罗斯公司理财Chap004全英文题库及答案

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罗斯公司理财第九版第四章课后答案

23题：This question is asking for the present value of an annuity, but the interest rate changes during the life of the annuity. We need to find the present value of the cash flows for the last eight years first. The PV of these cash flows is:PVA2 = $1,500 [{1 – 1 / [1 + (.09/12)]⌒96} / (.09/12)] = $102,387.66Note that this is the PV of this annuity exactly seven years from today. Now, we can discount this lump sum to today. The value of this cash flow today is:PV = $102,387.66 / [1 + (.13/12)]⌒84 = $41,415.70Now, we need to find the PV of the annuity for the first seven years. The value of these cash flows today is:PVA1 = $1,500 [{1 – 1 / [1 + (.13/12)]⌒84} / (.13/12)] = $82,453.99The value of the cash flows today is the sum of these two cash flows, so:PV = $82,453.99 + 41,415.70 = $123,869.9924题The monthly interest rate is the annual interest rate divided by 12, or:Monthly interest rate = .104 / 12 Monthly interest rate = .00867Now we can set the present value of the lease payments equal to the cost of the equipment, or $3,500. The lease payments are in the form of an annuity due, so:PV Adue = (1 + r) C({1 – [1/(1 + r)]⌒t } / r )$3,500 = (1 + .00867) C({1 – [1/(1 + .00867)]⌒24 } / .00867 ) C = $160.7625题Here, we need to compare to options. In order to do so, we must get the value of the two cash flow streams to the same time, so we will find the value of each today. We must also make sure to use the aftertax cash flows, since it is more relevant. For Option A, the aftertax cash flows are:Aftertax cash flows = Pretax cash flows(1 – tax rate)Aftertax cash flows = $175,000(1 – .28)Aftertax cash flows = $126,000The aftertax cash flows from Option A are in the form of an annuity due, so the present value of the cash flow today is:PV Adue = (1 + r) C({1 – [1/(1 + r)]⌒t } / r )PV Adue = (1 + .10)$126,000({1 – [1/(1 + .10)]⌒31 } / .10 )PV Adue = $1,313,791.22For Option B, the aftertax cash flows are:Aftertax cash flows = Pretax cash flows(1 – tax rate)Aftertax cash flows = $125,000(1 – .28)Aftertax cash flows = $90,000The aftertax cash flows from Option B are an ordinary annuity, plus the cash flow today, so the present value:PV = C({1 – [1/(1 + r)]⌒t } / r ) + CF0PV = $90,000{1 – [1/(1 + .10)]⌒30 } / .10 ) + $530,000PV = $1,378,422.3026题The cash flows for this problem occur monthly, and the interest rate given is the EAR. Since the cash flows occur monthly, we must get the effective monthly rate. One way to do this is to find the APR based on monthly compounding, and then divide by 12. So, the pre-retirement APR is: EAR = .11 = [1 + (APR / 12)]⌒12– 1; APR = 12[(1.11)1/12 – 1] = 10.48%And the post-retirement APR is:EAR = .08 = [1 + (APR / 12)]⌒12 – 1; APR = 12[(1.08)1/12 – 1] = 7.72%First, we will calculate how much he needs at retirement. The amount needed at retirement is the PV of the monthly spending plus the PV of the inheritance. The PV of these two cash flows is:PV A = $20,000{1 – [1 / (1 + .0772/12)⌒12*20]} / (.0772/12) = $2,441,554.61PV = $1,000,000 / (1 + .08)20 = $214,548.21So, at retirement, he needs: $2,441,554.61 + 214,548.21 = $2,656.102.81He will be saving $1,900 per month for the next 10 years until he purchases the cabin. The value of his savings after 10 years will be:FV A = $1,900[{[ 1 + (.1048/12)]⌒12*10– 1} / (.1048/12)] = $400,121.62After he purchases the cabin, the amount he will have left is: $400,121.62 – 320,000 = $80,121.62 He still has 20 years until retirement. When he is ready to retire, this amount will have grown to: FV = $80,121.62[1 + (.1048/12)]⌒12*20 = $646,965.50So, when he is ready to retire, based on his current savings, he will be short:$2,656,102.81 – 645,965.50 = $2,010,137.31This amount is the FV of the monthly savings he must make between years 10 and 30. So, finding the annuity payment using the FVA equation, we find his monthly savings will need to be: FVA = $2,010,137.31 = C[{[ 1 + (.1048/12)]⌒12*20 – 1} / (.1048/12)]C = $2,486.1227题To answer this question, we should find the PV of both options, and compare them. Since we are purchasing the car, the lowest PV is the best option. The PV of the leasing is simply the PV of the lease payments, plus the $1. The interest rate we would use for the leasing option is the same as the interest rate of the loan. The PV of leasing is:PV = $1 + $520{1 – [1 / (1 + .08/12)⌒12*3]} / (.08/12) = $16,595.14The PV of purchasing the car is the current price of the car minus the PV of the resale price. The PV of the resale price is:PV = $26,000 / [1 + (.08/12)]⌒12*3 = $20,468.62The PV of the decision to purchase is:$38,000 – 20,468.62 = $17,531.38In this case, it is cheaper to lease the car than buy it since the PV of the leasing cash flows is lower. To find the breakeven resale price, we need to find the resale price that makes the PV of the tw o options the same. In other words, the PV of the decision to buy should be:$38,000 – PV of resale price = $16,595.14PV of resale price = $21,404.86The resale price that would make the PV of the lease versus buy decision is the FV of this value, so:Breakeven resale price = $21,404.86[1 + (.08/12)]⌒12*3 = $27,189.2528题First, we will find the APR and EAR for the loan with the refundable fee. Remember, we need to use the actual cash flows of the loan to find the interest rate. With the $2,100 application fee, you will need to borrow $202,100 to have $200,000 after deducting the fee. Solving for the payment under these circumstances, we get:PV A = $202,100 = C {[1 – 1/(1.00567)⌒360]/.00567} where .00567 = .068/12 C = $1,317.54 We can now use this amount in the PV A equation with the original amount we wished to borrow, $200,000. Solving for r, we find:PV A = $200,000 = $1,317.54[{1 – [1 / (1 + r)]⌒360}/ r]Solving for r with a spreadsheet, on a financial calculator, or by trial and error, gives:r = 0.5752% per monthAPR = 12(0.5752%) = 6.90% EAR = (1 + .005752)⌒12– 1 = .0713 or 7.13%With the nonrefundable fee, the APR of the loan is simply the quoted APR since the fee is not considered part of the loan. So:APR = 6.80% EAR = [1 + (0.068/12)]⌒12– 1 = .0702 or 7.02%29题Here, we need to find the interest rate that makes us indifferent between an annuity and a perpetuity. To solve this problem, we need to find the PV of the two options and set them equal to each other. The PV of the perpetuity is:PV = $20,000 / rAnd the PV of the annuity is:PVA = $35,000[{1 – [1 / (1 + r)]⌒10 } / r ]Setting them equal and solving for r, we get:$20,000 / r = $35,000[{1 – [1 / (1 + r)]⌒10 } / r ]$20,000 / $35,000 = 1 – [1 / (1 + r)]⌒10 .057141/10 = 1 / (1 + r)r = 1 / .5714⌒1/10 – 1 r = .0576 or 5.76%30题。

Cha04 罗斯公司理财第九版原版书课后习题

The present value of the four new outlets is only $954,316.78. The outlets are worth less than they cost. The Trojan Pizza Company should not make the investment because the NPV is –$45,683.22. If the Trojan Pizza Company requires a 15 percent rate of return, the new outlets are not a good investment.SPREADSHEET APPLICATIONSHow to Calculate Present Values with Multiple Future Cash Flows Using a SpreadsheetWe can set up a basic spreadsheet to calculate the present values of the individual cash flows as follows. Notice that we have simply calculated the present values one at a time and added them up:Summary and Conclusions1. Two basic concepts, future value and present value, were introduced in the beginning of thischapter. With a 10 percent interest rate, an investor with $1 today can generate a future value of $1.10 in a year, $1.21 [=$1 × (1.10)2] in two years, and so on. Conversely, present value analysis places a current value on a future cash flow. With the same 10 percent interest rate, a dollar to be received in one year has a present value of $.909 (=$1/1.10) in year 0. A dollar to be received in two years has a present value of $.826 [=$1/(1.10)2].2. We commonly express an interest rate as, say, 12 percent per year. However, we can speak ofthe interest rate as 3 percent per quarter. Although the stated annual interest rate remains 12 percent (=3 percent × 4), the effective annual interest rate is 12.55 percent [=(1.03)4 – 1]. In other words, the compounding process increases the future value of an investment. The limiting case is continuous compounding, where funds are assumed to be reinvested every infinitesimal instant.3. A basic quantitative technique for financial decision making is net present value analysis. Thenet present value formula for an investment that generates cash flows (C i) in future periods is:The formula assumes that the cash flow at date 0 is the initial investment (a cash outflow).4. Frequently, the actual calculation of present value is long and tedious. The computation of thepresent value of a long-term mortgage with monthly payments is a good example of this. We presented four simplifying formulas:5. We stressed a few practical considerations in the application of these formulas:1. The numerator in each of the formulas, C, is the cash flow to be received one full periodhence.2. Cash flows are generally irregular in practice. To avoid unwieldy problems, assumptions tocreate more regular cash flows are made both in this textbook and in the real world.3. A number of present value problems involve annuities (or perpetuities) beginning a fewperiods hence. Students should practice combining the annuity (or perpetuity) formula withthe discounting formula to solve these problems.4. Annuities and perpetuities may have periods of every two or every n years, rather thanonce a year. The annuity and perpetuity formulas can easily handle such circumstances.5. We frequently encounter problems where the present value of one annuity must beequated with the present value of another annuity.Concept Questions1. Compounding and Period As you increase the length of time involved, what happens tofuture values? What happens to present values?2. Interest Rates What happens to the future value of an annuity if you increase the rate r?What happens to the present value?3. Present Value Suppose two athletes sign 10-year contracts for $80 million. In one case, we’retold that the $80 million will be paid in 10 equal installments. In the other case, we’re told that the $80 million will be paid in 10 installments, but the installments will increase by 5 percent per year.Who got the better deal?4. APR and EAR Should lending laws be changed to require lenders to report EARs instead ofAPRs? Why or why not?5. Time Value On subsidized Stafford loans, a common source of financial aid for collegestudents, interest does not begin to accrue until repayment begins. Who receives a bigger subsidy,a freshman or a senior? Explain.Use the following information to answer the next five questions:Toyota Motor Credit Corporation (TMCC), a subsidiary of Toyota Motor Corporation, offered some securities for sale to the public on March 28, 2008. Under the terms of the deal, TMCC promised to repay the owner of one of these securities $100,000 on March 28, 2038, but investors would receive nothing until then. Investors paid TMCC $24,099 for each of these securities; so they gave up $24,099 on March 28, 2008, for the promise of a $100,000 payment 30 years later.6. Time Value of Money Why would TMCC be willing to accept such a small amount today($24,099) in exchange for a promise to repay about four times that amount ($100,000) in the future?7. Call Provisions TMCC has the right to buy back the securities on the anniversary date at aprice established when the securities were issued (this feature is a term of this particular deal).What impact does this feature have on the desirability of this security as an investment?8. Time Value of Money Would you be willing to pay $24,099 today in exchange for $100,000 in30 years? What would be the key considerations in answering yes or no? Would your answerdepend on who is making the promise to repay?9. Investment Comparison Suppose that when TMCC offered the security for $24,099 the U.S.Treasury had offered an essentially identical security. Do you think it would have had a higher or lower price? Why?10. Length of Investment The TMCC security is bought and sold on the New York StockExchange. If you looked at the price today, do you think the price would exceed the $24,099 original price? Why? If you looked in the year 2019, do you think the price would be higher or lower than today’s price? Why?Questions and Problems: connect™BASIC (Questions 1–20)1. Simple Interest versus Compound Interest First City Bank pays 9 percent simple intereston its savings account balances, whereas Second City Bank pays 9 percent interest compounded annually. If you made a $5,000 deposit in each bank, how much more money would you earn from your Second City Bank account at the end of 10 years?2. Calculating Future Values Compute the future value of $1,000 compounded annually for1. 10 years at 6 percent.2. 10 years at 9 percent.3. 20 years at 6 percent.4. Why is the interest earned in part (c) not twice the amount earned in part (a)?3. Calculating Present Values For each of the following, compute the present value:4. Calculating Interest Rates Solve for the unknown interest rate in each of the following:5. Calculating the Number of Periods Solve for the unknown number of years in each of thefollowing:6. Calculating the Number of Periods At 9 percent interest, how long does it take to doubleyour money? To quadruple it?7. Calculating Present Values Imprudential, Inc., has an unfunded pension liability of $750million that must be paid in 20 years. To assess the value of the firm’s stock, financial analysts want to discount this liability back to the present. If the relevant discount rate is 8.2 percent, what is the present value of this liability?8. Calculating Rates of Return Although appealing to more refined tastes, art as a collectiblehas not always performed so profitably. During 2003, Sotheby’s sold the Edgar Degas bronze sculpture Petite Danseuse de Quartorze Ans at auction for a price of $10,311,500. Unfortunately for the previous owner, he had purchased it in 1999 at a price of $12,377,500. What was his annual rate of return on this sculpture?9. Perpetuities An investor purchasing a British consol is entitled to receive annual paymentsfrom the British government forever. What is the price of a consol that pays $120 annually if the next payment occurs one year from today? The market interest rate is 5.7 percent.10. Continuous Compounding Compute the future value of $1,900 continuously compounded for1. 5 years at a stated annual interest rate of 12 percent.2. 3 years at a stated annual interest rate of 10 percent.3. 10 years at a stated annual interest rate of 5 percent.4. 8 years at a stated annual interest rate of 7 percent.11. Present Value and Multiple Cash Flows Conoly Co. has identified an investment projectwith the following cash flows. If the discount rate is 10 percent, what is the present value of these cash flows? What is the present value at 18 percent? At 24 percent?12. Present Value and Multiple Cash Flows Investment X offers to pay you $5,500 per year fornine years, whereas Investment Y offers to pay you $8,000 per year for five years. Which of these cash flow streams has the higher present value if the discount rate is 5 percent? If the discount rate is 22 percent?13. Calculating Annuity Present Value An investment offers $4,300 per year for 15 years, withthe first payment occurring one year from now. If the required return is 9 percent, what is the value of the investment? What would the value be if the payments occurred for 40 years? For 75 years? Forever?14. Calculating Perpetuity Values The Perpetual Life Insurance Co. is trying to sell you aninvestment policy that will pay you and your heirs $20,000 per year forever. If the required return on this investment is 6.5 percent, how much will you pay for the policy? Suppose the Perpetual Life Insurance Co. told you the policy costs $340,000. At what interest rate would this be a fair deal? 15. Calculating EAR Find the EAR in each of the following cases:16. Calculating APR Find the APR, or stated rate, in each of the following cases:17. Calculating EAR First National Bank charges 10.1 percent compounded monthly on itsbusiness loans. First United Bank charges 10.4 percent compounded semiannually. As a potential borrower, to which bank would you go for a new loan?18. Interest Rates Well-known financial writer Andrew Tobias argues that he can earn 177percent per year buying wine by the case. Specifically, he assumes that he will consume one $10 bottle of fine Bordeaux per week for the next 12 weeks. He can either pay $10 per week or buy a case of 12 bottles today. If he buys the case, he receives a 10 percent discount and, by doing so, earns the 177 percent. Assume he buys the wine and consumes the first bottle today. Do you agree with his analysis? Do you see a problem with his numbers?19. Calculating Number of Periods One of your customers is delinquent on his accounts payablebalance. You’ve mutually agreed to a repayment schedule of $600 per month. You will charge .9 percent per month interest on the overdue balance. If the current balance is $18,400, how long will it take for the account to be paid off?20. Calculating EAR Friendly’s Quick Loans, Inc., offers you “three for four or I knock on yourdoor.” This means you get $3 today and repay $4 when you get your paycheck in one week (orelse). What’s the effective annual return Friendly’s earns on this lending business? If you were brave enough to ask, what APR would Friendly’s say you were paying?INTERMEDIATE (Questions 21–50)21. Future Value What is the future value in seven years of $1,000 invested in an account with astated annual interest rate of 8 percent,1. Compounded annually?2. Compounded semiannually?3. Compounded monthly?4. Compounded continuously?5. Why does the future value increase as the compounding period shortens?22. Simple Interest versus Compound Interest First Simple Bank pays 6 percent simpleinterest on its investment accounts. If First Complex Bank pays interest on its accounts compounded annually, what rate should the bank set if it wants to match First Simple Bank over an investment horizon of 10 years?23. Calculating Annuities You are planning to save for retirement over the next 30 years. To dothis, you will invest $700 a month in a stock account and $300 a month in a bond account. The return of the stock account is expected to be 10 percent, and the bond account will pay 6 percent.When you retire, you will combine your money into an account with an 8 percent return. How much can you withdraw each month from your account assuming a 25-year withdrawal period?24. Calculating Rates of Return Suppose an investment offers to quadruple your money in 12months (don’t believe it). What rate of return per quarter are you being offered?25. Calculating Rates of Return You’re trying to choose between two different investments, bothof which have up-front costs of $75,000. Investment G returns $135,000 in six years. Investment H returns $195,000 in 10 years. Which of these investments has the higher return?26. Growing Perpetuities Mark Weinstein has been working on an advanced technology in lasereye surgery. His technology will be available in the near term. He anticipates his first annual cash flow from the technology to be $215,000, received two years from today. Subsequent annual cash flows will grow at 4 percent in perpetuity. What is the present value of the technology if the discount rate is 10 percent?27. Perpetuities A prestigious investment bank designed a new security that pays a quarterlydividend of $5 in perpetuity. The first dividend occurs one quarter from today. What is the price of the security if the stated annual interest rate is 7 percent, compounded quarterly?28. Annuity Present Values What is the present value of an annuity of $5,000 per year, with thefirst cash flow received three years from today and the last one received 25 years from today? Usea discount rate of 8 percent.29. Annuity Present Values What is the value today of a 15-year annuity that pays $750 a year?The annuity’s first payment occurs six years from today. The annual interest rate is 12 percent for years 1 through 5, and 15 percent thereafter.30. Balloon Payments Audrey Sanborn has just arranged to purchase a $450,000 vacation homein the Bahamas with a 20 percent down payment. The mortgage has a 7.5 percent stated annualinterest rate, compounded monthly, and calls for equal monthly payments over the next 30 years.Her first payment will be due one month from now. However, the mortgage has an eight-year balloon payment, meaning that the balance of the loan must be paid off at the end of year 8. There were no other transaction costs or finance charges. How much will Audrey’s balloon payment be in eight years?31. Calculating Interest Expense You receive a credit card application from Shady BanksSavings and Loan offering an introductory rate of 2.40 percent per year, compounded monthly for the first six months, increasing thereafter to 18 percent compounded monthly. Assuming you transfer the $6,000 balance from your existing credit card and make no subsequent payments, how much interest will you owe at the end of the first year?32. Perpetuities Barrett Pharmaceuticals is considering a drug project that costs $150,000 todayand is expected to generate end-of-year annual cash flows of $13,000, forever. At what discount rate would Barrett be indifferent between accepting or rejecting the project?33. Growing Annuity Southern California Publishing Company is trying to decide whether to reviseits popular textbook, Financial Psychoanalysis Made Simple. The company has estimated that the revision will cost $65,000. Cash flows from increased sales will be $18,000 the first year. These cash flows will increase by 4 percent per year. The book will go out of print five years from now.Assume that the initial cost is paid now and revenues are received at the end of each year. If the company requires an 11 percent return for such an investment, should it undertake the revision? 34. Growing Annuity Your job pays you only once a year for all the work you did over theprevious 12 months. Today, December 31, you just received your salary of $60,000, and you plan to spend all of it. However, you want to start saving for retirement beginning next year. You have decided that one year from today you will begin depositing 5 percent of your annual salary in an account that will earn 9 percent per year. Your salary will increase at 4 percent per year throughout your career. How much money will you have on the date of your retirement 40 years from today?35. Present Value and Interest Rates What is the relationship between the value of an annuityand the level of interest rates? Suppose you just bought a 12-year annuity of $7,500 per year at the current interest rate of 10 percent per year. What happens to the value of your investment if interest rates suddenly drop to 5 percent? What if interest rates suddenly rise to 15 percent?36. Calculating the Number of Payments You’re prepared to make monthly payments of $250,beginning at the end of this month, into an account that pays 10 percent interest compounded monthly. How many payments will you have made when your account balance reaches $30,000? 37. Calculating Annuity Present Values You want to borrow $80,000 from your local bank tobuy a new sailboat. You can afford to make monthly payments of $1,650, but no more. Assuming monthly compounding, what is the highest APR you can afford on a 60-month loan?38. Calculating Loan Payments You need a 30-year, fixed-rate mortgage to buy a new home for$250,000. Your mortgage bank will lend you the money at a 6.8 percent APR for this 360-month loan. However, you can only afford monthly payments of $1,200, so you offer to pay off any remaining loan balance at the end of the loan in the form of a single balloon payment. How large will this balloon payment have to be for you to keep your monthly payments at $1,200?39. Present and Future Values The present value of the following cash flow stream is $6,453when discounted at 10 percent annually. What is the value of the missing cash flow?40. Calculating Present Values You just won the TVM Lottery. You will receive $1 million todayplus another 10 annual payments that increase by $350,000 per year. Thus, in one year you receive $1.35 million. In two years, you get $1.7 million, and so on. If the appropriate interest rate is 9 percent, what is the present value of your winnings?41. EAR versus APR You have just purchased a new warehouse. To finance the purchase, you’vearranged for a 30-year mortgage for 80 percent of the $2,600,000 purchase price. The monthly payment on this loan will be $14,000. What is the APR on this loan? The EAR?42. Present Value and Break-Even Interest Consider a firm with a contract to sell an asset for$135,000 three years from now. The asset costs $96,000 to produce today. Given a relevant discount rate on this asset of 13 percent per year, will the firm make a profit on this asset? At what rate does the firm just break even?43. Present Value and Multiple Cash Flows What is the present value of $4,000 per year, at adiscount rate of 7 percent, if the first payment is received 9 years from now and the last payment is received 25 years from now?44. Variable Interest Rates A 15-year annuity pays $1,500 per month, and payments are madeat the end of each month. If the interest rate is 13 percent compounded monthly for the first seven years, and 9 percent compounded monthly thereafter, what is the present value of the annuity? 45. Comparing Cash Flow Streams You have your choice of two investment accounts.Investment A is a 15-year annuity that features end-of-month $1,200 payments and has an interest rate of 9.8 percent compounded monthly. Investment B is a 9 percent continuously compounded lump-sum investment, also good for 15 years. How much money would you need to invest in B today for it to be worth as much as Investment A 15 years from now?46. Calculating Present Value of a Perpetuity Given an interest rate of 7.3 percent per year,what is the value at date t = 7 of a perpetual stream of $2,100 annual payments that begins at date t = 15?47. Calculating EAR A local finance company quotes a 15 percent interest rate on one-year loans.So, if you borrow $26,000, the interest for the year will be $3,900. Because you must repay a total of $29,900 in one year, the finance company requires you to pay $29,900/12, or $2,491.67, per month over the next 12 months. Is this a 15 percent loan? What rate would legally have to be quoted? What is the effective annual rate?48. Calculating Present Values A 5-year annuity of ten $4,500 semiannual payments will begin 9years from now, with the first payment coming 9.5 years from now. If the discount rate is 12 percent compounded monthly, what is the value of this annuity five years from now? What is the value three years from now? What is the current value of the annuity?49. Calculating Annuities Due Suppose you are going to receive $10,000 per year for five years.The appropriate interest rate is 11 percent.1. What is the present value of the payments if they are in the form of an ordinary annuity?What is the present value if the payments are an annuity due?2. Suppose you plan to invest the payments for five years. What is the future value if thepayments are an ordinary annuity? What if the payments are an annuity due?3. Which has the highest present value, the ordinary annuity or annuity due? Which has thehighest future value? Will this always be true?50. Calculating Annuities Due You want to buy a new sports car from Muscle Motors for$65,000. The contract is in the form of a 48-month annuity due at a 6.45 percent APR. What will your monthly payment be?CHALLENGE (Questions 51–76)51. Calculating Annuities Due You want to lease a set of golf clubs from Pings Ltd. The leasecontract is in the form of 24 equal monthly payments at a 10.4 percent stated annual interest rate, compounded monthly. Because the clubs cost $3,500 retail, Pings wants the PV of the lease payments to equal $3,500. Suppose that your first payment is due immediately. What will your monthly lease payments be?52. Annuities You are saving for the college education of your two children. They are two yearsapart in age; one will begin college 15 years from today and the other will begin 17 years from today. You estimate your children’s college expenses to be $35,000 per year per child, payable at the beginning of each school year. The annual interest rate is 8.5 percent. How much money must you deposit in an account each year to fund your children’s education? Your deposits begin one year from today. You will make your last deposit when your oldest child enters college. Assume four years of college.53. Growing Annuities Tom Adams has received a job offer from a large investment bank as aclerk to an associate banker. His base salary will be $45,000. He will receive his first annual salary payment one year from the day he begins to work. In addition, he will get an immediate $10,000 bonus for joining the company. His salary will grow at 3.5 percent each year. Each year he will receive a bonus equal to 10 percent of his salary. Mr. Adams is expected to work for 25 years.What is the present value of the offer if the discount rate is 12 percent?54. Calculating Annuities You have recently won the super jackpot in the Washington StateLottery. On reading the fine print, you discover that you have the following two options:1. You will receive 31 annual payments of $175,000, with the first payment being deliveredtoday. The income will be taxed at a rate of 28 percent. Taxes will be withheld when the checks are issued.2. You will receive $530,000 now, and you will not have to pay taxes on this amount. Inaddition, beginning one year from today, you will receive $125,000 each year for 30 years.The cash flows from this annuity will be taxed at 28 percent.Using a discount rate of 10 percent, which option should you select?55. Calculating Growing Annuities You have 30 years left until retirement and want to retirewith $1.5 million. Your salary is paid annually, and you will receive $70,000 at the end of the current year. Your salary will increase at 3 percent per year, and you can earn a 10 percent return on the money you invest. If you save a constant percentage of your salary, what percentage of your salary must you save each year?56. Balloon Payments On September 1, 2007, Susan Chao bought a motorcycle for $25,000. Shepaid $1,000 down and financed the balance with a five-year loan at a stated annual interest rate of8.4 percent, compounded monthly. She started the monthly payments exactly one month after thepurchase (i.e., October 1, 2007). Two years later, at the end of October 2009, Susan got a new job and decided to pay off the loan. If the bank charges her a 1 percent prepayment penalty based on the loan balance, how much must she pay the bank on November 1, 2009?57. Calculating Annuity Values Bilbo Baggins wants to save money to meet three objectives.First, he would like to be able to retire 30 years from now with a retirement income of $20,000 per month for 20 years, with the first payment received 30 years and 1 month from now. Second, he would like to purchase a cabin in Rivendell in 10 years at an estimated cost of $320,000. Third, after he passes on at the end of the 20 years of withdrawals, he would like to leave an inheritance of $1,000,000 to his nephew Frodo. He can afford to save $1,900 per month for the next 10 years.If he can earn an 11 percent EAR before he retires and an 8 percent EAR after he retires, how much will he have to save each month in years 11 through 30?58. Calculating Annuity Values After deciding to buy a new car, you can either lease the car orpurchase it with a three-year loan. The car you wish to buy costs $38,000. The dealer has a special leasing arrangement where you pay $1 today and $520 per month for the next three years. If you purchase the car, you will pay it off in monthly payments over the next three years at an 8 percent APR. You believe that you will be able to sell the car for $26,000 in three years. Should you buy or lease the car? What break-even resale price in three years would make you indifferent between buying and leasing?59. Calculating Annuity Values An All-Pro defensive lineman is in contract negotiations. Theteam has offered the following salary structure:All salaries are to be paid in a lump sum. The player has asked you as his agent to renegotiate the terms. He wants a $9 million signing bonus payable today and a contract value increase of $750,000. He also wants an equal salary paid every three months, with the first paycheck three months from now. If the interest rate is 5 percent compounded daily, what is the amount of his quarterly check? Assume 365 days in a year.60. Discount Interest Loans This question illustrates what is known as discount interest. Imagineyou are discussing a loan with a somewhat unscrupulous lender. You want to borrow $20,000 for one year. The interest rate is 14 percent. You and the lender agree that the interest on the loan will be .14 × $20,000 = $2,800. So, the lender deducts this interest amount from the loan up front and gives you $17,200. In this case, we say that the discount is $2,800. What’s wrong here?61. Calculating Annuity Values You are serving on a jury. A plaintiff is suing the city for injuriessustained after a freak street sweeper accident. In the trial, doctors testified that it will be five years before the plaintiff is able to return to work. The jury has already decided in favor of the plaintiff. You are the foreperson of the jury and propose that the jury give the plaintiff an award to cover the following: (1) The present value of two years’ back pay. The plaintiff’s annual salary for the last two years would have been $42,000 and $45,000, respectively. (2) The present value of five years’ future salary. You assume the salary will be $49,000 per year. (3) $150,000 for pain and suffering. (4) $25,000 for court costs. Assume that the salary payments are equal amounts paid at the end of each month. If the interest rate you choose is a 9 percent EAR, what is the size of the settlement? If you were the plaintiff, would you like to see a higher or lower interest rate?62. Calculating EAR with Points You are looking at a one-year loan of $10,000. The interest rateis quoted as 9 percent plus three points. A point on a loan is simply 1 percent (one percentage point) of the loan amount. Quotes similar to this one are very common with home mortgages. The interest rate quotation in this example requires the borrower to pay three points to the lender up front and repay the loan later with 9 percent interest. What rate would you actually be paying here? What is the EAR for a one-year loan with a quoted interest rate of 12 percent plus two points? Is your answer affected by the loan amount?63. EAR versus APR Two banks in the area offer 30-year, $200,000 mortgages at 6.8 percent andcharge a $2,100 loan application fee. However, the application fee charged by Insecurity Bank and Trust is refundable if the loan application is denied, whereas that charged by I. M. Greedy and Sons Mortgage Bank is not. The current disclosure law requires that any fees that will be refunded if the applicant is rejected be included in calculating the APR, but this is not required with nonrefundable。

