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Two mutually exclusive investments cost $10,000




Question;Part A: Solve each of the following problems;Two mutually exclusive investments cost $10,000 each and have the following cash inflows. The firm?s cost of capital is 12%.;Investment?;Cash inflow A B?;Year 1 $12,407 -----?;Year 2 ------ -----?;Year 2 ------ -----?;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 = $3Q TC = $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 years AB 14% (interest paid annually) for 20 years;A. 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. Part B: Indicate whether the statement is True or False;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).;Part C: Select the one best answer to each question;1. An investor may place a limit order that;A. 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 Exchange;B. Washington Savings and Loan;C. First National City Bank;D. Merchants Savings Bank;3. Using accelerated depreciation;A. 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 is;A. 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 may I. affect the firm?s credit rating. II. decrease risk. III. alter the firm?s earnings.;A. I and II;B. I and III;C. II and III;D. I, II, and III;Part D: Solve each of the following problems;1. 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#50690 | Written in 18-Jul-2015

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