MGMT 640 Financial Decision Making for Managers Mid Term Part 2 Answer

Quiz Submissions – Midterm Exam Part 2
Question 1
What is the future value of \$1,500, placed in a saving account for four years if the account pays 10.00%, compounded quarterly? (Your answer should be correct to two decimal places.)

Question 2
Your brother, who is 6 years old, just received a trust fund that will be worth \$23,000 when he is 21 years old. If the fund earns 0.08 interest compounded annually, what is the value of the fund today?

Question 3
If you were to borrow \$8,900 over five years at 0.10 compounded monthly, what would be your monthly payment?

Question 4
Your uncle promises to give you \$700 per quarter for the next five years. How much is his promise worth right now if the interest rate is 0.08 compounded quarterly?

Question 5
A stock has an expected return of 0.12 and a variance of 0.21. What is Its coefficient of variation?

Question 6
Use the following information to calculate your company’s expected return.

State Probability Return
Boom 20% 0.45
Normal 60% 0.12
Recession 20% -0.18

Question 7
You have invested in stocks J and M. From the following information, determine the beta for your portfolio.

Expected Amount of
Return Investment Beta
Stock J 0.11 \$100,000 1.13
Stock M 0.11 \$300,000 0.87

Question 8
Frazier Manufacturing paid a dividend last year of \$2, which is expected to grow at a constant rate of 5%. Frazier has a beta of 1.3. If the market is returning 11% and the risk-free rate is 4%, calculate the value of Frazier’s stock.

\$25.93

\$31.33

\$38.53

\$41.63

Question 9
You have invested 30 percent of your portfolio in Jacob, Inc., 40 percent in Bella Co., and 30 percent in Edward Resources. What is the expected return of your portfolio if Jacob, Bella, and Edward have expected returns of 0.02, 0.14, and 0.01, respectfully?

Question 10
The covariance of the returns between Willow Stock and Sky Diamond Stock is 0.1000. The variance of Willow is 0.2450, and the variance of Sky Diamond is 0.1490. What is the correlation coefficient between the returns of the two stocks?

Question 11 0 / 1 point
A project has the following cash flows:

0 1 2 3
(\$500) \$160.00 \$200 \$290.00

What is the project’s NPV if the interest rate is \$6%?

Question 12
Medela’s Entertainment Systems is setting up to manufacture a new line of video game consoles. The cost of the manufacturing equipment is \$1,750,000. Expected cash flows over the next four years are \$725,000, \$850,000, \$1,200,000, and \$1,500,000. Given the company’s required rate of return of 15 percent, what is the NPV of this project?

\$1,169,806

\$2,919,806

\$4,669,806

\$3,122, 607

Question 13
A project requires an initial outlay of \$100,000, and is expected to generate annual net cash inflows of \$28,000 for the next 5 years. Determine the payback period for the project.

.28 years

1.4 years

3.57 years

17.86 years

Question 14
An investment project requires an initial outlay of \$100,000, and is expected to generate annual cash inflows of \$28,000 for the next 5 years. (round to the nearest tenth of the percentage) Determine the (Internal Rate of Return) IRR for the project using a financial calculator

12.0%

3.6%

12.6%

12.4%

Question 15
Capital budgeting analysis of mutually exclusive projects A and B yields the following:

Project A Project B
IRR 18% 22%
NPV \$270,000 \$255,000
Payback Period 2.5 yrs 2.0 yrs
Management should choose:

Project B because most executives prefer the IRR method

Project B because two out of three methods choose it

Project A because NPV is the best method

either project because the results aren’t consistent

Question 16
Christopher Electronics bought new machinery for \$5,120,000 million. This is expected to result in additional cash flows of \$1,210,000 million over the next 7 years. What is the payback period for this project? Their acceptance period is five years.

Question 17
AMP, Inc., has invested \$2,165,800 on equipment. The firm uses payback period criteria of not accepting any project that takes more than four years to recover costs. The company anticipates cash flows of \$430,386, \$512,178, \$564,755, \$764,997, \$816,500, and \$825,375 over the next six years. What is the payback period?

Question 18
18) A common-size financial statement is one in which each number is expressed

as a percentage of some base number for the firm (such as total assets or revenues)

as a percentage of an industry average (such as rate of return)

as a percentage of a stock market average (such as market capitalization)

as a percentage of a national average (such as per capita GDP)

Question 19
Return on Equity (ROE) is defined as:

Gross Income / Total Assets

Revenues / Total Debt

Net Income / Stockholder’s Equity

(Revenues – COGS) / Total Liabilities

Question 20
Which of the following ratios is incorrect?

Current ratio = Current assets / Current liabilities

Quick ratio = (Current assets – Inventory) / Current liabilities

Inventory turnover = (Cost of goods sold) / Inventory

Days Sales Outstanding = 365 / Accounts payable turnover

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