罗斯《公司理财》英文习题答案DOCchap004

公司理财习题答案第四章Chapter 4: Net Present Value4.1 a. $1,000 ⨯ 1.0510 = $1,628.89b. $1,000 ⨯ 1.0710 = $1,967.15c. $1,000 ⨯ 1.0520 = $2,653.30d. Interest compounds on the I nterest already earned. Therefore, the interest earnedin part c, $1,653.30, is more than double the amount earned in part a, $628.89.4.2 a. $1,000 / 1.17 = $513.16b. $2,000 / 1.1 = $1,818.18c. $500 / 1.18 = $233.254.3 You can make your decision by computing either the present value of the $2,000 that youcan receive in ten years, or the future value of the $1,000 that you can receive now.Present value: $2,000 / 1.0810 = $926.39Future value: $1,000 ⨯ 1.0810 = $2,158.93Either calculation indicates you should take the $1,000 now.4.4 Since this bond has no interim coupon payments, its present value is simply the presentvalue of the $1,000 that will be received in 25 years. Note: As will be discussed in the next chapter, the present value of the payments associated with a bond is the price of that bond.PV = $1,000 /1.125 = $92.304.5 PV = $1,500,000 / 1.0827 = $187,780.234.6 a. At a discount rate of zero, the future value and present value are always the same.Remember, FV = PV (1 + r) t. If r = 0, then the formula reduces to FV = PV.Therefore, the values of the options are $10,000 and $20,000, respectively. Youshould choose the second option.b. Option one: $10,000 / 1.1 = $9,090.91Option two: $20,000 / 1.15 = $12,418.43Choose the second option.c. Option one: $10,000 / 1.2 = $8,333.33Option two: $20,000 / 1.25 = $8,037.55Choose the first option.d. You are indifferent at the rate that equates the PVs of the two alternatives. Youknow that rate must fall between 10% and 20% because the option you wouldchoose differs at these rates. Let r be the discount rate that makes you indifferentbetween the options.$10,000 / (1 + r) = $20,000 / (1 + r)5(1 + r)4 = $20,000 / $10,000 = 21 + r = 1.18921r = 0.18921 = 18.921%4.7 PV of Joneses’ offer = $150,000 / (1.1)3 = $112,697.22Since the PV of Joneses’ offer is less than Smiths’ offer, $115,000, you should chooseSmiths’ offer.4.8 a. P0 = $1,000 / 1.0820 = $214.55b. P10 = P0 (1.08)10 = $463.20c. P15 = P0 (1.08)15 = $680.594.9 The $1,000 that you place in the account at the end of the first year will earn interest for sixyears. The $1,000 that you place in the account at the end of the second year will earninterest for five years, etc. Thus, the account will have a balance of$1,000 (1.12)6 + $1,000 (1.12)5 + $1,000 (1.12)4 + $1,000 (1.12)3= $6,714.614.10 PV = $5,000,000 / 1.1210 = $1,609,866.184.11 a. The cost of investment is $900,000.PV of cash inflows = $120,000 / 1.12 + $250,000 / 1.122 + $800,000 / 1.123= $875,865.52Since the PV of cash inflows is less than the cost of investment, you should notmake the investment.b. NPV = -$900,000 + $875,865.52= -$24,134.48c. NPV = -$900,000 + $120,000 / 1.11 + $250,000 / 1.112 + $800,000 / 1.113= $-4,033.18Since the NPV is still negative, you should not make the investment.4.12 NPV = -($340,000 + $10,000) + ($100,000 - $10,000) / 1.1+ $90,000 / 1.12 + $90,000 / 1.13 + $90,000 / 1.14 + $100,000 / 1.15= -$2,619.98Since the NPV is negative, you should not buy it.If the relevant cost of capital is 9 percent,NPV = -$350,000 + $90,000 / 1.09 + $90,000 / 1.092 + $90,000 / 1.093+ $90,000 / 1.094 + $100,000 / 1.095= $6,567.93Since the NPV is positive, you should buy it.4.13 a. Profit = PV of revenue - Cost = NPVNPV = $90,000 / 1.15 - $60,000 = -$4,117.08No, the firm will not make a profit.b. Find r that makes zero NPV.$90,000 / (1+r)5 - $60,000 = $0(1+r)5 = 1.5r = 0.08447 = 8.447%4.14 The future value of the decision to own your car for one year is the sum of the trade-invalue and the benefit from owning the car. Therefore, the PV of the decision to own thecar for one year is$3,000 / 1.12 + $1,000 / 1.12 = $3,571.43Since the PV of the roommate’s offer, $3,500, is lower than the aunt’s offer, you shouldaccept aunt’s offer.4.15 a. $1.000 (1.08)3 = $1,259.71b. $1,000 [1 + (0.08 / 2)]2 ⨯ 3 = $1,000 (1.04)6 = $1,265.32c. $1,000 [1 + (0.08 / 12)]12 ⨯ 3 = $1,000 (1.00667)36 = $1,270.24d. $1,000 e0.08 ⨯ 3 = $1,271.25公司理财习题答案第四章e. The future value increases because of the compounding. The account is earninginterest on interest. Essentially, the interest is added to the account balance at theend of every compounding period. During the next period, the account earnsinterest on the new balance. When the compounding period shortens, the balancethat earns interest is rising faster.4.16 a. $1,000 e0.12 ⨯ 5 = $1,822.12b. $1,000 e0.1 ⨯ 3 = $1,349.86c. $1,000 e0.05 ⨯ 10 = $1,648.72d. $1,000 e0.07 ⨯ 8 = $1,750.674.17 PV = $5,000 / [1+ (0.1 / 4)]4 ⨯ 12 = $1,528.364.18 Effective annual interest rate of Bank America= [1 + (0.041 / 4)]4 - 1 = 0.0416 = 4.16%Effective annual interest rate of Bank USA= [1 + (0.0405 / 12)]12 - 1 = 0.0413 = 4.13%You should deposit your money in Bank America.4.19 The price of the consol bond is the present value of the coupon payments. Apply theperpetuity formula to find the present value. PV = $120 / 0.15 = $8004.20 Quarterly interest rate = 12% / 4 = 3% = 0.03Therefore, the price of the security = $10 / 0.03 = $333.334.21 The price at the end of 19 quarters (or 4.75 years) from today = $1 / (0.15 ÷ 4) = $26.67The current price = $26.67 / [1+ (.15 / 4)]19 = $13.254.22 a. $1,000 / 0.1 = $10,000b. $500 / 0.1 = $5,000 is the value one year from now of the perpetual stream. Thus,the value of the perpetuity is $5,000 / 1.1 = $4,545.45.c. $2,420 / 0.1 = $24,200 is the value two years from now of the perpetual stream.Thus, the value of the perpetuity is $24,200 / 1.12 = $20,000.4.23 The value at t = 8 is $120 / 0.1 = $1,200.Thus, the value at t = 5 is $1,200 / 1.13 = $901.58.4.24 P = $3 (1.05) / (0.12 - 0.05) = $45.004.25 P = $1 / (0.1 - 0.04) = $16.674.26 The first cash flow will be generated 2 years from today.The value at the end of 1 year from today = $200,000 / (0.1 - 0.05) = $4,000,000.Thus, PV = $4,000,000 / 1.1 = $3,636,363.64.4.27 A zero NPV-$100,000 + $50,000 / r = 0-r = 0.54.28 Apply the NPV technique. Since the inflows are an annuity you can use the present valueof an annuity factor.NPV = -$6,200 + $1,200 8A1.0= -$6,200 + $1,200 (5.3349)= $201.88Yes, you should buy the asset.4.29 Use an annuity factor to compute the value two years from today of the twenty payments.Remember, the annuity formula gives you the value of the stream one year before the first payment. Hence, the annuity factor will give you the value at the end of year two of the stream of payments. Value at the end of year two = $2,000 20A08.0= $2,000 (9.8181)= $19,636.20The present value is simply that amount discounted back two years.PV = $19,636.20 / 1.082 = $16,834.884.30 The value of annuity at the end of year five= $500 15A = $500 (5.84737) = $2,923.6915.0The present value = $2,923.69 / 1.125 = $1,658.984.31 The easiest way to do this problem is to use the annuity factor. The annuity factor must beequal to $12,800 / $2,000 = 6.4; remember PV =C A t r. The annuity factors are in theappendix to the text. To use the factor table to solve this problem, scan across the rowlabeled 10 years until you find 6.4. It is close to the factor for 9%, 6.4177. Thus, the rate you will receive on this note is slightly more than 9%.You can find a more precise answer by interpolating between nine and ten percent.10% ⎤ 6.1446 ⎤a ⎡ r ⎥bc ⎡ 6.4 ⎪ d⎣ 9% ⎦⎣ 6.4177 ⎦By interpolating, you are presuming that the ratio of a to b is equal to the ratio of c to d.(9 - r ) / (9 - 10) = (6.4177 - 6.4 ) / (6.4177 - 6.1446)r = 9.0648%The exact value could be obtained by solving the annuity formula for the interest rate.Sophisticated calculators can compute the rate directly as 9.0626%.公司理财习题答案第四章4.32 a. The annuity amount can be computed by first calculating the PV of the $25,000which you need in five years. That amount is $17,824.65 [= $25,000 / 1.075].Next compute the annuity which has the same present value.$17,824.65 = C 5A.007$17,824.65 = C (4.1002)C = $4,347.26Thus, putting $4,347.26 into the 7% account each year will provide $25,000 fiveyears from today.b. The lump sum payment must be the present value of the $25,000, i.e., $25,000 /1.075 = $17,824.65The formula for future value of any annuity can be used to solve the problem (seefootnote 14 of the text).4.33The amount of loan is $120,000 ⨯ 0.85 = $102,000.20C A= $102,000.010The amount of equal installments isC = $102,000 / 20A = $102,000 / 8.513564 = $11,980.8810.04.34 The present value of salary is $5,000 36A = $150,537.53.001The present value of bonus is $10,000 3A = $23,740.42 (EAR = 12.68% is used since.01268bonuses are paid annually.)The present value of the contract = $150,537.53 + $23,740.42 = $174,277.944.35 The amount of loan is $15,000 ⨯ 0.8 = $12,000.C 48A = $12,0000067.0The amount of monthly installments isC = $12,000 / 48A = $12,000 / 40.96191 = $292.960067.04.36 Option one: This cash flow is an annuity due. To value it, you must use the after-taxamounts. The after-tax payment is $160,000 (1 - 0.28) = $115,200. Value all except the first payment using the standard annuity formula, then add back the first payment of$115,200 to obtain the value of this option.Value = $115,200 + $115,200 30A10.0= $115,200 + $115,200 (9.4269)= $1,201,178.88Option two: This option is valued similarly. You are able to have $446,000 now; this is already on an after-tax basis. You will receive an annuity of $101,055 for each of the next thirty years. Those payments are taxable when you receive them, so your after-taxpayment is $72,759.60 [= $101,055 (1 - 0.28)].Value = $446,000 + $72,759.60 30A.010= $446,000 + $72,759.60 (9.4269)= $1,131,897.47Since option one has a higher PV, you should choose it.4.37 The amount of loan is $9,000. The monthly payment C is given by solving the equation: C 60008.0A = $9,000 C = $9,000 / 47.5042 = $189.46In October 2000, Susan Chao has 35 (= 12 ⨯ 5 - 25) monthly payments left, including the one due in October 2000.Therefore, the balance of the loan on November 1, 2000 = $189.46 + $189.46 34008.0A = $189.46 + $189.46 (29.6651) = $5,809.81Thus, the total amount of payoff = 1.01 ($5,809.81) = $5,867.91 4.38 Let r be the rate of interest you must earn. $10,000(1 + r)12 = $80,000 (1 + r)12 = 8 r = 0.18921 = 18.921%4.39 First compute the present value of all the payments you must make for your children’s education. The value as of one year before matriculation of one child’s education is$21,000 415.0A= $21,000 (2.8550) = $59,955. This is the value of the elder child’s education fourteen years from now. It is the value of the younger child’s education sixteen years from today. The present value of these is PV = $59,955 / 1.1514 + $59,955 / 1.1516 = $14,880.44You want to make fifteen equal payments into an account that yields 15% so that the present value of the equal payments is $14,880.44. Payment = $14,880.44 / 1515.0A = $14,880.44 / 5.8474 = $2,544.804.40 The NPV of the policy isNPV = -$750 306.0A - $800306.0A / 1.063 + $250,000 / [(1.066) (1.0759)] = -$2,004.76 - $1,795.45 + $3,254.33= -$545.88 Therefore, you should not buy the policy.4.41 The NPV of the lease offer isNPV = $120,000 - $15,000 - $15,000 908.0A - $25,000 / 1.0810= $105,000 - $93,703.32 - $11,579.84 = -$283.16 Therefore, you should not accept the offer.4.42 This problem applies the growing annuity formula. The first payment is $50,000(1.04)2(0.02) = $1,081.60. PV = $1,081.60 [1 / (0.08 - 0.04) - {1 / (0.08 - 0.04)}{1.04 / 1.08}40]= $21,064.28 This is the present value of the payments, so the value forty years from today is $21,064.28 (1.0840) = $457,611.46公司理财习题答案第四章4.43 Use the discount factors to discount the individual cash flows. Then compute the NPV ofthe project. Notice that the four $1,000 cash flows form an annuity. You can still use the factor tables to compute their PV. Essentially, they form cash flows that are a six year annuity less a two year annuity. Thus, the appropriate annuity factor to use with them is 2.6198 (= 4.3553 - 1.7355).Year Cash Flow Factor PV 1 $700 0.9091 $636.37 2 900 0.8264 743.76 3 1,000 ⎤ 4 1,000 ⎥ 2.6198 2,619.80 5 1,000 ⎥ 6 1,000 ⎦ 7 1,250 0.5132 641.50 8 1,375 0.4665 641.44 Total $5,282.87NPV = -$5,000 + $5,282.87 = $282.87 Purchase the machine.4.44 Weekly inflation rate = 0.039 / 52 = 0.00075 Weekly interest rate = 0.104 / 52 = 0.002 PV = $5 [1 / (0.002 - 0.00075)] {1 – [(1 + 0.00075) / (1 + 0.002)]52 ⨯ 30} = $3,429.384.45 Engineer:NPV = -$12,000 405.0A + $20,000 / 1.055 + $25,000 / 1.056 - $15,000 / 1.057- $15,000 / 1.058 + $40,000 2505.0A / 1.058= $352,533.35 Accountant:NPV = -$13,000 405.0A + $31,000 3005.0A / 1.054= $345,958.81 Become an engineer.After your brother announces that the appropriate discount rate is 6%, you can recalculate the NPVs. Calculate them the same way as above except using the 6% discount rate. Engineer NPV = $292,419.47 Accountant NPV = $292,947.04Your brother made a poor decision. At a 6% rate, he should study accounting.4.46 Since Goose receives his first payment on July 1 and all payments in one year intervalsfrom July 1, the easiest approach to this problem is to discount the cash flows to July 1 then use the six month discount rate (0.044) to discount them the additional six months. PV = $875,000 / (1.044) + $650,000 / (1.044)(1.09) + $800,000 / (1.044)(1.092) + $1,000,000 / (1.044)(1.093) + $1,000,000/(1.044)(1.094) + $300,000 / (1.044)(1.095)+ $240,000 1709.0A / (1.044)(1.095) + $125,000 1009.0A / (1.044)(1.0922) = $5,051,150Remember that the use of annuity factors to discount the deferred payments yields the value of the annuity stream one period prior to the first payment. Thus, the annuity factor applied to the first set of deferred payments gives the value of those payments on July 1 of 1989. Discounting by 9% for five years brings the value to July 1, 1984. The use of the six month discount rate (4.4%) brings the value of the payments to January 1, 1984. Similarly, the annuity factor applied to the second set of deferred payments yields the value of those payments in 2006. Discounting for 22 years at 9% and for six months at 4.4% provides the value at January 1, 1984.The equivalent five-year, annual salary is the annuity that solves: $5,051,150 = C 509.0A C = $5,051,150/3.8897C = $1,298,596The student must be aware of possible rounding errors in this problem. The differencebetween 4.4% semiannual and 9.0% and for six months at 4.4% provides the value at January 1, 1984. 4.47 PV = $10,000 + ($35,000 + $3,500) [1 / (0.12 - 0.04)] [1 - (1.04 / 1.12) 25 ]= $415,783.604.48 NPV = -$40,000 + $10,000 [1 / (0.10 - 0.07)] [1 - (1.07 / 1.10)5 ] = $3,041.91 Revise the textbook.4.49The amount of the loan is $400,000 (0.8) = $320,000 The monthly payment is C = $320,000 / 3600067.0.0A = $ 2,348.10 Thirty years of payments $ 2,348.10 (360) = $ 845,316.00 Eight years of payments $2,348.10 (96) = $225,417.60 The difference is the balloon payment of $619,898.404.50 The lease payment is an annuity in advanceC + C 2301.0A = $4,000 C (1 + 20.4558) = $4,000 C = $186.424.51 The effective annual interest rate is[ 1 + (0.08 / 4) ] 4 – 1 = 0.0824The present value of the ten-year annuity is PV = 900 100824.0A = $5,974.24 Four remaining discount periodsPV = $5,974.24 / (1.0824) 4 = $4,352.43公司理财习题答案第四章4.52The present value of Ernie’s retirement incomePV = $300,000 20A / (1.07) 30 = $417,511.5407.0The present value of the cabinPV = $350,000 / (1.07) 10 = $177,922.25The present value of his savingsPV = $40,000 10A = $280,943.26.007In present value terms he must save an additional $313,490.53 In future value termsFV = $313,490.53 (1.07) 10 = $616,683.32He must saveC = $616.683.32 / 20A = $58,210.5407.0。

