Each question is worth 1 mark

1. Failure to meet short-term current liabilities takes the firm

closer to

A. Nothing

B. Breakeven situation

C. Maximum profit

D. Bankruptcy

2. Which of the following is correct?

A. The capital asset pricing model predicts that a security with a beta of zero will provide an expected return of zero.

B. lnvestors demand higher expected rates of return on stocks with more variable rates of return.

C. lnvestorsdemand higher expected rates of return from

stocks with returns that are very sensitive to fluctuations in the stock market.

D. The capital asset pricing model is formed as

R=Rf+betaxRm

3. What is the book value per share for a firm with 2 million

shares outstanding at a price of $50,a market-to-book ratio of .75, and a dividend payout ratio of 50%?

A. $33.33

B. $37.50

C. $62.50

D. $66.67

4. When a firm's debt-equity ratio is 1.0,the firm:

A. has too much long-term debt in relation to leases. B. has less long-term debt than equity.

C. is nearing insolvency.

D. has as much in long-term liabilities as inequity.

5. Which of the following is correct:

A. Compound interest pays interest for each time period on

the original investment plus the accumulated interest.

B. The present value of an annuity due equals the present

value of an ordinary annuity times the discount rate.

C. A dollar tomorrow is worth more than a dollar today.

D. For a given amount, the lower the discount rate, the less the present value.

6. What is the lRR of a project that costs $100,000 and provides cash inflows of $17,000 annually for 6 years?

A. 0.57%

B. 2.00%

C. 5.69%

D. 56.87%

7. Which of the following investment criteria takes the time value of money into consideration?

A.  Net present value

B.  Profitability index

C.  lnternal rate of return for borrowing projects

D.  All of these

8. According to the NPV rule, all projects should be accepted if

NPV is positive when discounted at the:

A. internal rate of return.

B. opportunity cost of capital.

C. risk-free interest rate.

D. accounting rate of return.

9. When a project's internal rate of return equals its opportunity cost of capital, then:

A. the project should be rejected.

B. the project has no cash inflows.

C. the net present value will be positive.

D. the net present value will be zero.

10. What is the percentage return on a stock that was purchased for $50.00, paid a $3.00 dividend after one year, and was then sold for $49.00?

A. -2.50%

B. 2.50%

C. 4.00%

D. 7.50%

Each question is worth 2.5 marks

1. What is the minimum cash flow that could be received at the end of year 3 to make the following project "acceptable"?

lnitial cost = $100,000; cash flows at end of years 1 and 2 = $35,000; opportunity cost of capital = 10%.

2. At current prices and a 13% cost of capital,a project's NPV is $100,000. By what minimum amount must the initial cost of

the project decrease (revenues will be unchanged) before you would wait 2 years to invest?

3. What is the value now for an investor starting with $1,000 in

common stocks over a 20-year investment horizon in which

stock returns are 11% in nominal terms? What about when the stock returns are 4% in real terms?

4. Calculate the expected rate of return for the following portfolio, based on a Treasury bill yield of 4% and an expected market   return of 13%: