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FIN - Ratio Analysis Problems




Question;Two mutually exclusive investments cost $10,000 each and have the following cash inflows. The firm?s cost of capital is 12%.;InvestmentCash inflow A BYear 1 $12,407 ?Year 2 ? ?Year 3 ? ?Year 4 ? $19,390;A. 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 funds received in Year 1 for investment A could be reinvested at 16%? Show your work.;2. Given the following information, answer the following questions:TR = $3QTC = $1,500 + $2Q;A. What is the break-even level of output?;B. If the firm sells 1,300 units, what are its earnings or losses?;C. If sales rise to 2,000 units, what are the firm?s earnings or 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 $1,000 bonds if the comparable rate is 10% and answer the following 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 yield to maturity?B. Which bond may you expect to be called? Why?C. If CD, Inc., has a bond with a 5.25% coupon and a maturity of 20 years but which was lower rated, what would be its price relative to the XY, Inc., bond? Explain.;1. Discounting refers to the process of bringing the future back to the present.______ 2. An increase in retained earnings is a cash inflow. ______ 3. If a firm doesn?t pay cash dividends, it may reinvest the earnings and grow.______ 4. Total revenue equals price times quantity.______ 5. The internal rate of return equates the present value 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 be bought or sold.D. states a price at which the investor seeks to buy or sell the 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 Bank;3. 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, how much must be saved annually over the next four years if the funds 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 after 10 years. What is the yield to maturity?


Paper#50481 | Written in 18-Jul-2015

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