英文版罗斯公司理财习题答案ChapWord版

CHAPTER 8MAKING CAPITAL INVESTMENT DECISIONSAnswers to Concepts Review and Critical Thinking Questions1.In this context, an opportunity cost refers to the value of an asset or other input that will be used in aproject. The relevant cost is what the asset or input is actually worth today, not, for example, what it cost to acquire.2. a.Yes, the reduction in the sales of the company’s other products, referred to as erosion, andshould be treated as an incremental cash flow. These lost sales are included because they are a cost (a revenue reduction) that the firm must bear if it chooses to produce the new product.b. Yes, expenditures on plant and equipment should be treated as incremental cash flows. Theseare costs of the new product line. However, if these expenditures have already occurred, they are sunk costs and are not included as incremental cash flows.c. No, the research and development costs should not be treated as incremental cash flows. Thecosts of research and development undertaken on the product during the past 3 years are sunk costs and should not be included in the evaluation of the project. Decisions made and costs incurred in the past cannot be changed. They should not affect the decision to accept or reject the project.d. Yes, the annual depreciation expense should be treated as an incremental cash flow.Depreciation expense must be taken into account when calculating the cash flows related to a given project. While depreciation is not a cash expense that directly affects cash flow, it decreases a firm’s net income and hence, lowers its tax bill for the year. Because of this depreciation tax shield, the firm has more cash on hand at the end of the year than it would have had without expensing depreciation.e.No, dividend payments should not be treated as incremental cash flows. A firm’s decision topay or not pay dividends is independent of the decision to accept or reject any given investment project. For this reason, it is not an incremental cash flow to a given project. Dividend policy is discussed in more detail in later chapters.f.Yes, the resale value of plant and equipment at the end of a project’s life should be treated as anincremental cash flow. The price at which the firm sells the equipment is a cash inflow, and any difference between the book value of the equipment and its sale price will create gains or lossesthat result in either a tax credit or liability.g.Yes, salary and medical costs for production employees hired for a project should be treated asincremental cash flows. The salaries of all personnel connected to the project must be included as costs of that project.3.Item I is a relevant cost because the opportunity to sell the land is lost if the new golf club is produced. Item II is also relevant because the firm must take into account the erosion of sales of existing products when a new product is introduced. If the firm produces the new club, the earnings from the existing clubs will decrease, effectively creating a cost that must be included in the decision.Item III is not relevant because the costs of Research and Development are sunk costs. Decisions made in the past cannot be changed. They are not relevant to the production of the new clubs.4.For tax purposes, a firm would choose MACRS because it provides for larger depreciationdeductions earlier. These larger deductions reduce taxes, but have no other cash consequences.Notice that the choice between MACRS and straight-line is purely a time value issue; the total depreciation is the same; only the timing differs.5.It’s probably only a mild over-simplification. Current liabilities will all be paid, presumably. Thecash portion of current assets will be retrieved. Some receivables won’t be collected, and some inventory will not be sold, of course. Counterbalancing these losses is the fact that inventory sold above cost (and not replaced at the end of the project’s life) acts to increase working capital. These effects tend to offset one another.6.Management’s discretion to set the firm’s capital structure is applicable at the firm level. Since anyone particular project could be financed entirely with equity, another project could be financed with debt, and the firm’s overall capital structure remains unchanged, financing cost s are not relevant in the analysis of a project’s incremental cash flows according to the stand-alone principle.7.The EAC approach is appropriate when comparing mutually exclusive projects with different livesthat will be replaced when they wear out. This type of analysis is necessary so that the projects havea common life span over which they can be compared; in effect, each project is assumed to existover an infinite horizon of N-year repeating projects. Assuming that this type of analysis is valid implies that the project cash flows remain the same forever, thus ignoring the possible effects of, among other things: (1) inflation, (2) changing economic conditions, (3) the increasing unreliability of cash flow estimates that occur far into the future, and (4) the possible effects of future technology improvement that could alter the project cash flows.8.Depreciation is a non-cash expense, but it is tax-deductible on the income statement. Thusdepreciation causes taxes paid, an actual cash outflow, to be reduced by an amount equal to the depreciation tax shield, t c D. A reduction in taxes that would otherwise be paid is the same thing as a cash inflow, so the effects of the depreciation tax shield must be added in to get the total incremental aftertax cash flows.9.There are two particularly important considerations. The first is erosion. Will the “essentialized”book simply displace copies of the existing book that would have otherwise been sold? This is of special concern given the lower price. The second consideration is competition. Will other publishers step in and produce such a product? If so, then any erosion is much less relevant. A particular concern to book publishers (and producers of a variety of other product types) is that the publisher only makes money from the sale of new books. Thus, it is important to examine whether the new book would displace sales of used books (good from the publisher’s perspective) or new books (not good). The concern arises any time there is an active market for used product.10.Definitely. The damage to Porsche’s reputation is definitely a factor the company needed to consider.If the reputation was damaged, the company would have lost sales of its existing car lines.11.One company may be able to produce at lower incremental cost or market better. Also, of course,one of the two may have made a mistake!12.Porsche would recognize that the outsized profits would dwindle as more products come to marketand competition becomes more intense.Solutions to Questions and ProblemsNOTE: All end-of-chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred. However, the final answer for each problem is found without rounding during any step in the problem.Basicing the tax shield approach to calculating OCF, we get:OCF = (Sales – Costs)(1 – t C) + t C DepreciationOCF = [($5 × 2,000 – ($2 × 2,000)](1 – 0.35) + 0.35($10,000/5)OCF = $4,600So, the NPV of the project is:NPV = –$10,000 + $4,600(PVIFA17%,5)NPV = $4,7172.We will use the bottom-up approach to calculate the operating cash flow for each year. We also mustbe sure to include the net working capital cash flows each year. So, the total cash flow each year will be:Year 1 Year 2 Year 3 Year 4 Sales Rs.7,000 Rs.7,000 Rs.7,000 Rs.7,000Costs 2,000 2,000 2,000 2,000Depreciation 2,500 2,500 2,500 2,500EBT Rs.2,500 Rs.2,500 Rs.2,500 Rs.2,500Tax 850 850 850 850Net income Rs.1,650 Rs.1,650 Rs.1,650 Rs.1,650OCF 0 Rs.4,150 Rs.4,150 Rs.4,150 Rs.4,150Capital spending –Rs.10,000 0 0 0 0NWC –200 –250 –300 –200 950Incremental cashflow –Rs.10,200 Rs.3,900 Rs.3,850 Rs.3,950 Rs.5,100The NPV for the project is:NPV = –Rs.10,200 + Rs.3,900 / 1.10 + Rs.3,850 / 1.102 + Rs.3,950 / 1.103 + Rs.5,100 / 1.104NPV = Rs.2,978.333. Using the tax shield approach to calculating OCF, we get:OCF = (Sales – Costs)(1 – t C) + t C DepreciationOCF = (R2,400,000 – 960,000)(1 – 0.30) + 0.30(R2,700,000/3)OCF = R1,278,000So, the NPV of the project is:NPV = –R2,700,000 + R1,278,000(PVIFA15%,3)NPV = R217,961.704.The cash outflow at the beginning of the project will increase because of the spending on NWC. Atthe end of the project, the company will recover the NWC, so it will be a cash inflow. The sale of the equipment will result in a cash inflow, but we also must account for the taxes which will be paid on this sale. So, the cash flows for each year of the project will be:Year Cash Flow0 – R3,000,000 = –R2.7M – 300K1 1,278,0002 1,278,0003 1,725,000 = R1,278,000 + 300,000 + 210,000 + (0 – 210,000)(.30)And the NPV of the project is:NPV = –R3,000,000 + R1,278,000(PVIFA15%,2) + (R1,725,000 / 1.153)NPV = R211,871.465. First we will calculate the annual depreciation for the equipment necessary for the project. Thedepreciation amount each year will be:Year 1 depreciation = R2.7M(0.3330) = R899,100Year 2 depreciation = R2.7M(0.4440) = R1,198,800Year 3 depreciation = R2.7M(0.1480) = R399,600So, the book value of the equipment at the end of three years, which will be the initial investment minus the accumulated depreciation, is:Book value in 3 years = R2.7M – (R899,100 + 1,198,800 + 399,600)Book value in 3 years = R202,500The asset is sold at a gain to book value, so this gain is taxable.Aftertax salvage value = R202,500 + (R202,500 – 210,000)(0.30)Aftertax salvage value = R207,750To calculate the OCF, we will use the tax shield approach, so the cash flow each year is:OCF = (Sales – Costs)(1 – t C) + t C DepreciationYear Cash Flow0 – R3,000,000 = –R2.7M – 300K1 1,277,730.00 = (R1,440,000)(.70) + 0.30(R899,100)2 1,367,640.00 = (R1,440,000)(.70) + 0.30(R1,198,800)3 1,635,630.00 = (R1,440,000)(.70) + 0.30(R399,600) + R207,750 + 300,000Remember to include the NWC cost in Year 0, and the recovery of the NWC at the end of the project.The NPV of the project with these assumptions is:NPV = – R3.0M + (R1,277,730/1.15) + (R1,367,640/1.152) + (R1,635,630/1.153)NPV = R220,655.206. First, we will calculate the annual depreciation of the new equipment. It will be:Annual depreciation charge = €925,000/5Annual depreciation charge = €185,000The aftertax salvage value of the equipment is:Aftertax salvage value = €90,000(1 – 0.35)Aftertax salvage value = €58,500Using the tax shield approach, the OCF is:OCF = €360,000(1 – 0.35) + 0.35(€185,000)OCF = €298,750Now we can find the project IRR. There is an unusual feature that is a part of this project. Accepting this project means that we will reduce NWC. This reduction in NWC is a cash inflow at Year 0. This reduction in NWC implies that when the project ends, we will have to increase NWC. So, at the end of the project, we will have a cash outflow to restore the NWC to its level before the project. We also must include the aftertax salvage value at the end of the project. The IRR of the project is:NPV = 0 = –€925,000 + 125,000 + €298,750(PVIFA IRR%,5) + [(€58,500 – 125,000) / (1+IRR)5]IRR = 23.85%7.First, we will calculate the annual depreciation of the new equipment. It will be:Annual depreciation = £390,000/5Annual depreciation = £78,000Now, we calculate the aftertax salvage value. The aftertax salvage value is the market price minus (or plus) the taxes on the sale of the equipment, so:Aftertax salvage value = MV + (BV – MV)t cVery often, the book value of the equipment is zero as it is in this case. If the book value is zero, the equation for the aftertax salvage value becomes:Aftertax salvage value = MV + (0 – MV)t cAftertax salvage value = MV(1 – t c)We will use this equation to find the aftertax salvage value since we know the book value is zero. So, the aftertax salvage value is:Aftertax salvage value = £60,000(1 – 0.34)Aftertax salvage value = £39,600Using the tax shield approach, we find the OCF for the project is:OCF = £120,000(1 – 0.34) + 0.34(£78,000)OCF = £105,720Now we can find the project NPV. Notice that we include the NWC in the initial cash outlay. The recovery of the NWC occurs in Year 5, along with the aftertax salvage value.NPV = –£390,000 – 28,000 + £105,720(PVIFA10%,5) + [(£39,600 + 28,000) / 1.15]NPV = £24,736.268.To find the BV at the end of four years, we need to find the accumulated depreciation for the firstfour years. We could calculate a table with the depreciation each year, but an easier way is to add the MACRS depreciation amounts for each of the first four years and multiply this percentage times the cost of the asset. We can then subtract this from the asset cost. Doing so, we get:BV4 = $9,300,000 – 9,300,000(0.2000 + 0.3200 + 0.1920 + 0.1150)BV4 = $1,608,900The asset is sold at a gain to book value, so this gain is taxable.Aftertax salvage value = $2,100,000 + ($1,608,900 – 2,100,000)(.40)Aftertax salvage value = $1,903,5609. We will begin by calculating the initial cash outlay, that is, the cash flow at Time 0. To undertake theproject, we will have to purchase the equipment and increase net working capital. So, the cash outlay today for the project will be:Equipment –€2,000,000NWC –100,000Total –€2,100,000Using the bottom-up approach to calculating the operating cash flow, we find the operating cash flow each year will be:Sales €1,200,000Costs 300,000Depreciation 500,000EBT €400,000Tax 140,000Net income €260,000The operating cash flow is:OCF = Net income + DepreciationOCF = €260,000 + 500,000OCF = €760,000To find the NPV of the project, we add the present value of the project cash flows. We must be sure to add back the net working capital at the end of the project life, since we are assuming the net working capital will be recovered. So, the project NPV is:NPV = –€2,100,000 + €760,000(PVIFA14%,4) + €100,000 / 1.144NPV = €173,629.3810.We will need the aftertax salvage value of the equipment to compute the EAC. Even though theequipment for each product has a different initial cost, both have the same salvage value. The aftertax salvage value for both is:Both cases: aftertax salvage value = $20,000(1 – 0.35) = $13,000To calculate the EAC, we first need the OCF and NPV of each option. The OCF and NPV for Techron I is:OCF = – $34,000(1 – 0.35) + 0.35($210,000/3) = $2,400NPV = –$210,000 + $2,400(PVIFA14%,3) + ($13,000/1.143) = –$195,653.45EAC = –$195,653.45 / (PVIFA14%,3) = –$84,274.10And the OCF and NPV for Techron II is:OCF = – $23,000(1 – 0.35) + 0.35($320,000/5) = $7,450NPV = –$320,000 + $7,450(PVIFA14%,5) + ($13,000/1.145) = –$287,671.75EAC = –$287,671.75 / (PVIFA14%,5) = –$83,794.05The two milling machines have unequal lives, so they can only be compared by expressing both on an equivalent annual basis, which is what the EAC method does. Thus, you prefer the Techron II because it has the lower (less negative) annual cost.。

罗斯公司理财英文练习题附带复习资料第九章

罗斯公司理财英文练习题附带复习资料第九章CHAPTER 9Risk Analysis, Real Options, and Capital Budgeting Multiple Choice Questions:I. DEFINITIONSSCENARIO ANALYSISb 1. An analysis of what happens to the estimate of the net present value when you examinea number of different likely situations is called _____ analysis.a. forecastingb. scenarioc. sensitivityd. simulatione. break-evenDifficulty level: EasySENSITIVITY ANALYSISc 2. An analysis of what happens to the estimate of net present value when only onevariable is changed is called _____ analysis.a. forecastingb. scenarioc. sensitivityd. simulatione. break-evenDifficulty level: EasySIMULATION ANALYSISd 3. An analysis which combines scenario analysis with sensitivity analysis is called _____analysis.a. forecastingb. scenarioc. sensitivityd. simulatione. break-evenDifficulty level: EasyBREAK-EVEN ANALYSISe 4. An analysis of the relationship between the sales volume and various measures ofprofitability is called _____ analysis.a. forecastingb. scenarioc. sensitivityd. simulatione. break-evenDifficulty level: EasyVARIABLE COSTSa 5. Variable costs:a. change in direct relationship to the quantity of output produced.b. are constant in the short-run regardless of the quantity of output produced.c. reflect the change in a variable when one more unit of output is produced.d. are subtracted from fixed costs to compute the contribution margin.e. form the basis that is used to determine the degree of operating leverage employed by afirm.Difficulty level: EasyFIXED COSTSb 6. Fixed costs:a. change as the quantity of output produced changes.b. are constant over the short-run regardless of the quantity of output produced.c. reflect the change in a variable when one more unit of output is produced.d. are subtracted from sales to compute the contribution margin.e. can be ignored in scenario analysis since they are constant over the life of a project.Difficulty level: EasyACCOUNTING BREAK-EVENc 7. The sales level that results in a project’s net income exactly equaling zero is called the_____ break-even.a. operationalb. leveragedc. accountingd. cashe. present valueDifficulty level: EasyPRESENT VALUE BREAK-EVENe 8. The sales level that results in a project’s net present value exactly equaling zero iscalled the _____ break-even.a. operationalb. leveragedc. accountingd. cashe. present valueDifficulty level: EasyII. CONCEPTSSCENARIO ANALYSISb 9. Conducting scenario analysis helps managers see the:a. impact of an individual variable on the outcome of a project.b. potential range of outcomes from a proposed project.c. changes in long-term debt over the course of a proposed project.d. possible range of market prices for their stock over the life of a project.e. allocation distribution of funds for capital projects under conditions of hard rationing.Difficulty level: EasySENSITIVITY ANALYSISb 10. Sensitivity analysis helps you determine the:a. range of possible outcomes given possible ranges for every variable.b. degree to which the net present value reacts to changes in a single variable.c. net present value given the best and the worst possible situations.d. degree to which a project is reliant upon the fixed costs.e. level of variable costs in relation to the fixed costs of a project.Difficulty level: EasySENSITIVITY ANALYSISc 11. As the degree of sensitivity of a project to a single variable rises, the:a. lower the forecasting risk of the project.b. smaller the range of possible outcomes given a pre-defined range of values for theinput.c. more attention management should place on accurately forecasting the future value ofthat variable.d. lower the maximum potential value of the project.e. lower the maximum potential loss of the project.Difficulty level: MediumSENSITIVITY ANALYSISc 12. Sensitivity analysis is conducted by:a. holding all variables at their base level and changing the required rate of returnassigned to a project.b. changing the value of two variables to determine their interdependency.c. changing the value of a single variable and computing the resulting change in thecurrent value of a project.d. assigning either the best or the worst possible value to each variable and comparing theresults to those achieved by the base case.e. managers after a project has been implemented to determine how each variable relatesto the level of output realized.Difficulty level: MediumSENSITIVITY ANALYSISd 13. To ascertain whether the accuracy of the variable cost estimate for a project will havemuch effect on the final outcome of the project, you should probably conduct _____analysis.a. leverageb. scenarioc. break-evend. sensitivitye. cash flowDifficulty level: EasySIMULATIONd 14. Simulation analysis is based on assigning a _____ and analyzing the results.a. narrow range of values to a single variableb. narrow range of values to multiple variables simultaneouslyc. wide range of values to a single variabled. wide range of values to multiple variables simultaneouslye. single value to each of the variablesDifficulty level: MediumSIMULATIONe 15. The type of analysis that is most dependent upon the use of a computer is _____analysis.a. scenariob. break-evenc. sensitivityd. degree of operating leveragee. simulationDifficulty level: EasyVARIABLE COSTSd 16. Which one of the following is most likely a variable cost?a. office rentb. property taxesc. property insuranced. direct labor costse. management salariesDifficulty level: EasyVARIABLE COSTSa 17. Which of the following statements concerning variable costs is (are) correct?I. Variable costs minus fixed costs equal marginal costs.II. Variable costs are equal to zero when production is equal to zero.III. An increase in variable costs increases the operating cash flow.a. II onlyb. III onlyc. I and III onlyd. II and III onlye. I and II onlyDifficulty level: MediumVARIABLE COSTSa 18. All else constant, as the variable cost per unit increases, the:a. contribution margin decreases.b. sensitivity to fixed costs decreases.c. degree of operating leverage decreases.d. operating cash flow increases.e. net profit increases.Difficulty level: MediumFIXED COSTSc 19. Fixed costs:I. are variable over long periods of time.II. must be paid even if production is halted.III. are generally affected by the amount of fixed assets owned by a firm.IV. per unit remain constant over a given range of production output.a. I and III onlyb. II and IV onlyc. I, II, and III onlyd. I, II, and IV onlye. I, II, III, and IVDifficulty level: MediumCONTRIBUTION MARGINc 20. The contribution margin must increase as:a. both the sales price and variable cost per unit increase.b. the fixed cost per unit declines.c. the gap between the sales price and the variable cost per unit widens.d. sales price per unit declines.e. the sales price minus the fixed cost per unit increases.Difficulty level: MediumACCOUNTING BREAK-EVENa 21. Which of the following statements are correct concerning the accounting break-evenpoint?I. The net income is equal to zero at the accounting break-even point.II. The net present value is equal to zero at the accounting break-even point.III. The quantity sold at the accounting break-even point is equal to the total fixed costs plus depreciation divided by the contribution margin.IV. The quantity sold at the accounting break-even point is equal to the total fixed costs divided by the contribution margin.a. I and III onlyb. I and IV onlyc. II and III onlyd. II and IV onlye. I, II, and IV onlyDifficulty level: MediumACCOUNTING BREAK-EVENb 22. All else constant, the accounting break-even level of sales will decrease when the:a. fixed costs increase.b. depreciation expense decreases.c. contribution margin decreases.d. variable costs per unit increase.e. selling price per unit decreases.Difficulty level: MediumPRESENT VALUE BREAK-EVENd 23. The point where a project produces a rate of return equal to the required return isknown as the:a. point of zero operating leverage.b. internal break-even point.c. accounting break-even point.d. present value break-even point.e. internal break-even point.Difficulty level: EasyPRESENT VALUE BREAK-EVENb 24. Which of the following statements are correct concerning the present value break-evenpoint of a project?I. The present value of the cash inflows equals the amount of the initial investment.II. The payback period of the project is equal to the life of the project.III. The operating cash flow is at a level that produces a net present value of zero.IV. The project never pays back on a discounted basis.a. I and II onlyb. I and III onlyc. II and IV onlyd. III and IV onlye. I, III, and IV onlyDifficulty level: MediumINVESTMENT TIMING DECISIONb 25. The investment timing decision relates to:a. how long the cash flows last once a project is implemented.b. the decision as to when a project should be started.c. how frequently the cash flows of a project occur.d. how frequently the interest on the debt incurred to finance a project is compounded.e. the decision to either finance a project over time or pay out the initial cost in cash.Difficulty level: MediumOPTION TO WAITe 26. The timing option that gives the option to wait:I. may be of minimal value if the project relates to a rapidly changing technology.II. is partially dependent upon the discount rate applied to the project being evaluated.III. is defined as the situation where operations are shut down for a period of time.IV. has a value equal to the net present value of the project if it is started today versus the net present value if it is started at some later date.a. I and III onlyb. II and IV onlyc. I and II onlyd. II, III, and IV onlye. I, II, and IV onlyDifficulty level: ChallengeOPTION TO EXPANDb 27. Last month you introduced a new product to the market. Consumer demand has beenoverwhelming and appears that strong demand will exist over the long-term. Given thissituation, management should consider the option to:a. suspend.b. expand.c. abandon.d. contract.e. withdraw.Difficulty level: EasyOPTION TO EXPANDc 28. Including the option to expand in your project analysis will tend to:a. extend the duration of a project but not affect the project’s net present value.b. increase the cash flows of a project but decrease the project’s net present value.c. increase the net present value of a project.d. decrease the net present value of a project.e. have no effect on either a project’s ca sh flows or its net present value.Difficulty level: MediumSENSITIVITY AND SENARIO ANALYSISd 29. Theoretically, the NPV is the most appropriate method to determine the acceptabilityof a project. A false sense of security can be overwhelm the decision-maker when theprocedure is applied properly and the positive NPV resultsare accepted blindly.Sensitivity and scenario analysis aid in the process bya. changing the underlying assumptions on which the decision is based.b. highlights the areas where more and better data are needed.c. providing a picture of how an event can affect the calculations.d. All of the above.e. None of the above.Difficulty level: MediumDECSION TREEa 30. In order to make a decision with a decision treea. one starts farthest out in time to make the first decision.b. one must begin at time 0.c. any path can be taken to get to the end.d. any path can be taken to get back to the beginning.e. None of the above.Difficulty level: MediumDECISION TREEc 31. In a decision tree, the NPV to make the yes/no decision is dependent ona. only the cash flows from successful path.b. on the path where the probabilities add up to one.c. all cash flows and probabilities.d. only the cash flows and probabilities of the successful path.e. None of the above.Difficulty level: MediumDECISION TREEe 32. In a decision tree, caution should be used in analysis becausea. early stage decisions are probably riskier and should not likely use the same discountrate.b. if a negative NPV is actually occurring, management should opt out of the project andminimize their loss.c. decision trees are only used for planning, not actually daily management.d. Both A and C.e. Both A and B.Difficulty level: MediumSENSITIVITY ANALYSISd 33. Sensitivity analysis evaluates the NPV with respect toa. changes in the underlying assumptions.b. one variable changing while holding the others constant.c. different economic conditions.d. All of the above.e. None of the above.Difficulty level: MediumSENSITIVITY ANALYSISd 34. Sensitivity analysis provides information ona. whether the NPV should be trusted, it may provide a false sense of security if allNPVs are positive.b. the need for additional information as it tests each variablein isolation.c. the degree of difficulty in changing multiple variables together.d. Both A and B.e. Both A and C.Difficulty level: MediumFIXED COSTSb 35. Fixed production costs area. directly related to labor costs.b. measured as cost per unit of time.c. measured as cost per unit of output.d. dependent on the amount of goods or services produced.e. None of the above.Difficulty level: MediumVARIABLE COSTSd 36. Variable costsa. change as the quantity of output changes.b. are zero when production is zero.c. are exemplified by direct labor and raw materials.d. All of the above.e. None of the above.Difficulty level: EasySENSITIVITY ANALYSISb 37. An investigation of the degree to which NPV depends on assumptions made about anysingular critical variable is called a(n)a. operating analysis.b. sensitivity analysis.c. marginal benefit analysis.d. decision tree analysis.e. None of the above.Difficulty level: EasySENSITIVITY AND SCENARIOS ANALYSISb 38. Scenario analysis is different than sensitivity analysisa. as no economic forecasts are changed.b. as several variables are changed together.c. because scenario analysis deals with actual data versus sensitivity analysis which dealswith a forecast.d. because it is short and simple.e. because it is 'by the seat of the pants' technique.Difficulty level: MediumEQUIVALENT ANNUAL COSTc 39. In the present-value break-even the EAC is used toa. determine the opportunity cost of investment.b. allocate depreciation over the life of the project.c. allocate the initial investment at its opportunity cost over the life of the project.d. determine the contribution margin to fixed costs.e. None of the above.Difficulty level: MediumBREAK-EVENb 40. The present value break-even point is superior to the accounting break-even pointbecausea. present value break-even is more complicated to calculate.b. present value break-even covers the economic opportunity costs of the investment.c. present value break-even is the same as sensitivity analysis.d. present value break-even covers the fixed costs of production, which the accountingbreak-even does not.e. present value break-even covers the variable costs of production, which the accountingbreak-even does not.Difficulty level: EasyABANDONMENTd 41. The potential decision to abandon a project has option value becausea. abandonment can occur at any future point in time.b. a project may be worth more dead than alive.c. management is not locked into a negative outcome.d. All of the above.e. None of the above.。

