1. You invest $5,000 today at 8 percent interest compounded annually.
How much will you have at the end of 15 years?
2. Stephen Company has a project that requires $30,000 initial
investment and annual cash flow for 5 years of $10,000. The cost of
capital is 14%. What is the profitability index?
3. A company issued $1,000 face value bonds with a 9 percent annual
coupon payments and 20 years remaining to maturity. If the yield to
maturity is 12%, what is the current value of the bond?
4. Assume you can receive $25,000 5 years from today. How much should
you accept today assuming an 8 percent rate of return?
5. Jazz Corporation sells picture frames for $10 each. The variable
cost of each frame is $6. Fixed costs are $20,000. a) What is the
break-even point in units? b) Compute the sales level in units
required to earn a target operating income of $50,000.
6. A 25 year old student wants to retire at 65. He plans to save
$2,000 each year earning 8 percent interest. If he makes these
deposits each year until he retires, how much would he have saved?
7. A company is investing $100,000 in a piece of equipment with a
5-year useful life. Below are the estimated cash inflows. Assume an
11 percent cost of capital. Year Cash Inflow 1 35000
2 25000 3 30000
4 15000 5 40000
a.) Calculate the payback period (assume all cash flows are received
evenly throughout the year and round answer to the nearest month)
b.) Calculate the net present value.
8. Simon, Inc. has the following capital structure. Its corporate tax
rate is 40%. What is its WACC?
Security Market Value Required Rate of Return Debt $30
million 8.0% Preferred Stock 10 million 6.0% Common Stock $40
million 10.0%
9. XYZ Company is purchasing research equipment costing $60,000. It
is financed with a 14% loan requiring end of the year payments of
$25,844 for 3 years. Calculate the annual interest expense for 3
years.
10. A firm's stock has a beta of 2. The risk free rate is 5% and the
market risk premium is 7%. Calculate the expected rate of return on
the stock. |
