Calculations Shown

1. Two mutually exclusive investments cost $10,000 each and have the following cash inflows. The firm’s cost of capital is 12%.

2. Given the following information, answer the following questions:

3. Determine the current market prices of the following $1,000 bonds if the comparable rate is 10% and answer the following questions. Part B: Indicate whether the statement is True or False. Each answer is worth 2 points.

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

2. Which of the following is not a financial intermediary?

3. Using accelerated depreciation

4. The current yield on a bond is 5. The increased use of financial leverage may Part D: Solve each of the following problems. Each answer is worth 5 points.

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?