company just paid
$1.75 per share as its annual dividend. The dividends have been increasing by 3 percent annually and are expected to continue doing the same. What is this firm's cost of equity?
(Ch 8 and Ch14)
a. 8.24 percent
b. 9.01 percent
c. 12.14 percent
d. 6.20 percent
e. Not enough information given
19. Star Corporation has a target capital structure of 30 percent common stock, 10 percent preferred stock, and 60 percent debt. Its cost of equity is 14 percent, the cost of preferred stock is 8.0 percent, and the pre-tax cost of debt is 7.0 percent. What is the firm's WACC given a tax rate of 35 percent? (Ch14)
a. 7.73 percent
b. 9.12 percent
c. 9.78 percent
d. 10.38 percent
e. 11.18% percent
20. The expected market rate of return is 12%, the risk-free rate is 3%. Stock A has a beta of 1.3 . If

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