罗斯公司理财Chap004全英文题库及答案

Chapter 04 Discounted Cash Flow Valuation Answer KeyMultiple Choice Questions1. An annuity stream of cash flow payments is a set of:A.level cash flows occurring each time period for a fixed length of time.B. level cash flows occurring each time period forever.C. increasing cash flows occurring each time period for a fixed length of time.D. increasing cash flows occurring each time period forever.E. arbitrary cash flows occurring each time period for no more than10 years.Difficulty level: EasyTopic: ANNUITYType: DEFINITIONS2. Annuities where the payments occur at the end of each time period are called _____, whereas _____ refer to annuity streams with payments occurring at the beginning of each time period.A. ordinary annuities; early annuitiesB. late annuities; straight annuitiesC. straight annuities; late annuitiesD. annuities due; ordinary annuitiesE.ordinary annuities; annuities dueDifficulty level: EasyTopic: ANNUITIES DUEType: DEFINITIONS3. An annuity stream where the payments occur forever is called a(n):A. annuity due.B. indemnity.C.perpetuity.D. amortized cash flow stream.E. amortization table.Difficulty level: EasyTopic: PERPETUITYType: DEFINITIONS4. The interest rate expressed in terms of the interest payment made each period is called the _____ rate.A.stated annual interestB. compound annual interestC. effective annual interestD. periodic interestE. daily interestDifficulty level: EasyTopic: STATED INTEREST RATESType: DEFINITIONS5. The interest rate expressed as if it were compounded once per year is called the _____ rate.A. stated interestB. compound interestC.effective annualD. periodic interestE. daily interestDifficulty level: EasyTopic: EFFECTIVE ANNUAL RATEType: DEFINITIONS6. The interest rate charged per period multiplied by the number of periods per year is called the _____ rate.A. effective annualB.annual percentageC. periodic interestD. compound interestE. daily interestDifficulty level: EasyTopic: ANNUAL PERCENTAGE RATEType: DEFINITIONS7. Paying off long-term debt by making installment payments is called:A. foreclosing on the debt.B.amortizing the debt.C. funding the debt.D. calling the debt.E. None of the above.Difficulty level: EasyTopic: AMORTIZATIONType: DEFINITIONS8. You are comparing two annuities which offer monthly payments for ten years. Both annuities are identical with the exception of the payment dates. Annuity A pays on the first of each month while annuity B pays on the last day of each month. Which one of the following statements is correct concerning these two annuities?A. Both annuities are of equal value today.B. Annuity B is an annuity due.C.Annuity A has a higher future value than annuity B.D. Annuity B has a higher present value than annuity A.E. Both annuities have the same future value as of ten years from today.Difficulty level: MediumTopic: ORDINARY ANNUITY VERSUS ANNUITY DUEType: CONCEPTS9. You are comparing two investment options. The cost to invest in either option is the same today. Both options will provide you with $20,000 of income. Option A pays five annual payments starting with $8,000 the first year followed by four annual payments of $3,000 each. Option B pays five annual payments of $4,000 each. Which one of the following statements is correct given these two investment options?A. Both options are of equal value given that they both provide $20,000 of income.B.Option A is the better choice of the two given any positive rate of return.C. Option B has a higher present value than option A given a positive rate of return.D. Option B has a lower future value at year 5 than option A given a zero rate of return.E. Option A is preferable because it is an annuity due.Difficulty level: MediumTopic: UNEVEN CASH FLOWS AND PRESENT VALUEType: CONCEPTS10. You are considering two projects with the following cash flows:Which of the following statements are true concerning these two projects?I. Both projects have the same future value at the end of year 4, given a positive rate of return.II. Both projects have the same future value given a zero rate of return.III. Both projects have the same future value at any point in time, given a positive rate of return.IV. Project A has a higher future value than project B, given a positive rate of return.A.II onlyB. IV onlyC. I and III onlyD. II and IV onlyE. I, II, and III onlyDifficulty level: MediumTopic: UNEVEN CASH FLOWS AND FUTURE VALUEType: CONCEPTS11. A perpetuity differs from an annuity because:A. perpetuity payments vary with the rate of inflation.B. perpetuity payments vary with the market rate of interest.C. perpetuity payments are variable while annuity payments are constant.D.perpetuity payments never cease.E. annuity payments never cease.Difficulty level: EasyTopic: PERPETUITY VERSUS ANNUITYType: CONCEPTS12. Which one of the following statements concerning the annual percentage rate is correct?A. The annual percentage rate considers interest on interest.B. The rate of interest you actually pay on a loan is called the annual percentage rate.C. The effective annual rate is lower than the annual percentage rate when an interest rate is compounded quarterly.D. When firms advertise the annual percentage rate they are violating U.S. truth-in-lending laws.E.The annual percentage rate equals the effective annual rate when the rate on an account is designated as simple interest.Difficulty level: MediumTopic: ANNUAL PERCENTAGE RATEType: CONCEPTS13. Which one of the following statements concerning interest rates is correct?A. The stated rate is the same as the effective annual rate.B.An effective annual rate is the rate that applies if interest were charged annually.C. The annual percentage rate increases as the number of compounding periods per year increases.D. Banks prefer more frequent compounding on their savings accounts.E. For any positive rate of interest, the effective annual rate will always exceed the annual percentage rate.Difficulty level: MediumTopic: INTEREST RATESType: CONCEPTS14. Which of the following statements concerning the effective annual rate are correct?I. When making financial decisions, you should compare effective annual rates rather than annual percentage rates.II. The more frequently interest is compounded, the higher the effective annual rate.III. A quoted rate of 6% compounded continuously has a higher effective annual rate than if the rate were compounded daily. IV. When borrowing and choosing which loan to accept, you should select the offer with the highest effective annual rate.A. I and II onlyB. I and IV onlyC.I, II, and III onlyD. II, III, and IV onlyE. I, II, III, and IVDifficulty level: MediumTopic: EFFECTIVE ANNUAL RATEType: CONCEPTS15. The highest effective annual rate that can be derived from an annual percentage rate of 9% is computed as:A. .09e - 1.B. e.09 q.C. e (1 + .09).D. e.09 - 1.E. (1 + .09)q.Difficulty level: MediumTopic: CONTINUOUS COMPOUNDINGType: CONCEPTS16. The time value of money concept can be defined as:A. the relationship between the supply and demand of money.B. the relationship between money spent versus money received.C.the relationship between a dollar to be received in the future and a dollar today.D. the relationship between interest rate stated and amount paid.E. None of the above.Difficulty level: EasyTopic: TIME VALUEType: CONCEPTS17. Discounting cash flows involves:A. discounting only those cash flows that occur at least 10 years in the future.B. estimating only the cash flows that occur in the first 4 years of a project.C. multiplying expected future cash flows by the cost of capital.D.discounting all expected future cash flows to reflect the time value of money.E. taking the cash discount offered on trade merchandise. Difficulty level: EasyTopic: CASH FLOWSType: CONCEPTS18. Compound interest:A.allows for the reinvestment of interest payments.B. does not allow for the reinvestment of interest payments.C. is the same as simple interest.D. provides a value that is less than simple interest.E. Both A and D.Difficulty level: EasyTopic: INTERESTType: CONCEPTS19. An annuity:A. is a debt instrument that pays no interest.B. is a stream of payments that varies with current market interest rates.C.is a level stream of equal payments through time.D. has no value.E. None of the above.Difficulty level: EasyTopic: ANNUITYType: CONCEPTS20. The stated rate of interest is 10%. Which form of compounding will give the highest effective rate of interest?A. annual compoundingB. monthly compoundingC. daily compoundingD.continuous compoundingE. It is impossible to tell without knowing the term of the loan. Difficulty level: EasyTopic: COMPOUNDINGType: CONCEPTS21. The present value of future cash flows minus initial cost is called:A. the future value of the project.B.the net present value of the project.C. the equivalent sum of the investment.D. the initial investment risk equivalent value.E. None of the above.Difficulty level: EasyTopic: PRESENT VALUEType: CONCEPTS22. Find the present value of $5,325 to be received in one period if the rate is 6.5%.A.$5,000.00B. $5,023.58C. $5,644.50D. $5,671.13E. None of the above.Difficulty level: EasyTopic: PRESENT VALUE - SINGLE SUMType: PROBLEMS23. If you have a choice to earn simple interest on $10,000 for three years at 8% or annually compounded interest at 7.5% for three years which one will pay more and by how much?A. Simple interest by $50.00pound interest by $22.97C. Compound interest by $150.75D. Compound interest by $150.00E. None of the above.Simple Interest = $10,000 (.08)(3) = $2,400;Compound Interest = $10,000((1.075)3 - 1) = $2,422.97;Difference = $2,422.97 - $2,400 = $22.97Difficulty level: EasyTopic: SIMPLE & COMPOUND INTERESTType: PROBLEMS24. Bradley Snapp has deposited $7,000 in a guaranteed investment account with a promised rate of 6% compounded annually. He plans to leave it there for 4 full years when he will make a down payment on a car after graduation. How much of a down payment will he be able to make?A. $1,960.00B. $2,175.57C. $8,960.00D.$8,837.34E. $9,175.57$7,000 (1.06)4 = $8,837.34Difficulty level: EasyTopic: FUTURE VALUE - SINGLE SUMType: PROBLEMS25. Your parents are giving you $100 a month for four years while you are in college. At a 6% discount rate, what are these payments worth to you when you first start college?A. $3,797.40B. $4,167.09C. $4,198.79D.$4,258.03E. $4,279.32Difficulty level: EasyTopic: ORDINARY ANNUITY AND PRESENT VALUEType: PROBLEMS26. You just won the lottery! As your prize you will receive $1,200a month for 100 months. If you can earn 8% on your money, what is this prize worth to you today?A. $87,003.69B.$87,380.23C. $87,962.77D. $88,104.26E. $90,723.76Difficulty level: EasyTopic: ORDINARY ANNUITY AND PRESENT VALUEType: PROBLEMS27. Todd is able to pay $160 a month for five years for a car. If the interest rate is 4.9%, how much can Todd afford to borrow to buy a car?A. $6,961.36B.$8,499.13C. $8,533.84D. $8,686.82E. $9,588.05Difficulty level: EasyTopic: ORDINARY ANNUITY AND PRESENT VALUEType: PROBLEMS28. You are the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving the insurance proceeds. You can receive a lump sum of $50,000 today or receive payments of $641 a month for ten years. You can earn 6.5% on your money. Which option should you take and why?A.You should accept the payments because they are worth $56,451.91 today.B. You should accept the payments because they are worth $56,523.74 today.C. You should accept the payments because they are worth $56,737.08 today.D. You should accept the $50,000 because the payments are only worth $47,757.69 today.E. You should accept the $50,000 because the payments are only worth $47,808.17 today.Difficulty level: MediumTopic: ORDINARY ANNUITY AND PRESENT VALUEType: PROBLEMS29. Your employer contributes $25 a week to your retirement plan. Assume that you work for your employer for another twenty years and that the applicable discount rate is 5%. Given these assumptions, what is this employee benefit worth to you today?A. $13,144.43B. $15,920.55C.$16,430.54D. $16,446.34E. $16,519.02Difficulty level: MediumTopic: ORDINARY ANNUITY AND PRESENT VALUEType: PROBLEMS30. You have a sub-contracting job with a local manufacturing firm. Your agreement calls for annual payments of $50,000 for the next five years. At a discount rate of 12%, what is this job worth to you today?A.$180,238.81B. $201,867.47C. $210,618.19D. $223,162.58E. $224,267.10Difficulty level: MediumTopic: ORDINARY ANNUITY AND PRESENT VALUEType: PROBLEMS31. The Ajax Co. just decided to save $1,500 a month for the next five years as a safety net for recessionary periods. The money will be set aside in a separate savings account which pays 3.25% interest compounded monthly. It deposits the first $1,500 today. If the company had wanted to deposit an equivalent lump sum today, how much would it have had to deposit?A. $82,964.59B.$83,189.29C. $83,428.87D. $83,687.23E. $84,998.01Difficulty level: MediumTopic: ANNUITY DUE AND PRESENT VALUEType: PROBLEMS32. You need some money today and the only friend you have that has any is your ‘miserly' friend. He agrees to loan you the money you need, if you make payments of $20 a month for the next six months. In keeping with his reputation, he requires that the first payment be paid today. He also charges you 1.5% interest per month. How much money are you borrowing?A. $113.94B.$115.65C. $119.34D. $119.63E. $119.96Difficulty level: MediumTopic: ANNUITY DUE AND PRESENT VALUEType: PROBLEMS33. You buy an annuity which will pay you $12,000 a year for ten years. The payments are paid on the first day of each year. What is the value of this annuity today at a 7% discount rate?A. $84,282.98B. $87,138.04C.$90,182.79D. $96,191.91E. $116,916.21Difficulty level: MediumTopic: ANNUITY DUE AND PRESENT VALUEType: PROBLEMS34. You are scheduled to receive annual payments of $10,000 for each of the next 25 years. Your discount rate is 8.5%. What is the difference in the present value if you receive these payments at the beginning of each year rather than at the end of each year?A.$8,699B. $9,217C. $9,706D. $10,000E. $10,850Difference = $111,040.97 - $102,341.91 = $8,699.06 = $8,699 (rounded) Note: The difference = .085 $102,341.91 = $8,699.06Difficulty level: MediumTopic: ORDINARY ANNUITY VERSUS ANNUITY DUEType: PROBLEMS35. You are comparing two annuities with equal present values. The applicable discount rate is 7.5%. One annuity pays $5,000 on the first day of each year for twenty years. How much does the second annuity pay each year for twenty years if it pays at the end of each year?A. $4,651B. $5,075C. $5,000D.$5,375E. $5,405Because each payment is received one year later, then the cash flow has to equal: $5,000 (1 + .075) = $5,375Difficulty level: MediumTopic: ORDINARY ANNUITY VERSUS ANNUITY DUEType: PROBLEMS36. Martha receives $100 on the first of each month. Stewart receives $100 on the last day of each month. Both Martha and Stewart will receive payments for five years. At an 8% discount rate, what is the difference in the present value of these two sets of payments?A.$32.88B. $40.00C. $99.01D. $108.00E. $112.50Difference = $4,964.72 - $4,931.84 = $32.88Difficulty level: MediumTopic: ORDINARY ANNUITY VERSUS ANNUITY DUE Type: PROBLEMS37. What is the future value of $1,000 a year for five years at a 6% rate of interest?A. $4,212.36B. $5,075.69C.$5,637.09D. $6,001.38E. $6,801.91Difficulty level: EasyTopic: ORDINARY ANNUITY AND FUTURE VALUEType: PROBLEMS38. What is the future value of $2,400 a year for three years at an 8% rate of interest?A. $6,185.03B. $6,847.26C. $7,134.16D.$7,791.36E. $8,414.67Difficulty level: EasyTopic: ORDINARY ANNUITY AND FUTURE VALUEType: PROBLEMS39. Janet plans on saving $3,000 a year and expects to earn 8.5%. How much will Janet have at the end of twenty-five years if she earns what she expects?A. $219,317.82B. $230,702.57C.$236,003.38D. $244,868.92E. $256,063.66Difficulty level: EasyTopic: ORDINARY ANNUITY AND FUTURE VALUEType: PROBLEMS40. Toni adds $3,000 to her savings on the first day of each year. Tim adds $3,000 to his savings on the last day of each year. They both earn a 9% rate of return. What is the difference in their savings account balances at the end of thirty years?A. $35,822.73B.$36,803.03C. $38,911.21D. $39,803.04E. $40,115.31Difference = $445,725.65 - $408,922.62 = $36,803.03Note: Difference = $408,922.62 .09 = $36,803.03Difficulty level: MediumTopic: ANNUITY DUE VERSUS ORDINARY ANNUITYType: PROBLEMS41. You borrow $5,600 to buy a car. The terms of the loan call for monthly payments for four years at a 5.9% rate of interest. What is the amount of each payment?A. $103.22B. $103.73C. $130.62D.$131.26E. $133.04Difficulty level: EasyTopic: ORDINARY ANNUITY PAYMENTSType: PROBLEMS42. You borrow $149,000 to buy a house. The mortgage rate is 7.5% and the loan period is 30 years. Payments are made monthly. If you pay for the house according to the loan agreement, how much total interest will you pay?A. $138,086B. $218,161C.$226,059D. $287,086E. $375,059Total interest = ($1,041.83 30 12) - $149,000 = $226,058.80 = $226,059 (rounded)Difficulty level: MediumTopic: ORDINARY ANNUITY PAYMENTS AND COST OF INTERESTType: PROBLEMS43. The Great Giant Corp. has a management contract with its newly hired president. The contract requires a lump sum payment of $25 million be paid to the president upon the completion of her first ten years of service. The company wants to set aside an equal amount of funds each year to cover this anticipated cash outflow. The company can earn 6.5% on these funds. How much must the company set aside each year for this purpose?A. $1,775,042.93B. $1,798,346.17C. $1,801,033.67D.$1,852,617.25E. $1,938,018.22Difficulty level: EasyTopic: ORDINARY ANNUITY PAYMENTS AND FUTURE VALUEType: PROBLEMS44. You retire at age 60 and expect to live another 27 years. On the day you retire, you have $464,900 in your retirement savings account. You are conservative and expect to earn 4.5% on your money during your retirement. How much can you withdraw from your retirement savings each month if you plan to die on the day you spend your last penny?A. $2,001.96B. $2,092.05C. $2,398.17D. $2,472.00E.$2,481.27Difficulty level: MediumTopic: ORDINARY ANNUITY PAYMENTS AND PRESENT VALUEType: PROBLEMS45. The McDonald Group purchased a piece of property for $1.2 million. It paid a down payment of 20% in cash and financed the balance. The loan terms require monthly payments for 15 years at an annual percentage rate of 7.75% compounded monthly. What is the amount of each mortgage payment?A. $7,440.01B. $8,978.26C.$9,036.25D. $9,399.18E. $9,413.67Amount financed = $1,200,000 (1 - .2) = $960,000Difficulty level: MediumTopic: ORDINARY ANNUITY PAYMENTS AND PRESENT VALUEType: PROBLEMS46. You estimate that you will have $24,500 in student loans by the time you graduate. The interest rate is 6.5%. If you want to have this debt paid in full within five years, how much must you pay each month?A. $471.30B. $473.65C. $476.79D.$479.37E. $480.40Difficulty level: MediumTopic: ORDINARY ANNUITY PAYMENTS AND PRESENT VALUEType: PROBLEMS47. You are buying a previously owned car today at a price of $6,890. You are paying $500 down in cash and financing the balance for 36 months at 7.9%. What is the amount of each loan payment?A. $198.64B.$199.94C. $202.02D. $214.78E. $215.09Amount financed = $6,890 - $500 = $6,390Difficulty level: MediumTopic: ORDINARY ANNUITY PAYMENTS AND PRESENT VALUEType: PROBLEMS48. The Good Life Insurance Co. wants to sell you an annuity which will pay you $500 per quarter for 25 years. You want to earn a minimum rate of return of 5.5%. What is the most you are willing to pay as a lump sum today to buy this annuity?A. $26,988.16B.$27,082.94C. $27,455.33D. $28,450.67E. $28,806.30Difficulty level: MediumTopic: ORDINARY ANNUITY PAYMENTS AND PRESENT VALUEType: PROBLEMS49. Your car dealer is willing to lease you a new car for $299 a month for 60 months. Payments are due on the first day of each month starting with the day you sign the lease contract. If your cost of money is 4.9%, what is the current value of the lease?A. $15,882.75B. $15,906.14C.$15,947.61D. $16,235.42E. $16,289.54Difficulty level: MediumTopic: ANNUITY DUE PAYMENTS AND PRESENT VALUEType: PROBLEMS50. Your great-aunt left you an inheritance in the form of a trust. The trust agreement states that you are to receive $2,500 on the first day of each year, starting immediately and continuing for fifty years. What is the value of this inheritance today if the applicable discount rate is 6.35%?A. $36,811.30B. $37,557.52C. $39,204.04D.$39,942.42E. $40,006.09Difficulty level: MediumTopic: ANNUITY DUE PAYMENTS AND PRESENT VALUEType: PROBLEMS51. Beatrice invests $1,000 in an account that pays 4% simple interest. How much more could she have earned over a five-year period if the interest had compounded annually?A. $15.45B. $15.97C.$16.65D. $17.09E. $21.67Ending value at 4% simple interest = $1,000 + ($1,000 .04 5) = $1,200.00; Ending value at 4% compounded annually = $1,000 (1 +.04)5 = $1,216.65;Difference = $1,216.65 - $1,200.00 = $16.65Difficulty level: EasyTopic: SIMPLE VERSUS COMPOUND INTERESTType: PROBLEMS52. Your firm wants to save $250,000 to buy some new equipment three years from now. The plan is to set aside an equal amount of money on the first day of each year starting today. The firm can earn a 4.7% rate of return. How much does the firm have to save each year to achieve its goal?A.$75,966.14B. $76,896.16C. $78,004.67D. $81.414.14E. $83,333.33Difficulty level: MediumTopic: ANNUITY DUE PAYMENTS AND FUTURE VALUEType: PROBLEMS53. Today is January 1. Starting today, Sam is going to contribute $140 on the first of each month to his retirement account. His employer contributes an additional 50% of the amount contributed by Sam. If both Sam and his employer continue to do this and Sam can earn a monthly rate of ½ of 1 percent, how much will he have in h is retirement account 35 years from now?A. $199,45.944B. $200,456.74C. $249,981.21D. $299,189.16E.$300,685.11Difficulty level: MediumTopic: ANNUITY DUE PAYMENTS AND FUTURE VALUEType: PROBLEMS54. You are considering an annuity which costs $100,000 today. The annuity pays $6,000 a year. The rate of return is 4.5%. What is the length of the annuity time period?A. 24.96 yearsB. 29.48 yearsC.31.49 yearsD. 33.08 yearsE. 38.00 yearsDifficulty level: MediumTopic: ORDINARY ANNUITY TIME PERIODS AND PRESENT VALUEType: PROBLEMS55. Today, you signed loan papers agreeing to borrow $4,954.85 at 9% compounded monthly. The loan payment is $143.84 a month. How many loan payments must you make before the loan is paid in full?A. 29.89B. 36.00C. 38.88D.40.00E. 41.03Difficulty level: MediumTopic: ORDINARY ANNUITY TIME PERIODS AND PRESENT VALUEType: PROBLEMS。

