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##### Two mutually exclusive investments cost $10,000 each and have the following cash inflows.

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Question;Two mutually exclusive investments cost $10,000 eachand have the following cash inflows. The firm?s cost ofcapital is 12%.InvestmentCash inflow A BYear 1 $12,407 ?Year 2 ? ?Year 3 ? ?Year 4 ? $19,390A. What is the net present value of each investment?B. What is the internal rate of return of each investment?C. Which investment(s) should the firm make?D. Would your answers be different to C if the fundsreceived in Year 1 for investment A could be reinvestedat 16%? Show your work.2. Given the following information, answer the followingquestions:TR = $3QTC = $1,500 + $2QA. What is the break-even level of output?B. If the firm sells 1,300 units, what are its earnings orlosses?C. If sales rise to 2,000 units, what are the firm?s earningsor losses?D. If the total cost equation were TC = $2,000 + $1.80Q,what happens to the break-even level of output units?3. Determine the current market prices of the following $1,000bonds if the comparable rate is 10% and answer thefollowing questions.XY 5.25% (interest paid annually) for 20 yearsAB 14% (interest paid annually) for 20 yearsA. Which bond has a current yield that exceeds the yieldto maturity?B. Which bond may you expect to be called? Why?C. If CD, Inc., has a bond with a 5.25% coupon and amaturity of 20 years but which was lower rated, whatwould be its price relative to the XY, Inc., bond? Explain.______ 1. Discounting refers to the process of bringing thefuture back to the present.______ 2. An increase in retained earnings is a cash inflow.______ 3. If a firm doesn?t pay cash dividends, it mayreinvest the earnings and grow.______ 4. Total revenue equals price times quantity.______ 5. The internal rate of return equates the presentvalue of an investment?s cash inflows and its cost (outflows).1. An investor may place a limit order thatA. limits the amount of commissions.B. specifies when the stock will be purchased.C. establishes the exchange on which the security is to bebought or sold.D. states a price at which the investor seeks to buy or sellthe stock.2. Which of the following is not a financial intermediary?A. New York Stock ExchangeB. Washington Savings and LoanC. First National City BankD. Merchants Savings Bank3. Using accelerated depreciationA. initially increases the firm?s profits.B. initially decreases the firm?s taxes.C. discourages investment in plant and equipment.D. increases expenses and decreases cash flow.4. The current yield on a bond isA. interest paid divided by the bond?s price.B. the bond?s coupon.C. the interest rate stated on the bond.D. the yield over the lifetime of the bond.5. The increased use of financial leverage mayI. affect the firm?s credit rating.II. decrease risk.III. alter the firm?s earnings.A. I and IIB. I and IIIC. II and IIID. I, II, and III1. If a new college graduate wants a car costing $15,000, howmuch must be saved annually over the next four years if thefunds earn 5%?2. You purchase a bond for $875. It pays $80 a year (that is,the semiannual coupon is 4%), and the bond matures after10 years. What is the yield to maturity?

Paper#43244 | Written in 18-Jul-2015

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