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Question;Essay Questions;51. You want to deposit sufficient money today into a;savings account so that you will have $1,000 in the account three years from;today. Explain why you could deposit less money today if you could earn 3.5;percent interest rather than 3 percent interest.;52. You are considering two separate investments. Both;investments pay 7 percent interest. Investment A pays simple interest and;Investment B pays compound interest. Which investment should you choose, and;why, if you plan on investing for a period of 5 years?;53. What lesson does the future value formula provide;for young workers who are looking ahead to retiring some day?;54. You are considering two lottery payment options;Option A pays $10,000 today and Option B pays $20,000 at the end of ten years.;Assume you can earn 6 percent on your savings. Which option will you choose if;you base your decision on present values? Which option will you choose if you;base your decision on future values? Explain why your answers are either the;same or different.;55. At an interest rate of 10 percent and using the;Rule of 72, how long will it take to double the value of a lump sum invested;today? How long will it take after that until the account grows to four times;the initial investment? Given the power of compounding, shouldn't it take less;time for the money to double the second time?;Multiple;Choice Questions;56. Assume the total cost of a college education will;be $300,000 when your child enters college in 16 years. You presently have;$75,561 to invest. What rate of interest must you earn on your investment to;cover the cost of your child's college education?;A. 7.75 percent;B. 8.50 percent;C. 9.00 percent;D. 9.25 percent;E. 9.50 percent;57. At 11 percent interest, how long would it take to;quadruple your money?;A. 6.55 years;B. 6.64 years;C. 13.09 years;D. 13.28 years;E. 13.56 years;58. Assume the average vehicle selling price in the;United States last year was $41,996. The average price 9 years earlier was;$29,000. What was the annual increase in the selling price over this time;period?;A. 3.89 percent;B. 4.20 percent;C. 4.56 percent;D. 5.01 percent;E. 5.40 percent;59. You're trying to save to buy a new $160,000;Ferrari. You have $56,000 today that can be invested at your bank. The bank;pays 6 percent annual interest on its accounts. How many years will it be;before you have enough to buy the car? Assume the price of the car remains constant.;A. 16.67 years;B. 17.04 years;C. 17.41 years;D. 17.87 years;E. 18.02 years;60. Imprudential, Inc. has an unfunded pension;liability of $850 million that must be paid in 25 years. To assess the value of;the firm's stock, financial analysts want to discount this liability back to;the present. The relevant discount rate is 6.5 percent. What is the present;value of this liability?;A. $159,803,162;B. $171,438,907;C. $176,067,311;D. $184,519,484;E. $191,511,367;61. You have just received notification that you have;won the $1.4 million first prize in the Centennial Lottery. However, the prize;will be awarded on your 100th birthday, 70 years from now. The;appropriate discount rate is 8 percent. What is the present value of your;winnings?;A. $4,288.16;B. $6,404.20;C. $15,309.91;D. $23,333.33;E. $25,000.00;62. Your coin collection contains fifty-four 1941;silver dollars. Your grandparents purchased them for their face value when they;were new. These coins have appreciated at a 10 percent annual rate. How much;will your collection be worth when you retire in 2060?;A. $3,611,008;B. $3,987,456;C. $4,122,394;D. $4,421,008;E. $4,551,172;63. In 1895, the winner of a competition was paid;$110. In 2006, the winner's prize was $70,000. What will the winner's prize be;in 2040 if the prize continues increasing at the same rate?;A. $389,400;B. $421,122;C. $479,311;D. $505,697;E. $548,121;64. Suppose that the first comic book of a classic;series was sold in 1954. In 2000, the estimated price for this comic book in;good condition was about $340,000. This represented a return of 27 percent per;year. For this to be true, what was the original price of the comic book in;1954?;A. $5.00;B. $5.28;C. $5.50;D. $5.71;E. $6.00;65. Suppose you are committed to owning a $140,000;Ferrari. You believe your mutual fund can achieve an annual rate of return of 9;percent and you want to buy the car in 7 years. How much must you invest today;to fund this purchase assuming the price of the car remains constant?;A. $74,208.16;B. $76,584.79;C. $77,911.08;D. $78,019.82;E. $79,446.60;66. You have just made a $1,500 contribution to your;individual retirement account. Assume you earn a 12 percent rate of return and;make no additional contributions. How much more will your account be worth when;you retire in 25 years than it would be if you waited another 10 years before;making this contribution?;A. $8,306.16;B. $9,658.77;C. $16,311.18;D. $16,907.17;E. $17,289.75;67. You are scheduled to