FIN 515 Midterm Exam - Winter 2014

FIN 515 - Managerial Finance

DeVry - Winter 2014

Multiple Choice Questions / Essay Type Questions and Answers

Question 1. (TCO G) The firm's equity multiplier measures

Question 2. (TCO G) The DuPont Identity expresses the firm's ROE in terms of

Question 3. (TCO B) A certain investment will pay $10,000 in 20 years. If the annual return on comparable investments is 8%, what is this investment currently worth? Show your work.

Question 4. (TCO B) You take out a 5 year car loan for $20,000. The loan has a 5% annual interest rate. The payments are made monthly. What are the monthly payments? Show your work.

Question 5. (TCO B) Someone leases a car with the following terms: monthly payment, five year term, 5% annual interest rate, initial value of the lease is $35,000, and value at the end of the lease is $10,000. What are the monthly payments? Show your work.

Question 6. (TCO B) An accident victim has received a structured settlement. According to the terms of the agreement, the victim will receive $10,000 per year at the end of each year for the next 15 years. Additionally, the victim will receive $20,000 in 10 years. The victim believes they could get 7% annually on an investment they could make if they had all the money now. What would the money be worth to them if they could get it now? Show your work.

Question 7. (TCO F) A project requires an initial cash outlay of $60,000 and has expected cash inflows of $15,000 annually for 8 years. The cost of capital is 10%. What is the project’s NPV? Show your work.

Question 8. (TCO F) A project requires an initial cash outlay of $95,000 and has expected cash inflows of $20,000 annually for 9 years. The cost of capital is 10%. What is the project’s payback period? Show your work.

Question 9. (TCO F) A project requires an initial cash outlay of $40,000 and has expected cash inflows of $12,000 annually for 7 years. The cost of capital is 10%. What is the project’s IRR? Show your work.

Question 10. (TCO F) A project requires an initial cash outlay of $95,000 and has expected cash inflows of $20,000 annually for 9 years. The cost of capital is 10%. What is the project’s discounted payback period? Show your work.

Question 11. (TCO F) Company A has the opportunity to do any, none, or all of the projects for which the net cash flows per year are shown below. The projects are not mutually exclusive. The company has a cost of capital of 15%. Which should the company do and why? You must use at least two capital budgeting methods. Show your work. Explain your answer thoroughly.

            A          B          C

0          -300     -100     -300

1          100      -100     100

2          100      100      100

3          100      100      100

4          100      100      100

5          100      100      100

6          100      100      -100

7          -300     -200     0