罗斯-公司理财-英文练习题-附带答案-第九章

罗斯-公司理财-英文练习题-附带答案-第九章CHAPTER 9Risk Analysis, Real Options, and Capital Budgeting Multiple Choice Questions:I. DEFINITIONSSCENARIO ANALYSISb 1. An analysis of what happens to the estimate of the net present value when you examinea number of different likely situations is called _____ analysis.a. forecastingb. scenarioc. sensitivityd. simulatione. break-evenDifficulty level: EasySENSITIVITY ANALYSISc 2. An analysis of what happens to the estimate of net present value when only onevariable is changed is called _____ analysis.a. forecastingb. scenarioc. sensitivityd. simulatione. break-evenDifficulty level: EasySIMULATION ANALYSISd 3. An analysis which combines scenario analysis with sensitivity analysis is called _____analysis.a. forecastingb. scenarioc. sensitivityd. simulatione. break-evenDifficulty level: EasyBREAK-EVEN ANALYSISe 4. An analysis of the relationship between the sales volume and various measures ofprofitability is called _____ analysis.a. forecastingb. scenarioc. sensitivityd. simulatione. break-evenDifficulty level: EasyVARIABLE COSTSa 5. Variable costs:a. change in direct relationship to the quantity of output produced.b. are constant in the short-run regardless of the quantity of output produced.c. reflect the change in a variable when one more unit of output is produced.d. are subtracted from fixed costs to compute the contribution margin.e. form the basis that is used to determine the degree of operating leverage employed by afirm.Difficulty level: EasyFIXED COSTSb 6. Fixed costs:a. change as the quantity of output produced changes.b. are constant over the short-run regardless of the quantity of output produced.c. reflect the change in a variable when one more unit of output is produced.d. are subtracted from sales to compute the contribution margin.e. can be ignored in scenario analysis since they are constant over the life of a project.Difficulty level: EasyACCOUNTING BREAK-EVENc 7. The sales level that results in a project’s net income exactly equaling zero is called the_____ break-even.a. operationalb. leveragedc. accountingd. cashe. present valueDifficulty level: EasyPRESENT VALUE BREAK-EVENe 8. The sales level that results in a project’s net present value exactly equaling zero iscalled the _____ break-even.a. operationalb. leveragedc. accountingd. cashe. present valueDifficulty level: EasyII. CONCEPTSSCENARIO ANALYSISb 9. Conducting scenario analysis helps managers see the:a. impact of an individual variable on the outcome of a project.b. potential range of outcomes from a proposed project.c. changes in long-term debt over the course of a proposed project.d. possible range of market prices for their stock over the life of a project.e. allocation distribution of funds for capital projects under conditions of hard rationing.Difficulty level: EasySENSITIVITY ANALYSISb 10. Sensitivity analysis helps you determine the:a. range of possible outcomes given possible ranges for every variable.b. degree to which the net present value reacts to changes in a single variable.c. net present value given the best and the worst possible situations.d. degree to which a project is reliant upon the fixed costs.e. level of variable costs in relation to the fixed costs of a project.Difficulty level: EasySENSITIVITY ANALYSISc 11. As the degree of sensitivity of a project to a single variable rises, the:a. lower the forecasting risk of the project.b. smaller the range of possible outcomes given a pre-defined range of values for theinput.c. more attention management should place on accurately forecasting the future value ofthat variable.d. lower the maximum potential value of the project.e. lower the maximum potential loss of the project.Difficulty level: MediumSENSITIVITY ANALYSISc 12. Sensitivity analysis is conducted by:a. holding all variables at their base level and changing the required rate of returnassigned to a project.b. changing the value of two variables to determine their interdependency.c. changing the value of a single variable and computing the resulting change in thecurrent value of a project.d. assigning either the best or the worst possible value to each variable and comparing theresults to those achieved by the base case.e. managers after a project has been implemented to determine how each variable relatesto the level of output realized.Difficulty level: MediumSENSITIVITY ANALYSISd 13. To ascertain whether the accuracy of the variable cost estimate for a project will havemuch effect on the final outcome of the project, you should probably conduct _____analysis.a. leverageb. scenarioc. break-evend. sensitivitye. cash flowDifficulty level: EasySIMULATIONd 14. Simulation analysis is based on assigning a _____ and analyzing the results.a. narrow range of values to a single variableb. narrow range of values to multiple variables simultaneouslyc. wide range of values to a single variabled. wide range of values to multiple variables simultaneouslye. single value to each of the variablesDifficulty level: MediumSIMULATIONe 15. The type of analysis that is most dependent upon the use of a computer is _____analysis.a. scenariob. break-evenc. sensitivityd. degree of operating leveragee. simulationDifficulty level: EasyVARIABLE COSTSd 16. Which one of the following is most likely a variable cost?a. office rentb. property taxesc. property insuranced. direct labor costse. management salariesDifficulty level: EasyVARIABLE COSTSa 17. Which of the following statements concerning variable costs is (are) correct?I. Variable costs minus fixed costs equal marginal costs.II. Variable costs are equal to zero when production is equal to zero.III. An increase in variable costs increases the operating cash flow.a. II onlyb. III onlyc. I and III onlyd. II and III onlye. I and II onlyDifficulty level: MediumVARIABLE COSTSa 18. All else constant, as the variable cost per unit increases, the:a. contribution margin decreases.b. sensitivity to fixed costs decreases.c. degree of operating leverage decreases.d. operating cash flow increases.e. net profit increases.Difficulty level: MediumFIXED COSTSc 19. Fixed costs:I. are variable over long periods of time.II. must be paid even if production is halted.III. are generally affected by the amount of fixed assets owned by a firm.IV. per unit remain constant over a given range of production output.a. I and III onlyb. II and IV onlyc. I, II, and III onlyd. I, II, and IV onlye. I, II, III, and IVDifficulty level: MediumCONTRIBUTION MARGINc 20. The contribution margin must increase as:a. both the sales price and variable cost per unit increase.b. the fixed cost per unit declines.c. the gap between the sales price and the variable cost per unit widens.d. sales price per unit declines.e. the sales price minus the fixed cost per unit increases.Difficulty level: MediumACCOUNTING BREAK-EVENa 21. Which of the following statements are correct concerning the accounting break-evenpoint?I. The net income is equal to zero at the accounting break-even point.II. The net present value is equal to zero at the accounting break-even point.III. The quantity sold at the accounting break-even point is equal to the total fixed costs plus depreciation divided by the contribution margin.IV. The quantity sold at the accounting break-even point is equal to the total fixed costs divided by the contribution margin.a. I and III onlyb. I and IV onlyc. II and III onlyd. II and IV onlye. I, II, and IV onlyDifficulty level: MediumACCOUNTING BREAK-EVENb 22. All else constant, the accounting break-even level of sales will decrease when the:a. fixed costs increase.b. depreciation expense decreases.c. contribution margin decreases.d. variable costs per unit increase.e. selling price per unit decreases.Difficulty level: MediumPRESENT VALUE BREAK-EVENd 23. The point where a project produces a rate of return equal to the required return isknown as the:a. point of zero operating leverage.b. internal break-even point.c. accounting break-even point.d. present value break-even point.e. internal break-even point.Difficulty level: EasyPRESENT VALUE BREAK-EVENb 24. Which of the following statements are correct concerning the present value break-evenpoint of a project?I. The present value of the cash inflows equals the amount of the initial investment.II. The payback period of the project is equal to the life of the project.III. The operating cash flow is at a level that produces a net present value of zero.IV. The project never pays back on a discounted basis.a. I and II onlyb. I and III onlyc. II and IV onlyd. III and IV onlye. I, III, and IV onlyDifficulty level: MediumINVESTMENT TIMING DECISIONb 25. The investment timing decision relates to:a. how long the cash flows last once a project is implemented.b. the decision as to when a project should be started.c. how frequently the cash flows of a project occur.d. how frequently the interest on the debt incurred to finance a project is compounded.e. the decision to either finance a project over time or pay out the initial cost in cash.Difficulty level: MediumOPTION TO WAITe 26. The timing option that gives the option to wait:I. may be of minimal value if the project relates to a rapidly changing technology.II. is partially dependent upon the discount rate applied to the project being evaluated.III. is defined as the situation where operations are shut down for a period of time.IV. has a value equal to the net present value of the project if it is started today versus the net present value if it is started at some later date.a. I and III onlyb. II and IV onlyc. I and II onlyd. II, III, and IV onlye. I, II, and IV onlyDifficulty level: ChallengeOPTION TO EXPANDb 27. Last month you introduced a new product to the market. Consumer demand has beenoverwhelming and appears that strong demand will exist over the long-term. Given thissituation, management should consider the option to:a. suspend.b. expand.c. abandon.d. contract.e. withdraw.Difficulty level: EasyOPTION TO EXPANDc 28. Including the option to expand in your project analysis will tend to:a. extend the duration of a project but not affect the project’s net present value.b. incre ase the cash flows of a project but decrease the project’s net present value.c. increase the net present value of a project.d. decrease the net present value of a project.e. have no effect on either a project’s c ash flows or its net present value.Difficulty level: MediumSENSITIVITY AND SENARIO ANALYSISd 29. Theoretically, the NPV is the most appropriate method to determine the acceptabilityof a project. A false sense of security can be overwhelm the decision-maker when theprocedure is applied properly and the positive NPV resultsare accepted blindly.Sensitivity and scenario analysis aid in the process bya. changing the underlying assumptions on which the decision is based.b. highlights the areas where more and better data are needed.c. providing a picture of how an event can affect the calculations.d. All of the above.e. None of the above.Difficulty level: MediumDECSION TREEa 30. In order to make a decision with a decision treea. one starts farthest out in time to make the first decision.b. one must begin at time 0.c. any path can be taken to get to the end.d. any path can be taken to get back to the beginning.e. None of the above.Difficulty level: MediumDECISION TREEc 31. In a decision tree, the NPV to make the yes/no decision is dependent ona. only the cash flows from successful path.b. on the path where the probabilities add up to one.c. all cash flows and probabilities.d. only the cash flows and probabilities of the successful path.e. None of the above.Difficulty level: MediumDECISION TREEe 32. In a decision tree, caution should be used in analysis becausea. early stage decisions are probably riskier and should not likely use the same discountrate.b. if a negative NPV is actually occurring, management should opt out of the project andminimize their loss.c. decision trees are only used for planning, not actually daily management.d. Both A and C.e. Both A and B.Difficulty level: MediumSENSITIVITY ANALYSISd 33. Sensitivity analysis evaluates the NPV with respect toa. changes in the underlying assumptions.b. one variable changing while holding the others constant.c. different economic conditions.d. All of the above.e. None of the above.Difficulty level: MediumSENSITIVITY ANALYSISd 34. Sensitivity analysis provides information ona. whether the NPV should be trusted, it may provide a false sense of security if allNPVs are positive.b. the need for additional information as it tests each variablein isolation.c. the degree of difficulty in changing multiple variables together.d. Both A and B.e. Both A and C.Difficulty level: MediumFIXED COSTSb 35. Fixed production costs area. directly related to labor costs.b. measured as cost per unit of time.c. measured as cost per unit of output.d. dependent on the amount of goods or services produced.e. None of the above.Difficulty level: MediumVARIABLE COSTSd 36. Variable costsa. change as the quantity of output changes.b. are zero when production is zero.c. are exemplified by direct labor and raw materials.d. All of the above.e. None of the above.Difficulty level: EasySENSITIVITY ANALYSISb 37. An investigation of the degree to which NPV depends on assumptions made about anysingular critical variable is called a(n)a. operating analysis.b. sensitivity analysis.c. marginal benefit analysis.d. decision tree analysis.e. None of the above.Difficulty level: EasySENSITIVITY AND SCENARIOS ANALYSISb 38. Scenario analysis is different than sensitivity analysisa. as no economic forecasts are changed.b. as several variables are changed together.c. because scenario analysis deals with actual data versus sensitivity analysis which dealswith a forecast.d. because it is short and simple.e. because it is 'by the seat of the pants' technique.Difficulty level: MediumEQUIVALENT ANNUAL COSTc 39. In the present-value break-even the EAC is used toa. determine the opportunity cost of investment.b. allocate depreciation over the life of the project.c. allocate the initial investment at its opportunity cost over the life of the project.d. determine the contribution margin to fixed costs.e. None of the above.Difficulty level: MediumBREAK-EVENb 40. The present value break-even point is superior to the accounting break-even pointbecausea. present value break-even is more complicated to calculate.b. present value break-even covers the economic opportunity costs of the investment.c. present value break-even is the same as sensitivity analysis.d. present value break-even covers the fixed costs of production, which the accountingbreak-even does not.e. present value break-even covers the variable costs of production, which the accountingbreak-even does not.Difficulty level: EasyABANDONMENTd 41. The potential decision to abandon a project has option value becausea. abandonment can occur at any future point in time.b. a project may be worth more dead than alive.c. management is not locked into a negative outcome.d. All of the above.e. None of the above.Difficulty level: EasyTYPES OF BREAK-EVEN ANALYSISd 42. Which of the following are types of break-even analysis?a. present value break-evenb. accounting profit break-evenc. market value break-evend. Both A and B.e. Both A and C.Difficulty level: EasyMONTE CARLO SIMULATIONc 43. The approach that further attempts to model real word uncertainty by analyzingprojects the way one might analyze gambling strategies is calleda. gamblers approach.b. blackjack approach.c. Monte Carlo simulation.d. scenario analysis.e. sensitivity analysis.Difficulty level: MediumMONTE CARLO SIMULATIONc 44. Monte Carlo simulation isa. the most widely used by executives.b. a very simple formula.c. provides a more complete analysis that sensitivity or scenario.d. the oldest capital budgeting technique.e. None of the above.Difficulty level: EasyOPTIONS IN CAPITAL BUDGETINGd 45. Which of the following are hidden options in capital budgeting?a. option to expand.b. timing option.c. option to abandon.d. All of the above.e. None of the above.Difficulty level: EasyIII. PROBLEMSUse this information to answer questions 46 through 50.The Adept Co. is analyzing a proposed project. The company expects to sell 2,500units, give or take 10 percent. The expected variable cost per unit is $8 and the expected fixed costs are $12,500. Cost estimates are considered accurate within a plus or minus 5 percent range. The depreciation expense is $4,000. The sale price is estimated at $16 aunit, give or take 2 percent. The company bases their sensitivity analysis on the expected case scenario.SCENARIO ANALYSISd 46. What is the sales revenue under the optimistic case scenario?a. $40,000b. $43,120c. $44,000d. $44,880e. $48,400Difficulty level: MediumSCENARIO ANALYSISd 47. What is the contribution margin under the expected case scenario?a. $2.67b. $3.00c. $7.92d. $8.00e. $8.72Difficulty level: MediumSCENARIO ANALYSISc 48. What is the amount of the fixed cost per unit under the pessimistic case scenario?a. $4.55b. $5.00c. $5.83d. $6.02e. $6.55Difficulty level: MediumSENSITIVITY ANALYSISb 49. The company is conducting a sensitivity analysis on the sales price using a salesprice estimate of $17. Using this value, the earnings before interest and taxes will be:a. $4,000b. $6,000c. $8,500d. $10,000e. $18,500Difficulty level: MediumSENSITIVITY ANALYSISb 50. The company conducts a sensitivity analysis using a variable cost of $9. The totalvariable cost estimate will be:a. $21,375b. $22,500c. $23,625d. $24,125e. $24,750Difficulty level: MediumUse this information to answer questions 51 through 55.The Can-Do Co. is analyzing a proposed project. The company expects to sell 12,000units, give or take 4 percent. The expected variable cost per unit is $7 and the expectedfixed cost is $36,000. The fixed and variable cost estimates are considered accuratewithin a plus or minus 6 percent range. The depreciation expense is $30,000. The tax rate is 34 percent. The sale price is estimated at $14 a unit, give or take 5 percent. Thecompany bases their sensitivity analysis on the expected case scenario.SCENARIO ANALYSISa 51. What is the earnings before interest and taxes under the expected case scenario?a. $18,000b. $24,000c. $36,000d. $48,000e. $54,000Difficulty level: MediumSCENARIO ANALYSISc 52. What is the earnings before interest and taxes under anoptimistic case scenario?a. $22,694.40b. $24,854.40c. $37,497.60d. $52,694.40e. $67,947.60Difficulty level: ChallengeSCENARIO ANALYSISb 53. What is the earnings before interest and taxes under the pessimistic case scenario?b. -$422.40c. -$278.78d. $3,554.50e. $5,385.60Difficulty level: ChallengeSENSITIVITY ANALYSISd 54. What is the operating cash flow for a sensitivity analysis using total fixed costs of$32,000?a. $14,520b. $16,520c. $22,000d. $44,520e. $52,000Difficulty level: MediumSENSITIVITY ANALYSISd 55. What is the contribution margin for a sensitivity analysis using a variable cost per unitof $8?a. $3b. $4c. $5d. $6e. $7Difficulty level: MediumVARIABLE COSTc 56. A firm is reviewing a project with labor cost of $8.90 per unit, raw materials cost of$21.63 a unit, and fixed costs of $8,000 a month. Sales are projected at 10,000 unitsover the three-month life of the project. What are the total variable costs of the project?a. $216,300b. $297,300c. $305,300d. $313,300e. $329,300Difficulty level: MediumVARIABLE COSTd 57. A project has earnings before interest and taxes of $5,750, fixed costs of $50,000, aselling price of $13 a unit, and a sales quantity of 11,500 units. Depreciation is $7,500.What is the variable cost per unit?a. $6.75c. $7.25d. $7.50e. $7.75Difficulty level: MediumFIXED COSTb 58. At a production level of 5,600 units a project has total costs of $89,000. The variablecost per unit is $11.20. What is the amount of the total fixed costs?a. $24,126b. $26,280c. $27,090d. $27,820e. $28,626Difficulty level: MediumFIXED COSTe 59. At a production level of 6,000 units a project has total costs of $120,000. The variablecost per unit is $14.50. What is the amount of the total fixed costs?a. $25,165b. $28,200c. $30,570d. $32,000e. $33,000Difficulty level: MediumCONTRIBUTION MARGINc 60. Wilson’s Meats has computed their fixed costs to be $.60 for every pound of meatthey sell given an average daily sales level of 500 pounds. They charge $3.89 perpound of top-grade ground beef. The variable cost perpound is $2.99. What is thecontribution margin per pound of ground beef sold?a. $.30b. $.60c. $.90d. $2.99e. $3.89Difficulty level: MediumCONTRIBUTION MARGINe 61. Ralph and Emma’s is considering a project with total sales of $17,500, total variablecosts of $9,800, total fixed costs of $3,500, and estimated production of 400 units. Thedepreciation expense is $2,400 a year. What is the contribution margin per unit?a. $4.50b. $10.50d. $19.09e. $19.25Difficulty level: MediumACCOUNTING BREAK-EVENa 62. You are considering a new project. The project has projected depreciation of $720,fixed costs of $6,000, and total sales of $11,760. The variable cost per unit is$4.20. What is the accounting break-even level of production?a. 1,200 unitsb. 1,334 unitsc. 1,372 unitsd. 1,889 unitse. 1,910 unitsDifficulty level: MediumACCOUNTING BREAK-EVENb 63. The accounting break-even production quantity for a project is 5,425 units. The fixedcosts are $31,600 and the contribution margin is $6. What is the projecteddepreciation expense?a. $700b. $950c. $1,025d. $1,053e. $1,100Difficulty level: MediumACCOUNTING BREAK-EVENd 64. A project has an accounting break-even point of 2,000 units. The fixed costs are$4,200 and the depreciation expense is $400. The projected variable cost per unit is$23.10. What is the projected sales price?a. $20.80b. $21.00c. $21.20d. $25.40e. $25.60Difficulty level: MediumACCOUNTING BREAK-EVENa 65. A proposed project has fixed costs of $3,600,depreciation expense of $1,500, and asales quantity of 1,300 units. What is the contribution margin if the projected level ofsales is the accounting break-even point?a. $3.92c. $4.50d. $4.80e. $5.00Difficulty level: MediumPRESENT VALUE BREAK-EVENc 66. A project has a contribution margin of $5, projected fixed costs of $12,000, projectedvariable cost per unit of $12, and a projected present value break-even point of 5,000units. What is the operating cash flow at this level of output?a. $1,000b. $12,000c. $13,000d. $68,000e. $73,000Difficulty level: MediumPRESENT VALUE BREAK-EVENa 67. Thompson & Son have been busy analyzing a new product. They have determined thatan operating cash flow of $16,700 will result in a zero net present value, which is acompany requirement for project acceptance. The fixed costs are $12,378 and thecontribution margin is $6.20. The company feels that they can realistically capture10 percent of the 50,000 unit market for this product. Should the company develop thenew product? Why or why not?a. yes; because 5,000 units of sales exceeds the quantity required for a zero net presentvalueb. yes; because the internal break-even point is less than 5,000 unitsc. no; because the firm can not generate sufficient sales to obtain at least a zero netpresent valued. no; because the project has an expected internal rate of return of negative 100percente. no; because the project will not pay back on a discounted basisDifficulty level: ChallengePRESENT VALUE BREAK-EVENe 68. Kurt Neal and Son is considering a project with a discounted payback just equal to theproject’s life. The projections include a sales price of $11, variable cost per unit of$8.50, and fixed costs of $4,500. The operating cash flow is $6,200. What is the break-even quantity?a. 1,800 unitsb. 2,480 unitsc. 3,057 unitsd. 3,750 unitse. 4,280 unitsDECISION TREE NET PRESENT VALUEb 69. At stage 2 of the decision tree it shows that if a project is successful, the payoff will be$53,000 with a 2/3 chance of occurrence. There is also the 1/3 chance of a $-24,000payoff. The cost of getting to stage 2 (1 year out) is $44,000. The cost of capital is15%. What is the NPV of the project at stage 1?a. $-13,275b. $-20,232c. $ 2,087d. $ 7,536e. Can not be calculated without the exact timing of future cash flows.Difficulty level: MediumUse the following to answer questions 70-71:The Quick-Start Company has the following pattern of potential cash flows with their planned investment in a new cold weather starting system for fuel injected cars.DECISION TREEa 70. If the company has a discount rate of 17%, what is the value closest to time 1 netpresent value?a. $ 48.6 millionb. $ 80.9 millionc. $108.2 milliond. $181.4 millione. None of the above.DECISION TREEb 71. If the company has a discount rate of 17%, should they decide to invest?a. yes, NPV = $ 2.2 millionb. yes, NPV = $ 21.6 millionc. no, NPV = $-1.9 milliond. yes, NPV = $ 8.6 millione. No, since more than one branch is NPV = 0 or negative you must reject.Difficulty level: ChallengeACCOUNTING BREAK-EVENe 72. The Mini-Max Company has the following cost information on their new prospectiveproject. Calculate the accounting break-even point.Initial investment: $700。

