Question

. You expect to receive the following payments:

end of year
1 $10,000
2 $10,000
3 $10,000
4 $10,000

You plan to invest these payments in stock funds. If your investments earn 10% per year, how much will you have at the end of the 20th year?

a) $46,410
b) $213,253
c) $193,866
d) $234,578
e) $31,699

. Your neighbor Bob has two annuities. The first annuity will pay him $10,000 per month for the next 10 years. The second annuity will pay him $12,000 per month for the following 10 years (years 11 through 20). Assuming a discount rate of 5%, what is the present value of the annuities?

a) $2,074,190
b) $942,814
c) $1,131,376
d) $1,629,741
e) $1,080,795

3. Hype-Tech Corporation's common stock dividends are expected to grow by 5% per year. Recently, the firm paid a $1.40 common stock dividend. Hype-Tech has a beta of 1.30. The expected return on the S&P 500 index is 11% and the rate of return on U.S. Treasury securities is 4%. What is the stock's intrinsic value?

a) $18.15
b) $24.39
c) $21.00
d) $25.61
e) $17.28

4. A corporate bond has an 8.5% coupon rate, pays interest semiannually, and matures in 15 years. The bond's par value is $1,000 and the corporate tax rate is 21%. If investors require a 7% rate of return on these bonds, what should be the bond’s value?

a) $1,919.60
b) $749.53
c) $1,137.94
d) $1,186.14
e) $425.38

5. Earthscape Corporation plans to spend $2.3 million for new equipment. Shipping and installation charges will amount to $200,000 and an initial increase in net working capital of $60,000 will be required. The equipment will replace older, less efficient equipment. The old equipment has a book value of $85,000, but Earthscape can sell it for $120,000. If Earthscape has a 21% corporate tax rate, what is the amount of their initial outlay for this project?

a) $2,560,000
b) $2,440,000
c) $2,454,700
d) $2,447,350
e) $2,432,650

6. Wellington Corporation’s latest capital investment will require them to purchase new, advanced production machines. The machines cost $8,000,000. They have a 5-year class life, and will be depreciated using simplified straight-line. The firm’s corporate tax rate is 21%. The incremental cash inflows expected over the 5-year life of the project are $2,800,000 per year, and cash expenses are $800,000 per year. In addition, the new machines will reduce defects costs by $160,000 per year. The new machines will require a $200,000 increase in net working capital at the time of installation. At the end of 5 years, the machines will be worthless. Calculate the annual cash flow resulting from this project.

a) $1,916,000
b) $1,842,400
c) $442,400
d) $1,716,000
e) $2,042,400

7. Your firm is selling a 6-year old machine that has a 10-year class life. The machine originally cost $8,000,000 and required an investment in net working capital of $100,000 at the time of installation. Your firm is selling the asset for $2,600,000. Your firm’s tax rate is 21%. What is the terminal cash flow?

a) $2,726,000
b) $974,000
c) $2,474,000
d) $2,574,000
e) $2,826,000

8. A firm recently issued $1,000 par value, 20-year bonds with a coupon rate of 6% and semi-annual payments. The bonds sold at par value, but flotation costs amounted to 5% of par value. The firm has a marginal tax rate of 21%. What is the firm's cost of debt for these bonds?

a) 5.09%
b) 6.00%
c) 4.74%
d) 9.48%
e) 6.45%

9. Consider the following information:

Sales: $2,000,000
Interest expense: $90,000
Variable costs: $500,000
Taxes: 88,000
Fixed costs: 1,000,000

If sales increase by 7%, what should be the increase in earnings per share?

a) 21.01%
b) 10.87%
c) 25.60%
d) 17.07%
e) 8.54%

10. Your firm’s goal is to earn $6,320,000 in net income next year. Your sales forecast is $26,000,000. Your firm makes electronic components that sell for $5,000 each. Your firm has a 70% contribution margin, a 21% tax rate, and no outstanding debt. What will your fixed costs be next year if you reach your goal?

a) $7,800,000
b) $18,200,000
c) $11,880,000
d) $10,200,000
e) $8,000,000

Answer 1

Solution :- 1

We need to calculate value at the end of 20 years so we need to calculate using Future Value Formula

Future Value at end of Year 20 = $10000 * (1+0.10)¹⁹ + 10000 * (1+0.10)¹⁸ +10000 * (1+0.10)¹⁷ +10000 * (1+0.10)¹⁶

= $10000 * 6.115 + $10000 * 5.56 + $10000 * 5.054 + $10000 * 4.594

= $61159.09 + $55599.17 + $50544.703 + $45949.73

= $213252.70

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Answer 2

answer to 2)

Step 1:

P/YR	N	I/YR	PV	PMT	FV
12	120	5%	?  1,131,376.20394	12,000

Step 2:

P/YR	N	I/YR	PV	PMT	FV
12	120	5%	? 1,629,741.05624	10,000	1,131,376.20394

Answer: $1,629,741