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##### Saint Leo MBA 570 quiz 2

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Question;1.Due to a;pre-existing contract, Recycle America Inc. has the opportunity to acquire;10,000 pounds of scrap aluminum and 2,500 pounds of scrap lead for \$10,750.;If the current market price for scrap aluminum is \$0.83 per pound and the;current market price for lead is \$1.06 per pound, then the added benefit;(cost) to you if you acquire this metal is __________. (Points: 10);(\$200)\$200(\$1,925)\$1,925;Question 2.2.Which of the;following statements is incorrect? (Points: 10);In general, money;today is worth more than money in one year.We define the;risk-free interest rate,rffor a given period;as the interest rate at which money can be borrowed or lent without risk over;that period.We refer to (1 -rf) as the interest;rate factor for risk-free cash flows.For most financial;decisions, costs and benefits occur at different points in time.;Question 3.3.Suppose you will;receive \$500 in one year and the risk-free interest rate (rf);is 5%. The equivalent value today is closest to __________. (Points: 10);\$475\$476\$500\$525;Question 4.4.You are offered;an investment opportunity in which you will receive \$23,750 today in;exchange for paying \$25,000 in one year. Suppose the risk-free interest;rate is 6% per year. Should you take this project? The NPV for this project;is closest to: (Points: 10);Yes, NPV = \$165No, NPV = \$165Yes, NPV = -\$165No, NPV = -\$165;Question 5.5.Suppose that;Bondi Inc. is a holding company that owns both Pizza Hut and Kentucky Fried;Chicken franchised restaurants. If the value of Bondi is \$130 million, and;the Pizza Hut franchises are worth \$70 million, then what is the value of;the Kentucky Fried Chicken franchises? (Points: 10);\$60 million\$70 million\$130 millionUnable to determine;with the information provided;Question 6.6.An independent;film maker is considering producing a new movie. The initial cost for;making this movie will be \$20 million today. Once the movie is completed;in one year, the movie will be sold to a major studio for \$25 million.;Rather than paying for the \$20 million investment entirely using its own;cash, the film maker is considering raising additional funds by issuing a;security that will pay investors \$11 million in one year. Suppose the;risk-free rate of interest is 10%. What is the NPV of this project if the;film maker invests his own money and does not issue the new security? What;is the NPV if the film maker issues the new security? (Points: 10);\$1.7 million, \$1.7;million\$1.7 million, \$2.7;million\$2.7 million, \$1.7;million\$2.7 million, \$2.7;million;Question 7.7.Which of the;following statements is false? (Points: 10);The process of;moving a value or cash flow forward in time is known as compounding.The effect of;earning interest on interest is known as compound interest.It is only possible;to compare or combine values at the same point in time.A dollar in the;future is worth more than a dollar today.;Question 8.8.If the current;rate of interest is 8%, then the present value of an investment that pays;\$1,000 per year and lasts 20 years is closest to __________. (Points: 10);\$18,519\$45,761\$9,818\$20,000;Question 9.9.You are looking;for a new truck and see the following advertisement: "Own a new truck!;No money down. Just five easy annual payments of \$8,000." You know;that you can get the same truck from the dealer across town for only;\$31,120. The interest rate for the deal advertised is closest to;(Points: 10);9%8%8.5%10%;Question 10.10.Which of the;following statements is false? (Points: 10);The difference;between an annuity and a perpetuity is that an annuity ends after some fixed;number of payments.Most car loans;mortgages, and some bonds are annuities.A growing;perpetuity is a cash flow stream that occurs at regular intervals and grows;at a constant rate forever.An annuity is a;stream ofNequal cash flows;paid at irregular intervals.

Paper#51233 | Written in 18-Jul-2015

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