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Chapter 16Capital Structure: Basic Concepts Multiple Choice Questions1. The use of personal borrowing to change the overall amount of financial leverage to which an individual is exposed is called:A. homemade leverage.B. dividend recapture.C. the weighted average cost of capital.D. private debt placement.E. personal offset.2. The proposition that the value of the firm is independent of its capital structure is called:A. the capital asset pricing model.B. MM Proposition I.C. MM Proposition II.D. the law of one price.E. the efficient markets hypothesis.3. The proposition that the cost of equity is a positive linear function of capital structure is called:A. the capital asset pricing model.B. MM Proposition I.C. MM Proposition II.D. the law of one price.E. the efficient markets hypothesis.4. The tax savings of the firm derived from the deductibility of interest expense is called the:A. interest tax shield.B. depreciable basis.C. financing umbrella.D. current yield.E. tax-loss carry forward savings.5. The unlevered cost of capital is:A. the cost of capital for a firm with no equity in its capital structure.B. the cost of capital for a firm with no debt in its capital structure.C. the interest tax shield times pretax net income.D. the cost of preferred stock for a firm with equal parts debt and common stock in its capital structure.E. equal to the profit margin for a firm with some debt in its capital structure.6. The cost of capital for a firm, rWACC, in a zero tax environment is:A. equal to the expected earnings divided by market value of the unlevered firm.B. equal to the rate of return for that business risk class.C. equal to the overall rate of return required on the levered firm.D. is constant regardless of the amount of leverage.E. All of the above.7. The difference between a market value balance sheet and a book value balance sheet is that a market value balance sheet:A. places assets on the right hand side.B. places liabilities on the left hand side.C. does not equate the right hand with the left hand side.D. lists items in terms of market values, not historical costs.E. uses the market rate of return.8. The firm's capital structure refers to:A. the way a firm invests its assets.B. the amount of capital in the firm.C. the amount of dividends a firm pays.D. the mix of debt and equity used to finance the firm's assets.E. how much cash the firm holds.9. A general rule for managers to follow is to set the firm's capital structure such that:A. the firm's value is minimized.B. the firm's value is maximized.C. the firm's bondholders are made well off.D. the firms suppliers of raw materials are satisfied.E. the firms dividend payout is maximized.10. A levered firm is a company that has:A. Accounts Payable as the only liability on the balance sheet.B. some debt in the capital structure.C. all equity in the capital structure.D. All of the above.E. None of the above.11. A manager should attempt to maximize the value of the firm by:A. changing the capital structure if and only if the value of the firm increases.B. changing the capital structure if and only if the value of the firm increases to the benefit of inside management.C. changing the capital structure if and only if the value of the firm increases only to the benefits of the debtholders.D. changing the capital structure if and only if the value of the firm increases although it decreases the stockholders' value.E. changing the capital structure if and only if the value of the firm increases and stockholder wealth is constant.12. The effect of financial leverage depends on the operating earnings of the company. Which of the following is not true?A. Below the indifference or break-even point in EBIT the non-levered structure is superior.B. Financial leverage increases the slope of the EPS line.C. Above the indifference or break-even point the increase in EPS for all equity structures is less than debt-equity structures.D. Above the indifference or break-even point the increase in EPS for all equity structures is greater than debt-equity structures.E. The rate of return on operating assets is unaffected by leverage.13. The Modigliani-Miller Proposition I without taxes states:A. a firm cannot change the total value of its outstanding securities by changing its capital structure proportions.B. when new projects are added to the firm the firm value is the sum of the old value plus the new.C. managers can make correct corporate decisions that will satisfy all shareholders if they select projects that maximize value.D. the determination of value must consider the timing and risk of the cash flows.E. None of the above.14. MM Proposition I without taxes is used to illustrate:A. the value of an unlevered firm equals that of a levered firm.B. that one capital structure is as good as another.C. leverage does not affect the value of the firm.D. capital structure changes have no effect on stockholders' welfare.E. All of the above.15. A key assumption of MM's Proposition I without taxes is:A. that financial leverage increases risk.B. that individuals can borrow on their own account at rates less than the firm.C. that individuals must be able to borrow on their own account at rates equal to the firm.D. managers are acting to maximize the value of the firm.E. All of the above.16. In an EPS-EBI graphical relationship, the slope of the debt ray is steeper than the equity ray. The debt ray has a lower intercept because:A. more shares are outstanding for the same level of EBI.B. the break-even point is higher with debt.C. a fixed interest charge must be paid even at low earnings.D. the amount of interest per share has only a positive effect on the intercept.E. the higher the interest rate the greater the slope.17. In an EPS-EBI graphical relationship, the debt ray and equity ray cross. At this point the equity and debt are:A. equivalent with respect to EPS but above and below this point equity is always superior.B. at breakeven in EPS but above this point debt increases EPS via leverage and decreases EPS below this point.C. equal but away from breakeven equity is better as fewer shares are outstanding.D. at breakeven and MM Proposition II states that debt is the better choice.E. at breakeven and debt is the better choice below breakeven because small payments can be made.18. When comparing levered vs. unlevered capital structures, leverage works to increase EPS for high levels of EBIT because:A. interest payments on the debt vary with EBIT levels.B. interest payments on the debt stay fixed, leaving less income to be distributed over less shares.C. interest payments on the debt stay fixed, leaving more income to be distributed over less shares.D. interest payments on the debt stay fixed, leaving less income to be distributed over more shares.E. interest payments on the debt stay fixed, leaving more income to be distributed over more shares.19. Financial leverage impacts the performance of the firm by:A. maintaining the same level of volatility of the firm's EBIT.B. decreasing the volatility of the firm's EBIT.C. decreasing the volatility of the firm's net income.D. increasing the volatility of the firm's net income.E. None of the above.20. The increase in risk to equityholders when financial leverage is introduced is evidenced by:A. higher EPS as EBIT increases.B. a higher variability of EPS with debt than all equity.C. increased use of homemade leverage.D. equivalence value between levered and unlevered firms in the presence of taxes.E. None of the above.21. The reason that MM Proposition I does not hold in the presence of corporate taxation is because:A. levered firms pay less taxes compared with identical unlevered firms.B. bondholders require higher rates of return compared with stockholders.C. earnings per share are no longer relevant with taxes.D. dividends are no longer relevant with taxes.E. All of the above.22. MM Proposition I with corporate taxes states that:A. capital structure can affect firm value.B. by raising the debt-to-equity ratio, the firm can lower its taxes and thereby increase its total value.C. firm value is maximized at an all debt capital structure.D. All of the above.E. None of the above.23. The change in firm value in the presence of corporate taxes only is:A. positive as equityholders face a lower effective tax rate.B. positive as equityholders gain the tax shield on the debt interest.C. negative because of the increased risk of default and fewer shares outstanding.D. negative because of a reduction of equity outstanding.E. None of the above.24. A firm should select the capital structure which:A. produces the highest cost of capital.B. maximizes the value of the firm.C. minimizes taxes.D. is fully unlevered.E. has no debt.25. In a world of no corporate taxes if the use of leverage does not change the value of the levered firm relative to the unlevered firm is known as:A. MM Proposition III that the cost of stock is less than the cost of debt.B. MM Proposition I that leverage is invariant to market value.C. MM Proposition II that the cost of equity is always constant.D. MM Proposition I that the market value of the firm is invariant to the capital structure.E. MM Proposition III that there is no risk associated with leverage in a no tax world.26. Bryan invested in Bryco, Inc. stock when the firm was financed solely with equity. The firm is now utilizing debt in its capital structure. To unlever his position, Bryan needs to:A. borrow some money and purchase additional shares of Bryco stock.B. maintain his current position as the debt of the firm did not affect his personal leverage position.C. sell some shares of Bryco stock and hold the proceeds in cash.D. sell some shares of Bryco stock and loan it out such that he creates a personal debt-equity ratio equal to that of the firm.E. create a personal debt-equity ratio that is equal to exactly 50% of the debt-equity ratio of the firm.27. The capital structure chosen by a firm doesn't really matter because of:A. taxes.B. the interest tax shield.C. the relationship between dividends and earnings per share.D. the effects of leverage on the cost of equity.E. homemade leverage.28. MM Proposition I with no tax supports the argument that:A. business risk determines the return on assets.B. the cost of equity rises as leverage rises.C. it is completely irrelevant how a firm arranges its finances.D. a firm should borrow money to the point where the tax benefit from debt is equal to the cost of the increased probability of financial distress.E. financial risk is determined by the debt-equity ratio.29. The proposition that the value of a levered firm is equal to the value of an unlevered firm is known as:A. MM Proposition I with no tax.B. MM Proposition II with no tax.C. MM Proposition I with tax.D. MM Proposition II with tax.E. static theory proposition.30. The concept of homemade leverage is most associated with:A. MM Proposition I with no tax.B. MM Proposition II with no tax.C. MM Proposition I with tax.D. MM Proposition II with tax.E. static theory proposition.31. Which of the following statements are correct in relation to MM Proposition II with no taxes?I. The required return on assets is equal to the weighted average cost of capital. II. Financial risk is determined by the debt-equity ratio.III. Financial risk determines the return on assets.IV. The cost of equity declines when the amount of leverage used by a firm rises.A. I and III onlyB. II and IV onlyC. I and II onlyD. III and IV onlyE. I and IV only32. MM Proposition I with taxes supports the theory that:A. there is a positive linear relationship between the amount of debt in a levered firm and its value.B. the value of a firm is inversely related to the amount of leverage used by the firm.C. the value of an unlevered firm is equal to the value of a levered firm plus the value of the interest tax shield.D. a firm's cost of capital is the same regardless of the mix of debt and equity used by the firm.E. a firm's weighted average cost of capital increases as the debt-equity ratio of the firm rises.33. MM Proposition I with taxes is based on the concept that:A. the optimal capital structure is the one that is totally financed with equity.B. the capital structure of the firm does not matter because investors can use homemade leverage.C. the firm is better off with debt based on the weighted average cost of capital.D. the value of the firm increases as total debt increases because of the interest tax shield.E. the cost of equity increases as the debt-equity ratio of a firm increases.34. MM Proposition II with taxes:A. has the same general implications as MM Proposition II without taxes.B. reveals how the interest tax shield relates to the value of a firm.C. supports the argument that business risk is determined by the capital structure employed by a firm.D. supports the argument that the cost of equity decreases as the debt-equity ratio increases.E. reaches the final conclusion that the capital structure decision is irrelevant to the value of a firm.35. MM Proposition II is the proposition that:A. supports the argument that the capital structure of a firm is irrelevant to the value of the firm.B. the cost of equity depends on the return on debt, the debt-equity ratio and the tax rate.C. a firm's cost of equity capital is a positive linear function of the firm's capital structure.D. the cost of equity is equivalent to the required return on the total assets of a firm.E. supports the argument that the size of the pie does not depend on how the pie is sliced.36. The interest tax shield has no value for a firm when:I. the tax rate is equal to zero.II. the debt-equity ratio is exactly equal to 1.III. the firm is unlevered.IV. a firm elects 100% equity as its capital structure.A. I and III onlyB. II and IV onlyC. I, III, and IV onlyD. II, III, and IV onlyE. I, II, and IV only37. The interest tax shield is a key reason why:A. the required rate of return on assets rises when debt is added to the capital structure.B. the value of an unlevered firm is equal to the value of a levered firm.C. the net cost of debt to a firm is generally less than the cost of equity.D. the cost of debt is equal to the cost of equity for a levered firm.E. firms prefer equity financing over debt financing.38. Which of the following will tend to diminish the benefit of the interest tax shield given a progressive tax rate structure?I. a reduction in tax ratesII. a large tax loss carryforwardIII. a large depreciation tax deductionIV. a sizeable increase in taxable incomeA. I and II onlyB. I and III onlyC. II and III onlyD. I, II, and III onlyE. I, II, III, and IV39. Thompson & Thomson is an all equity firm that has 500,000 shares of stock outstanding. The company is in the process of borrowing $8 million at 9% interest to repurchase 200,000 shares of the outstanding stock. What is the value of this firm if you ignore taxes?A. $20.0 millionB. $20.8 millionC. $21.0 millionD. $21.2 millionE. $21.3 million40. Uptown Interior Designs is an all equity firm that has 40,000 shares of stock outstanding. The company has decided to borrow $1 million to buy out the shares of a deceased stockholder who holds 2,500 shares. What is the total value of this firm if you ignore taxes?A. $15.5 millionB. $15.6 millionC. $16.0 millionD. $16.8 millionE. $17.2 million41. You own 25% of Unique Vacations, Inc. You have decided to retire and want to sell your shares in this closely held, all equity firm. The other shareholders have agreed to have the firm borrow $1.5 million to purchase your 1,000 shares of stock. What is the total value of this firm today if you ignore taxes?A. $4.8 millionB. $5.1 millionC. $5.4 millionD. $5.7 millionE. $6.0 million42. Your firm has a debt-equity ratio of .75. Your pre-tax cost of debt is 8.5% and your required return on assets is 15%. What is your cost of equity if you ignore taxes?A. 11.25%B. 12.21%C. 16.67%D. 19.88%E. 21.38%43. Bigelow, Inc. has a cost of equity of 13.56% and a pre-tax cost of debt of 7%. The required return on the assets is 11%. What is the firm's debt-equity ratio based on MM Proposition II with no taxes?A. .60B. .64C. .72D. .75E. .8044. The Backwoods Lumber Co. has a debt-equity ratio of .80. The firm's required return on assets is 12% and its cost of equity is 15.68%. What is the pre-tax cost of debt based on MM Proposition II with no taxes?A. 6.76%B. 7.00%C. 7.25%D. 7.40%E. 7.50%45. The Winter Wear Company has expected earnings before interest and taxes of $2,100, an unlevered cost of capital of 14% and a tax rate of 34%. The company also has $2,800 of debt that carries a 7% coupon. The debt is selling at par value. What is the value of this firm?A. $9,900B. $10,852C. $11,748D. $12,054E. $12,70046. Gail's Dance Studio is currently an all equity firm that has 80,000 shares of stock outstanding with a market price of $42 a share. The current cost of equity is 12% and the tax rate is 34%. Gail is considering adding $1 million of debt with a coupon rate of 8% to her capital structure. The debt will be sold at par value. What is the levered value of the equity?A. $2.4 millionB. $2.7 millionC. $3.3 millionD. $3.7 millionE. $3.9 million47. The Montana Hills Co. has expected earnings before interest and taxes of $8,100, an unlevered cost of capital of 11%, and debt with both a book and face value of $12,000. The debt has an annual 8% coupon. The tax rate is 34%. What is the value of the firm?A. $48,600B. $50,000C. $52,680D. $56,667E. $60,60048. Scott's Leisure Time Sports is an unlevered firm with an after-tax net income of $86,000. The unlevered cost of capital is 10% and the tax rate is 34%. What is the value of this firm?A. $567,600B. $781,818C. $860,000D. $946,000E. $1,152,40049. An unlevered firm has a cost of capital of 14% and earnings before interest and taxes of $150,000. A levered firm with the same operations and assets has both a book value and a face value of debt of $700,000 with a 7% annual coupon. The applicable tax rate is 35%. What is the value of the levered firm?A. $696,429B. $907,679C. $941,429D. $1,184,929E. $1,396,42950. The Spartan Co. has an unlevered cost of capital of 11%, a cost of debt of 8%, and a tax rate of 35%. What is the target debt-equity ratio if the targeted cost of equity is 12%?A. .44B. .49C. .51D. .56E. .6251. Hey Guys!, Inc. has debt with both a face and a market value of $3,000. This debt has a coupon rate of 7% and pays interest annually. The expected earnings before interest and taxes is $1,200, the tax rate is 34%, and the unlevered cost of capital is 12%. What is the firm's cost of equity?A. 13.25%B. 13.89%C. 13.92%D. 14.14%E. 14.25%52. Anderson's Furniture Outlet has an unlevered cost of capital of 10%, a tax rate of 34%, and expected earnings before interest and taxes of $1,600. The company has $3,000 in bonds outstanding that have an 8% coupon and pay interest annually. The bonds are selling at par value. What is the cost of equity?A. 8.67%B. 9.34%C. 9.72%D. 9.99%E. 10.46%53. Walter's Distributors has a cost of equity of 13.84% and an unlevered cost of capital of 12%. The company has $5,000 in debt that is selling at par value. The levered value of the firm is $12,000 and the tax rate is 34%. What is the pre-tax cost of debt?A. 7.92%B. 8.10%C. 8.16%D. 8.84%E. 9.00%54. Rosita's has a cost of equity of 13.8% and a pre-tax cost of debt of 8.5%. The debt-equity ratio is .60 and the tax rate is .34. What is Rosita's unlevered cost of capital?A. 8.83%B. 12.30%C. 13.97%D. 14.08%E. 14.60%55. Your firm has a pre-tax cost of debt of 7% and an unlevered cost of capital of 13%. Your tax rate is 35% and your cost of equity is 15.26%. What is your debt-equity ratio?A. .43B. .49C. .51D. .54E. .5856. Wild Flowers Express has a debt-equity ratio of .60. The pre-tax cost of debt is 9% while the unlevered cost of capital is 14%. What is the cost of equity if the tax rate is 34%?A. 7.52%B. 8.78%C. 15.98%D. 16.83%E. 17.30%57. Your firm has a $250,000 bond issue outstanding. These bonds have a 7% coupon, pay interest semiannually, and have a current market price equal to 103% of face value. What is the amount of the annual interest tax shield given a tax rate of 35%?A. $6,125B. $6,309C. $9,500D. $17,500E. $18,02558. Bertha's Boutique has 2,000 bonds outstanding with a face value of $1,000 each and a coupon rate of 9%. The interest is paid semi-annually. What is the amount of the annual interest tax shield if the tax rate is 34%?A. $58,500B. $60,100C. $60,750D. $61,200E. $62,25059. Juanita's Steak House has $12,000 of debt outstanding that is selling at par and has a coupon rate of 8%. The tax rate is 34%. What is the present value of the tax shield?A. $2,823B. $2,887C. $4,080D. $4,500E. $4,63360. A firm has debt of $5,000, equity of $16,000, a leveraged value of $8,900,a cost of debt of 8%, a cost of equity of 12%, and a tax rate of 34%. What is the firm's weighted average cost of capital?A. 7.29%B. 7.94%C. 8.87%D. 10.40%E. 11.05%61. A firm has zero debt in its capital structure. Its overall cost of capital is 10%. The firm is considering a new capital structure with 60% debt. The interest rate on the debt would be 8%. Assuming there are no taxes or other imperfections, its cost of equity capital with the new capital structure would be _____.A. 9%B. 10%C. 13%D. 14%E. None of the above.62. A firm has a debt-to-equity ratio of .60. Its cost of debt is 8%. Its overall cost of capital is 12%. What is its cost of equity if there are no taxes or other imperfections?A. 10.0%B. 13.5%C. 14.4%D. 18.0%E. None of the above.63. A firm has a debt-to-equity ratio of 1. Its cost of equity is 16%, and its cost of debt is 8%. If there are no taxes or other imperfections, what would be its cost of equity if the debt-to-equity ratio were 0?A. 8%B. 10%C. 12%D. 14%E. 16%64. A firm has a debt-to-equity ratio of 1.20. If it had no debt, its cost of equity would be 15%. Its cost of debt is 10%. What is its cost of equity if there are no taxes or other imperfections?A. 10%B. 15%C. 18%D. 21%E. None of the above.65. If a firm is unlevered and has a cost of equity capital of 12%, what would its cost of equity be if its debt-equity ratio became 2? The expected cost of debt is 8%.A. 14.0%B. 14.67%C. 16.0%D. 20.0%E. None of the above.66. A firm has zero debt in its capital structure. Its overall cost of capital is 9%. The firm is considering a new capital structure with 40% debt. The interest rate on the debt would be 4%. Assuming that the corporate tax rate is 34%, what would its cost of equity capital with the new capital structure be?A. 10.3%B. 11.0%C. 11.2%D. 13.9%E. None of the above.67. A firm has a debt-to-equity ratio of 1. Its cost of equity is 16%, and its cost of debt is 8%. If the corporate tax rate is 25%, what would its cost of equity be if the debt-to-equity ratio were 0?A. 11.11%B. 12.57%C. 13.33%D. 16.00%E. None of the above.68. A firm has a debt-to-equity ratio of .5. Its cost of equity is 22%, and its cost of debt is 16%. If the corporate tax rate is .40, what would its cost of equity be if the debt-to-equity ratio were 0?A. 14.00%B. 20.61%C. 21.07%D. 22.00%E. None of the above.69. A firm has a debt-to-equity ratio of 1.75. If it had no debt, its cost of equity would be 14%. Its cost of debt is 10%. What is its cost of equity if the corporate tax rate is 50%?A. 14.0%B. 16.0%C. 17.5%D. 21.0%E. None of the above.70. What is the cost of equity for a firm if the corporate tax rate is 40%? The firm has a debt-to-equity ratio of 1.5. If it had no debt, its cost of equity would be 16%. Its current cost of debt is 10%.A. 17.4%B. 18.4%C. 19.6%D. 21.4%E. None of the above.71. A firm has a debt-to-equity ratio of 1.75. If it had no debt, its cost of equity would be 9%. Its cost of debt is 7%. What is its cost of equity if the corporate tax rate is 50%?A. 7.73%B. 10.00%C. 10.75%D. 12.50%E. None of the above.72. Batter's Home has 3,000 bonds outstanding with a face value of $1,000 each and a coupon rate of 8%. The interest is paid semi-annually. What is the amount of the annual interest tax shield if the tax rate is 30%?A. $52,000B. $60,000C. $62,500D. $68,000E. $72,00073. Reena Industries has $10,000 of debt outstanding that is selling at par and has a coupon rate of 7%. The tax rate is 34%. What is the present value of the tax shield?A. $2,800B. $3,000C. $3,400D. $3,800E. $7.00074. A firm has debt of $7,000, equity of $12,000, a leveraged value of $8,900,a cost of debt of 7%, a cost of equity of 14%, and a tax rate of 30%. What is the firm's weighted average cost of capital?A. 8.45%B. 9.90%C. 10.65%D. 12.50%E. 14.00%Essay Questions75. Based on MM with taxes and without taxes, how much time should a financial manager spend analyzing the capital structure of his firm? What if the analysis is based on the static theory?76. Explain homemade leverage and why it matters.77. In each of the theories of capital structure the cost of equity rises as the amount of debt increases. So why don't financial managers use as little debt as possible to keep the cost of equity down? After all, isn't the goal of the firm to maximize share value and minimize shareholder costs?Consider two firms, U and L, both with $50,000 in assets. Firm U is unlevered, and firm L has $20,000 of debt that pays 8% interest. Firm U has 1,000 shares outstanding, while firm L has 600 shares outstanding. Mike owns 20% of firm L and believes that leverage works in his favor. Steve tells Mike that this is an illusion, and that with the possibility of borrowing on his own account at 8% interest, he can replicate Mike's payout from firm L.78. Given a level of operating income of $2,500, show the specific strategy that Mike has in mind.79. After seeing Steve's analysis, Mike tells Steve that while his analysis looks good on paper, Steve will never be able to borrow at 8%, but would have to pay a more realistic rate of 12%. If Mike is right, what will Steve's payout be?80. Suppose the tax authorities allow firms to deduct their interest expense from operating income. Both firm U and firm L are in the 34% tax bracket. Show what happens to the market value of both firms if the debt held by firm L is permanent. Assume MM with taxes.。

