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FIN 508 Homework Week 10




Question;1.Find the present value of $5,325 to be received in one period if the rate is 6.5%A. $5,000B. $5,023.58C. $5,644.50D. $5,671.132. If you had a choice to earn simple interest on $10,000 for 3 years at 8% or annuallycompounded interest at 7.5% for 3 years, which would pay more and by how much?a. Simple interest by $50b. Compound interest by $22.97c. Compound interest by $150.75d. Compound interest by $150e. None of the above3. Bradley Snapp has deposited $7,000 in a guaranteed investment with a promised rate of6% compounded annually. He plans to leave it there for 4 full years when he will make adown payment on a car after graduation. How much of a down payment will he be ableto make?a. $1,960b. $2,175.57c. $8,960d. $8,837.34e. $9,157.574. Matt is analyzing two mutually exclusive projects of similar size and has prepared thefollowing data. Both projects have 5 year lives.Project AProject BNet Present Value$15,090$14,693Payback Period2.76 years2.51 yearsRequired Return8.3%8.0%Matt has been asked for his recommendation given this information. His recommendationshould be to accept:a. Project B because it has the shortest payback periodb. Both projects as they both have positive net present valuesc. Project A and reject Project B based on their net present valuesd. Project B and reject Project A based on other criteria not mentioned in the probleme. Project B and reject Project A based on both the payback period and the averageaccounting return5. What is the net present value of a project with the following cash flows and a requiredreturn of 12%Year1234a. -287.22b. -177.62Cash Flow-28,90012,45019,6302,750c. 177.62d. 204.36e. 286.226. The newly issued bonds of the Wynslow Corp offer a 6% coupon with semiannualinterest payments. These bonds are currently prices at par value. The effective annualrate provided by these bonds must be:a. Equal to 3%b. Greater than 3% but less than 4%c. Equal to 6%d. Greater than 6% but less than 7%e. Equal to 12%7. Jacks construtuction company has 80,000 bonds outstanding that are selling at par value.Bonds with similar characteristics are yielding 8.5%. The company also has 4 millionshares of common stock outstanding. The stock has a beta of 1.1 and sells for $40 ashare. The US Treasury bill is yielding 4% and the market risk premium is 8%. Jackstax rate is 35%. What is Jacks weighted average cost per capital?a. 7.1%b. 7.39%c. 10.38%d. 10.65%e. 11.37%


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