receive $30,000 in two years.;When you receive it, you will invest it for 5 more years, at 8 percent per;year. How much money will you have 7 years from now?;A. $39,909.19;B. $41,381.16;C. $44,079.84;D. $47,209.19;E. $51,414.73;68. You expect to receive $9,000 at graduation in 2;years. You plan on investing this money at 10 percent until you have $60,000.;How many years will it be until this occurs?;A. 18.78 years;B. 19.96 years;C. 21.90 years;D. 23.08 years;E. 25.00 years;47. Kelly's Corner Bakery purchased a lot in Oil City;6 years ago at a cost of $280,000. Today, that lot has a market value of;$340,000. At the time of the purchase, the company spent $15,000 to level the;lot and another $20,000 to install storm drains. The company now wants to build;a new facility on that site. The building cost is estimated at $1.47 million.;What amount should be used as the initial cash flow for this project?;A. -$1,470,000;B. -$1,810,000;C. -$1,825,000;D. -$1,845,000;E. -$1,860,000;48. Sailcloth & More currently produces boat sails;and is considering expanding its operations to include awnings for homes and;travel trailers. The company owns land beside its current manufacturing;facility that could be used for the expansion. The company bought this land 5;years ago at a cost of $319,000. At the time of purchase, the company paid;$24,000 to level out the land so it would be suitable for future use. Today;the land is valued at $295,000. The company currently has some unused equipment;that it currently owns valued at $38,000. This equipment could be used for;producing awnings if $12,000 is spent for equipment modifications. Other;equipment costing $490,000 will also be required. What is the amount of the;initial cash flow for this expansion project?;A. -$785,000;B. -$823,000;C. -$835,000;D. -$859,000;E. -$883,000;49. Webster & Moore paid $139,000, in cash, for a;piece of equipment 3 years ago. At the beginning of last year, the company;spent $21,000 to update the equipment with the latest technology. The company;no longer uses this equipment in its current operations and has received an;offer of $89,000 from a firm that would like to purchase it. Webster;Moore is debating whether to sell the equipment or to expand its operations so;that the equipment can be used. When evaluating the expansion option, what;value, if any, should the firm assign to this equipment as an initial cost of;the project?;A. $0;B. $21,000;C. $89,000;D. $110,000;E. $160,000;50. The Fluffy Feather sells customized handbags.;Currently, it sells 18,000 handbags annually at an average price of $89 each.;It is considering adding a lower-priced line of handbags that sell for $59;each. The firm estimates it can sell 7,000 of the lower-priced handbags but;will sell 3,000 less of the higher-priced handbags by doing so. What is the;amount of the sales that should be used when evaluating the addition of the;lower-priced handbags?;A. $146,000;B. $275,000;C. $413,000;D. $623,000;E. $680,000;51. Mason Farms purchased a building for $729,000;eight years ago. Six years ago, repairs were made to the building which cost;$136,000. The annual taxes on the property are $11,000. The building has a;current market value of $825,000 and a current book value of $494,000. The;building is totally paid for and solely owned by the firm. If the company decides;to use this building for a new project, what value, if any, should be included;in the initial cash flow of the project for this building?;A. $494,000;B. $582,000;C. $825,000;D. $865,000;E. $953,000;52. You own a house that you rent for $1,100 a month.;The maintenance expenses on the house average $200 a month. The house cost;$219,000 when you purchased it 4 years ago. A recent appraisal on the house;valued it at $239,000. If you sell the house you will incur $14,000 in real;estate fees. The annual property taxes are $4,000. You are deciding whether to;sell the house or convert it for your own use as a professional office. What;value should you place on this house when analyzing the option of using it as a;professional office?;A. $211,800;B. $221,000;C. $225,000;D. $235,000;E. $239,000;53. Nelson Mfg. owns a manufacturing facility that is;currently sitting idle. The facility is located on a piece of land that;originally cost $159,000. The facility itself cost $1,460,000 to build. As of;now, the book value of the land and the facility are $159,000 and $458,000;respectively. The firm owes no debt on either the land or the facility at the;present time. The firm received a bid of $1,500,000 for the land and facility;last week. The firm's management rejected this bid even though they were told;that it is a reasonable offer in today's market. If the firm was to consider;using this land and facility in a new project, what cost, if any, should it;include in the project analysis?;A. $0;B. $617,000;C. $1,460,000;D. $1,500,000;E. $1,619,000

Paper#51101 | Written in 18-Jul-2015

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