罗斯公司管理系统理财Chap004全英文题库及问题详解

Chapter 04 Discounted Cash Flow Valuation Answer KeyMultiple Choice Questions1. An annuity stream of cash flow payments is a set of:A.level cash flows occurring each time period for a fixed length of time.B.level cash flows occurring each time period forever.C.increasing cash flows occurring each time period for a fixed length of time.D.increasing cash flows occurring each time period forever.E.arbitrary cash flows occurring each time period for no more than 10 years. Difficulty level: EasyTopic: ANNUITYType: DEFINITIONS2. Annuities where the payments occur at the end of each time period are called _____, whereas _____ refer to annuity streams with payments occurring at the beginning of each time period.A.ordinary annuities; early annuitieste annuities; straight annuitiesC.straight annuities; late annuitiesD.annuities due; ordinary annuitiesE.ordinary annuities; annuities dueDifficulty level: EasyTopic: ANNUITIES DUEType: DEFINITIONS3. An annuity stream where the payments occur forever is called a(n):A.annuity due.B.indemnity.C.perpetuity.D.amortized cash flow stream.E.amortization table.Difficulty level: EasyTopic: PERPETUITYType: DEFINITIONS4. The interest rate expressed in terms of the interest payment made each period is called the _____ rate.A.stated annual interestpound annual interestC.effective annual interestD.periodic interestE.daily interestDifficulty level: EasyTopic: STATED INTEREST RATESType: DEFINITIONS5. The interest rate expressed as if it were compounded once per year is called the _____ rate.A.stated interestpound interestC.effective annualD.periodic interestE.daily interestDifficulty level: EasyTopic: EFFECTIVE ANNUAL RATEType: DEFINITIONS6. The interest rate charged per period multiplied by the number of periods per year is called the _____ rate.A.effective annualB.annual percentageC.periodic interestpound interestE.daily interestDifficulty level: EasyTopic: ANNUAL PERCENTAGE RATEType: DEFINITIONS7. Paying off long-term debt by making installment payments is called:A.foreclosing on the debt.B.amortizing the debt.C.funding the debt.D.calling the debt.E.None of the above.Difficulty level: EasyTopic: AMORTIZATIONType: DEFINITIONS8. You are comparing two annuities which offer monthly payments for ten years. Both annuities are identical with the exception of the payment dates. Annuity A pays on the first of each month while annuity B pays on the last day of each month. Which one of the following statements is correct concerning these two annuities?A.Both annuities are of equal value today.B.Annuity B is an annuity due.C.Annuity A has a higher future value than annuity B.D.Annuity B has a higher present value than annuity A.E.Both annuities have the same future value as of ten years from today. Difficulty level: MediumTopic: ORDINARY ANNUITY VERSUS ANNUITY DUEType: CONCEPTS9. You are comparing two investment options. The cost to invest in either option is the same today. Both options will provide you with $20,000 of income. Option A pays five annual payments starting with $8,000 the first year followed by four annual payments of $3,000 each. Option B pays five annual payments of $4,000 each. Which one of the following statements is correct given these two investment options?A.Both options are of equal value given that they both provide $20,000 of income.B.Option A is the better choice of the two given any positive rate of return.C.Option B has a higher present value than option A given a positive rate of return.D.Option B has a lower future value at year 5 than option A given a zero rate of return.E.Option A is preferable because it is an annuity due.Difficulty level: MediumTopic: UNEVEN CASH FLOWS AND PRESENT VALUEType: CONCEPTS10. You are considering two projects with the following cash flows:Which of the following statements are true concerning these two projects? I. Both projects have the same future value at the end of year 4, given a positive rate of return.II. Both projects have the same future value given a zero rate of return. III. Both projects have the same future value at any point in time, given a positive rate of return.IV. Project A has a higher future value than project B, given a positive rate of return.A.II onlyB.IV onlyC.I and III onlyD.II and IV onlyE.I, II, and III onlyDifficulty level: MediumTopic: UNEVEN CASH FLOWS AND FUTURE VALUEType: CONCEPTS11. A perpetuity differs from an annuity because:A.perpetuity payments vary with the rate of inflation.B.perpetuity payments vary with the market rate of interest.C.perpetuity payments are variable while annuity payments are constant.D.perpetuity payments never cease.E.annuity payments never cease.Difficulty level: EasyTopic: PERPETUITY VERSUS ANNUITYType: CONCEPTS12. Which one of the following statements concerning the annual percentage rate is correct?A.The annual percentage rate considers interest on interest.B.The rate of interest you actually pay on a loan is called the annual percentage rate.C.The effective annual rate is lower than the annual percentage rate when an interest rate is compounded quarterly.D.When firms advertise the annual percentage rate they are violating U.S. truth-in-lending laws.E.The annual percentage rate equals the effective annual rate when the rate on an account is designated as simple interest.Difficulty level: MediumTopic: ANNUAL PERCENTAGE RATEType: CONCEPTS13. Which one of the following statements concerning interest rates is correct?A.The stated rate is the same as the effective annual rate.B.An effective annual rate is the rate that applies if interest were charged annually.C.The annual percentage rate increases as the number of compounding periods per year increases.D.Banks prefer more frequent compounding on their savings accounts.E.For any positive rate of interest, the effective annual rate will always exceed the annual percentage rate.Difficulty level: MediumTopic: INTEREST RATESType: CONCEPTS14. Which of the following statements concerning the effective annual rate are correct?I. When making financial decisions, you should compare effective annual rates rather than annual percentage rates.II. The more frequently interest is compounded, the higher the effective annual rate.III. A quoted rate of 6% compounded continuously has a higher effective annual rate than if the rate were compounded daily.IV. When borrowing and choosing which loan to accept, you should select the offer with the highest effective annual rate.A.I and II onlyB.I and IV onlyC.I, II, and III onlyD.II, III, and IV onlyE.I, II, III, and IVDifficulty level: MediumTopic: EFFECTIVE ANNUAL RATEType: CONCEPTS15. The highest effective annual rate that can be derived from an annual percentage rate of 9% is computed as:A..09e - 1.B. e.09 ⨯ q.C. e ⨯ (1 + .09).D. e.09 - 1.E.(1 + .09)q.Difficulty level: MediumTopic: CONTINUOUS COMPOUNDINGType: CONCEPTS16. The time value of money concept can be defined as:A.the relationship between the supply and demand of money.B.the relationship between money spent versus money received.C.the relationship between a dollar to be received in the future and a dollar today.D.the relationship between interest rate stated and amount paid.E.None of the above.Difficulty level: EasyTopic: TIME VALUEType: CONCEPTS17. Discounting cash flows involves:A.discounting only those cash flows that occur at least 10 years in the future.B.estimating only the cash flows that occur in the first 4 years of a project.C.multiplying expected future cash flows by the cost of capital.D.discounting all expected future cash flows to reflect the time value of money.E.taking the cash discount offered on trade merchandise.Difficulty level: EasyTopic: CASH FLOWSType: CONCEPTS18. Compound interest:A.allows for the reinvestment of interest payments.B.does not allow for the reinvestment of interest payments.C.is the same as simple interest.D.provides a value that is less than simple interest.E.Both A and D.Difficulty level: EasyTopic: INTERESTType: CONCEPTS19. An annuity:A.is a debt instrument that pays no interest.B.is a stream of payments that varies with current market interest rates.C.is a level stream of equal payments through time.D.has no value.E.None of the above.Difficulty level: EasyTopic: ANNUITYType: CONCEPTS20. The stated rate of interest is 10%. Which form of compounding will give the highest effective rate of interest?A.annual compoundingB.monthly compoundingC.daily compoundingD.continuous compoundingE.It is impossible to tell without knowing the term of the loan.Difficulty level: EasyTopic: COMPOUNDINGType: CONCEPTS21. The present value of future cash flows minus initial cost is called:A.the future value of the project.B.the net present value of the project.C.the equivalent sum of the investment.D.the initial investment risk equivalent value.E.None of the above.Difficulty level: EasyTopic: PRESENT VALUEType: CONCEPTS22. Find the present value of $5,325 to be received in one period if the rate is 6.5%.A.$5,000.00B.$5,023.58C.$5,644.50D.$5,671.13E.None of the above.Difficulty level: EasyTopic: PRESENT VALUE - SINGLE SUMType: PROBLEMS23. If you have a choice to earn simple interest on $10,000 for three years at 8% or annually compounded interest at 7.5% for three years which one will pay more and by how much?A.Simple interest by $50.00pound interest by $22.97pound interest by $150.75pound interest by $150.00E.None of the above.Simple Interest = $10,000 (.08)(3) = $2,400;Compound Interest = $10,000((1.075)3 - 1) = $2,422.97;Difference = $2,422.97 - $2,400 = $22.97Difficulty level: EasyTopic: SIMPLE & COMPOUND INTERESTType: PROBLEMS24. Bradley Snapp has deposited $7,000 in a guaranteed investment account witha promised rate of 6% compounded annually. He plans to leave it there for 4 full years when he will make a down payment on a car after graduation. How much of a down payment will he be able to make?A.$1,960.00B.$2,175.57C.$8,960.00D.$8,837.34E.$9,175.57$7,000 (1.06)4 = $8,837.34Difficulty level: EasyTopic: FUTURE VALUE - SINGLE SUMType: PROBLEMS25. Your parents are giving you $100 a month for four years while you are in college. At a 6% discount rate, what are these payments worth to you when you first start college?A.$3,797.40B.$4,167.09C.$4,198.79D.$4,258.03E.$4,279.32Difficulty level: EasyTopic: ORDINARY ANNUITY AND PRESENT VALUEType: PROBLEMS26. You just won the lottery! As your prize you will receive $1,200 a month for 100 months. If you can earn 8% on your money, what is this prize worth to you today?A.$87,003.69B.$87,380.23C.$87,962.77D.$88,104.26E.$90,723.76Difficulty level: EasyTopic: ORDINARY ANNUITY AND PRESENT VALUEType: PROBLEMS27. Todd is able to pay $160 a month for five years for a car. If the interest rate is 4.9%, how much can Todd afford to borrow to buy a car?A.$6,961.36B.$8,499.13C.$8,533.84D.$8,686.82E.$9,588.05Difficulty level: EasyTopic: ORDINARY ANNUITY AND PRESENT VALUEType: PROBLEMS28. You are the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving the insurance proceeds. You can receive a lump sum of $50,000 today or receive payments of $641 a month for ten years. You can earn 6.5% on your money. Which option should you take and why?A.You should accept the payments because they are worth $56,451.91 today.B.You should accept the payments because they are worth $56,523.74 today.C.You should accept the payments because they are worth $56,737.08 today.D.You should accept the $50,000 because the payments are only worth $47,757.69 today.E.You should accept the $50,000 because the payments are only worth $47,808.17 today.Difficulty level: MediumTopic: ORDINARY ANNUITY AND PRESENT VALUEType: PROBLEMS29. Your employer contributes $25 a week to your retirement plan. Assume that you work for your employer for another twenty years and that the applicable discount rate is 5%. Given these assumptions, what is this employee benefit worth to you today?A.$13,144.43B.$15,920.55C.$16,430.54D.$16,446.34E.$16,519.02Difficulty level: MediumTopic: ORDINARY ANNUITY AND PRESENT VALUEType: PROBLEMS30. You have a sub-contracting job with a local manufacturing firm. Your agreement calls for annual payments of $50,000 for the next five years. At a discount rate of 12%, what is this job worth to you today?A.$180,238.81B.$201,867.47C.$210,618.19D.$223,162.58E.$224,267.10Difficulty level: MediumTopic: ORDINARY ANNUITY AND PRESENT VALUEType: PROBLEMS31. The Ajax Co. just decided to save $1,500 a month for the next five years as a safety net for recessionary periods. The money will be set aside in a separate savings account which pays 3.25% interest compounded monthly. It deposits the first $1,500 today. If the company had wanted to deposit an equivalent lump sum today, how much would it have had to deposit?A.$82,964.59B.$83,189.29C.$83,428.87D.$83,687.23E.$84,998.01Difficulty level: MediumTopic: ANNUITY DUE AND PRESENT VALUEType: PROBLEMS32. You need some money today and the only friend you have that has any is your ‘miserly' friend. He agrees to loan you the money you need, if you make payments of $20 a month for the next six months. In keeping with his reputation, he requires that the first payment be paid today. He also charges you 1.5% interest per month. How much money are you borrowing?A.$113.94B.$115.65C.$119.34D.$119.63E.$119.96Difficulty level: MediumTopic: ANNUITY DUE AND PRESENT VALUEType: PROBLEMS33. You buy an annuity which will pay you $12,000 a year for ten years. The payments are paid on the first day of each year. What is the value of this annuity today at a 7% discount rate?A.$84,282.98B.$87,138.04C.$90,182.79D.$96,191.91E.$116,916.21Difficulty level: MediumTopic: ANNUITY DUE AND PRESENT VALUEType: PROBLEMS34. You are scheduled to receive annual payments of $10,000 for each of the next 25 years. Your discount rate is 8.5%. What is the difference in the present value if you receive these payments at the beginning of each year rather than at the end of each year?A.$8,699B.$9,217C.$9,706D.$10,000E.$10,850Difference = $111,040.97 - $102,341.91 = $8,699.06 = $8,699 (rounded) Note: The difference = .085 $102,341.91 = $8,699.06Difficulty level: MediumTopic: ORDINARY ANNUITY VERSUS ANNUITY DUEType: PROBLEMS35. You are comparing two annuities with equal present values. The applicable discount rate is 7.5%. One annuity pays $5,000 on the first day of each year for twenty years. How much does the second annuity pay each year for twenty years if it pays at the end of each year?A.$4,651B.$5,075C.$5,000D.$5,375E.$5,405Because each payment is received one year later, then the cash flow has to equal: $5,000 (1 + .075) = $5,375Difficulty level: MediumTopic: ORDINARY ANNUITY VERSUS ANNUITY DUEType: PROBLEMS36. Martha receives $100 on the first of each month. Stewart receives $100 on the last day of each month. Both Martha and Stewart will receive payments for five years. At an 8% discount rate, what is the difference in the present value of these two sets of payments?A.$32.88B.$40.00C.$99.01D.$108.00E.$112.50Difference = $4,964.72 - $4,931.84 = $32.88Difficulty level: MediumTopic: ORDINARY ANNUITY VERSUS ANNUITY DUEType: PROBLEMS37. What is the future value of $1,000 a year for five years at a 6% rate of interest?A.$4,212.36B.$5,075.69C.$5,637.09D.$6,001.38E.$6,801.91Difficulty level: EasyTopic: ORDINARY ANNUITY AND FUTURE VALUEType: PROBLEMS38. What is the future value of $2,400 a year for three years at an 8% rate of interest?A.$6,185.03B.$6,847.26C.$7,134.16D.$7,791.36E.$8,414.67Difficulty level: EasyTopic: ORDINARY ANNUITY AND FUTURE VALUEType: PROBLEMS39. Janet plans on saving $3,000 a year and expects to earn 8.5%. How much will Janet have at the end of twenty-five years if she earns what she expects?A.$219,317.82B.$230,702.57C.$236,003.38D.$244,868.92E.$256,063.66Difficulty level: EasyTopic: ORDINARY ANNUITY AND FUTURE VALUEType: PROBLEMS40. Toni adds $3,000 to her savings on the first day of each year. Tim adds $3,000 to his savings on the last day of each year. They both earn a 9% rate of return. What is the difference in their savings account balances at the end of thirty years?A.$35,822.73B.$36,803.03C.$38,911.21D.$39,803.04E.$40,115.31Difference = $445,725.65 - $408,922.62 = $36,803.03Note: Difference = $408,922.62 .09 = $36,803.03Difficulty level: MediumTopic: ANNUITY DUE VERSUS ORDINARY ANNUITYType: PROBLEMS41. You borrow $5,600 to buy a car. The terms of the loan call for monthly payments for four years at a 5.9% rate of interest. What is the amount of each payment?A.$103.22B.$103.73C.$130.62D.$131.26E.$133.04Difficulty level: EasyTopic: ORDINARY ANNUITY PAYMENTSType: PROBLEMS42. You borrow $149,000 to buy a house. The mortgage rate is 7.5% and the loan period is 30 years. Payments are made monthly. If you pay for the house according to the loan agreement, how much total interest will you pay?A.$138,086B.$218,161C.$226,059D.$287,086E.$375,059Total interest = ($1,041.83 ⨯ 30 ⨯ 12) - $149,000 = $226,058.80 = $226,059 (rounded)Difficulty level: MediumTopic: ORDINARY ANNUITY PAYMENTS AND COST OF INTERESTType: PROBLEMS43. The Great Giant Corp. has a management contract with its newly hired president. The contract requires a lump sum payment of $25 million be paid to the president upon the completion of her first ten years of service. The company wants to set aside an equal amount of funds each year to cover this anticipated cash outflow. The company can earn 6.5% on these funds. How much must the company set aside each year for this purpose?A.$1,775,042.93B.$1,798,346.17C.$1,801,033.67D.$1,852,617.25E.$1,938,018.22Difficulty level: EasyTopic: ORDINARY ANNUITY PAYMENTS AND FUTURE VALUEType: PROBLEMS44. You retire at age 60 and expect to live another 27 years. On the day you retire, you have $464,900 in your retirement savings account. You are conservative and expect to earn 4.5% on your money during your retirement. How much can you withdraw from your retirement savings each month if you plan to die on the day you spend your last penny?A.$2,001.96B.$2,092.05C.$2,398.17D.$2,472.00E.$2,481.27Difficulty level: MediumTopic: ORDINARY ANNUITY PAYMENTS AND PRESENT VALUEType: PROBLEMS45. The McDonald Group purchased a piece of property for $1.2 million. It paida down payment of 20% in cash and financed the balance. The loan terms require monthly payments for 15 years at an annual percentage rate of 7.75% compounded monthly. What is the amount of each mortgage payment?A.$7,440.01B.$8,978.26C.$9,036.25D.$9,399.18E.$9,413.67Amount financed = $1,200,000 (1 - .2) = $960,000Difficulty level: MediumTopic: ORDINARY ANNUITY PAYMENTS AND PRESENT VALUEType: PROBLEMS46. You estimate that you will have $24,500 in student loans by the time you graduate. The interest rate is 6.5%. If you want to have this debt paid in full within five years, how much must you pay each month?A.$471.30B.$473.65C.$476.79D.$479.37E.$480.40Difficulty level: MediumTopic: ORDINARY ANNUITY PAYMENTS AND PRESENT VALUEType: PROBLEMS47. You are buying a previously owned car today at a price of $6,890. You are paying $500 down in cash and financing the balance for 36 months at 7.9%. What is the amount of each loan payment?A.$198.64B.$199.94C.$202.02D.$214.78E.$215.09Amount financed = $6,890 - $500 = $6,390Difficulty level: MediumTopic: ORDINARY ANNUITY PAYMENTS AND PRESENT VALUEType: PROBLEMS48. The Good Life Insurance Co. wants to sell you an annuity which will pay you $500 per quarter for 25 years. You want to earn a minimum rate of return of 5.5%. What is the most you are willing to pay as a lump sum today to buy this annuity?A.$26,988.16B.$27,082.94C.$27,455.33D.$28,450.67E.$28,806.30Difficulty level: MediumTopic: ORDINARY ANNUITY PAYMENTS AND PRESENT VALUEType: PROBLEMS49. Your car dealer is willing to lease you a new car for $299 a month for 60 months. Payments are due on the first day of each month starting with the day you sign the lease contract. If your cost of money is 4.9%, what is the current value of the lease?A.$15,882.75B.$15,906.14C.$15,947.61D.$16,235.42E.$16,289.54Difficulty level: MediumTopic: ANNUITY DUE PAYMENTS AND PRESENT VALUEType: PROBLEMS50. Your great-aunt left you an inheritance in the form of a trust. The trust agreement states that you are to receive $2,500 on the first day of each year, starting immediately and continuing for fifty years. What is the value of this inheritance today if the applicable discount rate is 6.35%?A.$36,811.30B.$37,557.52C.$39,204.04D.$39,942.42E.$40,006.09Difficulty level: MediumTopic: ANNUITY DUE PAYMENTS AND PRESENT VALUEType: PROBLEMS51. Beatrice invests $1,000 in an account that pays 4% simple interest. How much more could she have earned over a five-year period if the interest had compounded annually?A.$15.45B.$15.97C.$16.65D.$17.09E.$21.67Ending value at 4% simple interest = $1,000 + ($1,000 ⨯ .04 ⨯ 5) = $1,200.00; Ending value at 4% compounded annually = $1,000 ⨯ (1 +.04)5 = $1,216.65; Difference = $1,216.65 - $1,200.00 = $16.65Difficulty level: EasyTopic: SIMPLE VERSUS COMPOUND INTERESTType: PROBLEMS52. Your firm wants to save $250,000 to buy some new equipment three years from now. The plan is to set aside an equal amount of money on the first day of each year starting today. The firm can earn a 4.7% rate of return. How much does the firm have to save each year to achieve its goal?A.$75,966.14B.$76,896.16C.$78,004.67D.$81.414.14E.$83,333.33Difficulty level: MediumTopic: ANNUITY DUE PAYMENTS AND FUTURE VALUEType: PROBLEMS53. Today is January 1. Starting today, Sam is going to contribute $140 on the first of each month to his retirement account. His employer contributes an additional 50% of the amount contributed by Sam. If both Sam and his employer continue to do this and Sam can earn a monthly rate of ½of 1 percent, how much will he have in his retirement account 35 years from now?A.$199,45.944B.$200,456.74C.$249,981.21D.$299,189.16E.$300,685.11Difficulty level: MediumTopic: ANNUITY DUE PAYMENTS AND FUTURE VALUEType: PROBLEMS54. You are considering an annuity which costs $100,000 today. The annuity pays $6,000 a year. The rate of return is 4.5%. What is the length of the annuity time period?A.24.96 yearsB.29.48 yearsC.31.49 yearsD.33.08 yearsE.38.00 yearsDifficulty level: MediumTopic: ORDINARY ANNUITY TIME PERIODS AND PRESENT VALUEType: PROBLEMS55. Today, you signed loan papers agreeing to borrow $4,954.85 at 9% compounded monthly. The loan payment is $143.84 a month. How many loan payments must you make before the loan is paid in full?A.29.89B.36.00C.38.88D.40.00E.41.03Difficulty level: MediumTopic: ORDINARY ANNUITY TIME PERIODS AND PRESENT VALUEType: PROBLEMS56. Winston Enterprises would like to buy some additional land and build a new factory. The anticipated total cost is $136 million. The owner of the firm is quite conservative and will only do this when the company has sufficient funds to pay cash for the entire expansion project. Management has decided to save $450,000 a month for this purpose. The firm earns 6% compounded monthly on the funds it saves. How long does the company have to wait before expanding its operations?A.184.61 monthsB.199.97 monthsC.234.34 monthsD.284.61 monthsE.299.97 monthsDifficulty level: MediumTopic: ORDINARY ANNUITY TIME PERIODS AND FUTURE VALUEType: PROBLEMS57. Today, you are retiring. You have a total of $413,926 in your retirement savings and have the funds invested such that you expect to earn an average of 3%, compounded monthly, on this money throughout your retirement years. You want to withdraw $2,500 at the beginning of every month, starting today. How long will it be until you run out of money?A.185.00 monthsB.213.29 monthsC.227.08 monthsD.236.84 monthsE.249.69 monthsDifficulty level: MediumTopic: ANNUITY DUE TIME PERIODS AND PRESENT VALUEType: PROBLEMS58. The Bad Guys Co. is notoriously known as a slow-payer. It currently needs to borrow $25,000 and only one company will even deal with Bad Guys. The terms of the loan call for daily payments of $30.76. The first payment is due today. The interest rate is 21% compounded daily. What is the time period of this loan?A. 2.88 yearsB. 2.94 yearsC. 3.00 yearsD. 3.13 yearsE. 3.25 yearsDifficulty level: MediumTopic: ANNUITY DUE TIME PERIODSType: PROBLEMS59. The Robertson Firm is considering a project which costs $123,900 to undertake. The project will yield cash flows of $4,894.35 monthly for 30 months. What is the rate of return on this project?A.12.53%B.13.44%C.13.59%D.14.02%E.14.59%This can not be solved directly, so it's easiest to just use the calculator method to get an answer. You can then use the calculator answer as the rate in the formula just to verify that your answer is correct.Difficulty level: MediumTopic: ORDINARY ANNUITY INTEREST RATEType: PROBLEMS60. Your insurance agent is trying to sell you an annuity that costs $100,000 today. By buying this annuity, your agent promises that you will receive payments of $384.40 a month for the next 40 years. What is the rate of return on this investment?A. 3.45%B. 3.47%C. 3.50%D. 3.52%E. 3.55%This can not be solved directly, so it's easiest to just use the calculator method to get an answer. You can then use the calculator answer as the rate in the formula just to verify that you answer is correct.Difficulty level: MediumTopic: ORDINARY ANNUITY INTEREST RATEType: PROBLEMS61. You have been investing $120 a month for the last 15 years. Today, your investment account is worth $47,341.19. What is your average rate of return on your investments?A.9.34%B.9.37%C.9.40%D.9.42%E.9.46%This can not be solved directly, so it's easiest to just use the calculator method to get an answer. You can then use the calculator answer as the rate in the formula just to verify that you answer is correct.Difficulty level: MediumTopic: ORDINARY ANNUITY INTEREST RATEType: PROBLEMS。

罗斯公司理财英文练习题附带答案第九章

罗斯公司理财英文练习题附带答案第九章CHAPTER 9Risk Analysis, Real Options, and Capital Budgeting Multiple Choice Questions:I、DEFINITIONSSCENARIO ANALYSISb 1、An analysis of what happens to the estimate of the net present value when you examinea number of different likely situations is called _____ analysis、a、forecastingb、scenarioc、sensitivityd、simulatione、break-evenDifficulty level: EasySENSITIVITY ANALYSISc 2、An analysis of what happens to the estimate of net present value when only onevariable is changed is called _____ analysis、a、forecastingb、scenarioc、sensitivityd、simulatione、break-evenDifficulty level: EasySIMULATION ANALYSISd 3、An analysis which combines scenario analysis with sensitivity analysis is called _____analysis、a、forecastingb、scenarioc、sensitivityd、simulatione、break-evenDifficulty level: EasyBREAK-EVEN ANALYSISe 4、An analysis of the relationship between the sales volume and various measures ofprofitability is called _____ analysis、a、forecastingb、scenarioc、sensitivityd、simulatione、break-evenDifficulty level: EasyVARIABLE COSTSa 5、Variable costs:a、change in direct relationship to the quantity of output produced、b、are constant in the short-run regardless of the quantity of output produced、c、reflect the change in a variable when one more unit of output is produced、d、are subtracted from fixed costs to compute the contribution margin、e、form the basis that is used to determine the degree of operating leverage employed by afirm、Difficulty level: EasyFIXED COSTSb 6、Fixed costs:a、change as the quantity of output produced changes、b、are constant over the short-run regardless of the quantity of output produced、c、reflect the change in a variable when one more unit of output is produced、d、are subtracted from sales to compute the contribution margin、e、can be ignored in scenario analysis since they are constant over the life of a project、Difficulty level: EasyACCOUNTING BREAK-EVENc 7、The sa les level that results in a project’s net income exactly equaling zero is called the_____ break-even、a、operationalb、leveragedc、accountingd、cashe、present valueDifficulty level: EasyPRESENT VALUE BREAK-EVENe 8、The sales level that results in a proj ect’s net present value exactly equaling zero iscalled the _____ break-even、a、operationalb、leveragedc、accountingd、cashe、present valueDifficulty level: EasyII、 CONCEPTSSCENARIO ANALYSISb 9、Conducting scenario analysis helps managers see the:a、impact of an individual variable on the outcome of a project、b、potential range of outcomes from a proposed project、c、changes in long-term debt over the course of a proposed project、d、possible range of market prices for their stock over the life of a project、e、allocation distribution of funds for capital projects under conditions of hard rationing、Difficulty level: EasySENSITIVITY ANALYSISb 10、S ensitivity analysis helps you determine the:a、range of possible outcomes given possible ranges for every variable、b、degree to which the net present value reacts to changes in a single variable、c、net present value given the best and the worst possible situations、d、degree to which a project is reliant upon the fixed costs、e、level of variable costs in relation to the fixed costs of a project、Difficulty level: EasySENSITIVITY ANALYSISc 11、A s the degree of sensitivity of a project to a single variable rises, the:a、lower the forecasting risk of the project、b、smaller the range of possible outcomes given a pre-defined range of values for theinput、c、more attention management should place on accurately forecasting the futurevalue ofthat variable、d、lower the maximum potential value of the project、e、lower the maximum potential loss of the project、Difficulty level: MediumSENSITIVITY ANALYSISc 12、S ensitivity analysis is conducted by:a、holding all variables at their base level and changing the required rate of returnassigned to a project、b、changing the value of two variables to determine their interdependency、c、changing the value of a single variable and computing the resulting change in thecurrent value of a project、d、assigning either the best or the worst possible value to each variable and comparing theresults to those achieved by the base case、e、managers after a project has been implemented todetermine how each variable relatesto the level of output realized、Difficulty level: MediumSENSITIVITY ANALYSISd 13、T o ascertain whether the accuracy of the variable cost estimate for a project will havemuch effect on the final outcome of the project, you should probably conduct _____analysis、a、leverageb、scenarioc、break-evend、sensitivitye、cash flowDifficulty level: EasySIMULATIONd 14、S imulation analysis is based on assigning a _____ and analyzing the results、a、narrow range of values to a single variableb、narrow range of values to multiple variables simultaneouslyc、wide range of values to a single variabled、wide range of values to multiple variables simultaneouslye、single value to each of the variablesDifficulty level: MediumSIMULATIONe 15、T he type of analysis that is most dependent upon the use of a computeris _____analysis、a、scenariob、break-evenc、sensitivityd、degree of operating leveragee、simulationDifficulty level: EasyVARIABLE COSTSd 16、W hich one of the following is most likely a variable cost?a、office rentb、property taxesc、property insuranced、direct labor costse、management salariesDifficulty level: EasyVARIABLE COSTSa 17、W hich of the following statements concerning variable costs is (are) correct?I、Variable costs minus fixed costs equal marginal costs、II、Variable costs are equal to zero when production is equal to zero、III、A n increase in variable costs increases the operating cash flow、a、II onlyb、III onlyc、I and III onlyd、II and III onlye、I and II onlyDifficulty level: MediumVARIABLE COSTSa 18、A ll else constant, as the variable cost per unit increases, the:a、contribution margin decreases、b、sensitivity to fixed costs decreases、c、degree of operating leverage decreases、d、operating cash flow increases、e、net profit increases、Difficulty level: MediumFIXED COSTSc 19、F ixed costs:I、are variable over long periods of time、II、must be paid even if production is halted、III、a re generally affected by the amount of fixed assets owned by a firm、IV、p er unit remain constant over a given range of production output、a、I and III onlyb、II and IV onlyc、I, II, and III only。

罗斯《公司理财》英文习题答案DOCchap

30.1 The new corporation issues $300,000 in new debt. The merger creates $100,000 ofgoodwill because the merger is a purchase.Balance SheetLager Brewing(in $ thousands)Current assets $480 Current liabilities $200Other assets 140 Long-term debt 400Net fixed assets 580 Equity 700Goodwill 100Total assets $1,300 Total liabilities $1,300 30.2 If the balance sheet for Philadelphia Pretzel shows assets at book value instead of marketvalue, the goodwill will be only $60,000 (=$300,000 - $240,000). Thus, the net fixed assetsare $620,000 (=$1,300,000 - $480,000 - $140,000 - $60,000).Balance SheetLager Brewing(in $ thousands)Current assets $480 Current liabilities $200Other assets 140 Long-term debt 400Net fixed assets 620 Equity 700Goodwill 60Total assets $1,300 Total liabilities $1,300 30.3Balance SheetLager Brewing(in $ thousands)Current assets $480 Current liabilities $280Other assets 140 Long-term debt 100Net fixed assets 580 Equity 820Total assets $1,200 Total liabilities $1,200 30.4 a. False. Although the reasoning seems correct, the Stillman-Eckbo data do not supportthe monopoly power theory.b. True. When managers act in their own interest, acquisitions are an important controldevice for shareholders. It appears that some acquisitions and takeovers are theconsequence of underlying conflicts between managers and shareholders.c. False. Even if markets are efficient, the presence of synergy will make the value ofthe combined firm different from the sum of the values of the separate firms.Incremental cash flows provide the positive NPV of the transaction.d. False. In an efficient market, traders will value takeovers based on “Fundamentalfactors” regardless of the time horizon. Recall that the evidence as a whole suggestsefficiency in the markets. Mergers should be no different.e. False. The tax effect of an acquisition depends on whether the merger is taxable ornon-taxable. In a taxable merger, there are two opposing factors to consider, thecapital gains effect and the write-up effect. The net effect is the sum of these twoeffects.f. True. Because of the coinsurance effect, wealth might be transferred from thestockholders to the bondholders. Acquisition analysis usually disregards this effectand considers only the total value.30.530.6 a. The weather conditions are independent. Thus, the joint probabilities are theproducts of the individual probabilities.Possible states Joint probabilityRain Rain 0.1 x 0.1=0.01Rain Warm 0.1 x 0.4=0.04Rain Hot 0.1 x 0.5=0.05Warm Rain 0.4 x 0.1=0.04Warm Warm 0.4 x 0.4=0.16Warm Hot 0.4 x 0.5=0.20Hot Rain 0.5 x 0.1=0.05Hot Warm 0.5 x 0.4=0.20Hot Hot 0.5 x 0.5=0.25Since the state Rain Warm has the same outcome (revenue) as Warm Rain, theirprobabilities can be added. The same is true of Rain Hot, Hot Rain and Warm Hot,Hot Warm. Thus the joint probabilities arePossibleJoint probabilitystatesRain Rain 0.01Rain Warm 0.08Rain Hot 0.10Warm Warm 0.16Warm Hot 0.40Hot Hot 0.25The joint values are the sums of the values of the two companies for the particularstate.Possible states Joint valueRain Rain $200,000Rain Warm 300,000Warm Warm 400,000Rain Hot 500,000Warm Hot 600,000Hot Hot 800,000b. Recall, if a firm cannot service its debt, the bondholders receive the value of the assets.Thus, the value of the debt is the value of the company if the face value of the debt isgreater than the value of the company. If the value of the company is greater than the value of the debt, the value of the debt is its face value. Here the value of the common stock is always the residual value of the firm over the value of the debt.Joint Prob. Joint Value Debt Value Stock Value0.01 $200,000 $200,000 $00.08 300,000 300,000 00.16 400,000 400,000 00.10 500,000 400,000 100,0000.40 600,000 400,000 200,0000.25 800,000 400,000 400,000c. To show that the value of the combined firm is the sum of the individual values, youmust show that the expected joint value is equal to the sum of the separate expected values.Expected joint value= 0.01($200,000) + 0.08($300,000) + 0.16($400,000) + 0.10($500,000) +0.40($600,000) + 0.25($800,000)= $580,000Since the firms are identical, the sum of the expected values is twice the expectedvalue of either.Expected individual value = 0.1($100,000) + 0.4($200,000) + 0.5($400,000) = $290,000 Expected combined value = 2($290,000) = $580,000d. The bondholders are better off if the value of the debt after the merger is greater thanthe value of the debt before the merger.Value of the debt before the merger:The value of debt for either company= 0.1($100,000) + 0.4($200,000) + 0.5($200,000) = $190,000Total value of debt before the merger = 2($190,000) = $380,000Value of debt after the merger= 0.01($200,000) + 0.08($300,000) + 0.16($400,000) + 0.10($400,000) +0.40($400,000) +0.25($400,000)= $390,000The bondholders are $10,000 better off after the merger.30.7 The decision hinges upon the risk of surviving. The final decision should hinge on thewealth transfer from bondholders to stockholders when risky projects are undertaken.High-risk projects will reduce the expected value of the bondholders’ claims on the firm.The telecommunications business is riskier than the utilities business. If the total value of the firm does not change, the increase in risk should favor the stockholder. Hence,management should approve this transaction. Note, if the total value of the firm dropsbecause of the transaction and the wealth effect is lower than the reduction in total value, management should reject the project.30.8 If the market is “smart,” the P/E ratio will not be constant.a. Value = $2,500 + $1,000 = $3,500b. EPS = Post-merger earnings / Total number of shares=($100 + $100)/200 =$1c. Price per share = Value/Total number of shares=$3,500/200 =$17.50d. If the market is “fooled,” the P/E ratio will be constant at $25.Value = P/E * Total number of shares= 25 * 200 = $5,000EPS = Post-merger earnings / Total number of shares=$5,000/200 = $25.0030.9 a. After the merger, Arcadia Financial will have 130,000 [=10,000 + (50,000)(6/10)]shares outstanding. The earnings of the combined firm will be $325,000. The earningsper share of the combined firm will be $2.50 (=$325,000/130,000). The acquisition will increase the EPS for the stockholders from $2.25 to $2.50.b. There will be no effect on the original Arcadia stockholders. No synergies exist in thismerger since Arcadia is buying Coldran at its market price. Examining the relativevalues of the two firms sees the latter point.Share price of Arcadia = (16 * $225,000) / 100,000=$36Share price of Coldran = (10.8 * $100,000) / 50,000=$21.60The relative value of these prices is $21.6/$36 = 0.6. Since Coldran’s shareholdersreceive 0.6 shares of Arcadia for every share of Coldran, no synergies exist.30.10 a. The synergy will be the discounted incremental cash flows. Since the cash flows areperpetual, this amount isb. The value of Flash-in-the-Pan to Fly-by-Night is the synergy plus the current marketvalue of Flash-in-the-Pan.V = $7,500,000 + $20,000,000= $27,500,000c. Cash alternative = $15,000,000Stock alternative = 0.25($27,500,000 + $35,000,000)= $15,625,000d. NPV of cash alternative = V - Cost=$27,500,000 - $15,000,000=$12,500,000NPV of stock alternative = V - Cost=$27,500,000 - $15,625,000=$11,875,000e. Use the cash alternative, its NPV is greater.30.11 a. The value of Portland Industries before the merger is $9,000,000 (=750,000x12). Thisvalue is also the discounted value of the expected future dividends.$9,000,000 =r = 0.1025 = 10.25%r is the risk-adjusted discount rate for Portland’s expected future dividends.the value of Portland Industries after the merger isThis is the value of Portland Industries to Freeport.b. NPV = Gain - Cost= $14,815,385 - ($40x250, 000)= $4,815,385c. If Freeport offers stock, the value of Portland Industries to Freeport is the same, but thecost differs.Cost = (Fraction of combined firm owned by Portland’s stockholders)x(Value of the combined firm)Value of the combined firm = (Value of Freeport before merger)+ (Value of Portland to Freeport)= $15x1,000,000 + $14,815,385= $29,815,385Cost = 0.375x$29,815,385= $11,180,769NPV= $14,815,385 - $11,180,769=$3,634,616d. The acquisition should be attempted with a cash offer since it provides a higher NPV.e. The value of Portland Industries after the merger isThis is the value of Portland Industries to Freeport.NPV = Gain-Cost=$11,223,529 - ($40x250,000)=$1,223,529If Freeport offers stock, the value of Portland Industries to Freeport is the same, but the cost differs.Cost = (Fraction of combined firm owned by Portland’s stockholders)x(Value of the combined firm)Value of the combined firm = (Value of Freeport before merger)+ (Value of Portland to Freeport)= $15x1,000,000 + $11,223,529= $26,223,529Cost = 0.375 * $26,223,529=$9,833,823NPV = $11,223,529 - $9,833,823=$1,389,706The acquisition should be attempted with a stock offer since it provides a higher NPV.30.12 a. Number of shares after acquisition=30 + 15 = 45 milStock price of Harrods after acquisition = 1,000/45=22.22 poundsb. Value of Selfridge stockholders after merger:α * 1,000 = 300α = 30%New shares issued = 12.86 mil12.86:20 = 0.643:1The proper exchange ratio should be 0.643 to make the stock offer’s value to Selfridgeequivalent to the cash offer.30.13 To evaluate this proposal, look at the present value of the incremental cash flows.Cash Flows to Company A(in $ million)Year 0 1 2 3 4 5Acquisition of B -550Dividends from B 150 32 5 20 30 45Tax-loss carryforwards 25 25Terminal value 600Total -400 32 30 45 30 645 The additional cash flows from the tax-loss carry forwards and the proposed level of debt should be discounted at the cost of debt because they are determined with very littleuncertainty.The after-tax cash flows are subject to normal business risk and must be discounted at anormal rate.Beta coefficient for the bond = 0.25 = [(8%-6%)/8%].Beta coefficient for the company = 1 = [(0.25)2 + (1.25)(0.75)]Discount rate for normal operations:r = 6% + 8% (1) = 14%Discount rate for dividends:The new beta coefficient for the company, 1, must be the weighted average of the debtbeta and the stock beta.1 = 0.5(0.25) + 0.5(βs)βs = 1.75r = 6% + 8%(1.75) = 20%Because the NPV of the acquisition is negative, Company A should not acquireCompany B.30.14 The commonly used defensive tactics by target-firm managers include:i. corporate charter amendments like super-majority amendment or staggering theelection of board members.ii. repurchase standstill agreements.iii. exclusionary self-tenders.iv. going private and leveraged buyouts.v. other devices like golden parachutes, scorched earth strategy, poison pill, ..., etc.Mini Case: U.S.Steel’s case.You have 3 choices: tender, or do not tender or sell in the market. If you do sell your shares in the market, at some point, somebody else would need to make a decision in “tender” or “not tender” as well.It is important to recognize that the firm has about 60 million shares outstanding (since 30 million shares will give US Steel 50.1% of Marathon shares). Let’s consider the possible sellingthe market price.If you choose not to tender, and 30 million shares were tendered US Steel succeeds to gain50.1% control, you will only receive $85 a share. If you do tender, the price you will receive will be no worse than $85 a share and can be as high as $125 a share. Depending on the number of shares tendered, you will receive one of the following prices.If only 50.1% tendered, you will get $125 per share.If the shares tendered exceed 50.1% but less than 100%, you will get more than $105 ashare.If all 60 million shares were tendered, you will get $105 per share. (which is )It is clear that, in the above 3 cases, when you are not sure about whether US Steel will succeed or not, you will be better off to tender your shares than not tender. This is because at best, you will only receive $85 per share if you choose not to tender.版权申明本文部分内容，包括文字、图片、以及设计等在网上搜集整理。

英文版罗斯公司理财习题答案

CHAPTER 7NET PRESENT VALUE AND OTHER INVESTMENT CRITERIAAnswers to Concepts Review and Critical Thinking Questions1. A payback period less than the project’s life means that the NPV is positive for a zero discount rate,but nothing more definitive can be said. For discount rates greater than zero, the payback period will still be less than the project’s life, but the NPV may be positive, zero, or negative, depending on whether the discount rate is less than, equal to, or greater than the IRR. The discounted payback includes the effect of the relevant discount rate. If a project’s discounted payback period is less than the project’s life, it must be the case that NPV is positive.2.If a project has a positive NPV for a certain discount rate, then it will also have a positive NPV for azero discount rate; thus, the payback period must be less than the project life. Since discounted payback is calculated at the same discount rate as is NPV, if NPV is positive, the discounted payback period must be less than the project’s life. If NPV is positive, then the present value of future cash inflows is greater than the initial investment cost; thus PI must be greater than 1. If NPV is positive for a certain discount rate R, then it will be zero for some larger discount rate R*; thus, the IRR must be greater than the required return.3. a.Payback period is simply the accounting break-even point of a series of cash flows. To actuallycompute the payback period, it is assumed that any cash flow occurring during a given period isrealized continuously throughout the period, and not at a single point in time. The payback isthen the point in time for the series of cash flows when the initial cash outlays are fullyrecovered. Given some predetermined cutoff for the payback period, the decision rule is toaccept projects that payback before this cutoff, and reject projects that take longer to payback.The worst problem associated with payback period is that it ignores the time value of money. Inaddition, the selection of a hurdle point for payback period is an arbitrary exercise that lacksany steadfast rule or method. The payback period is biased towards short-term projects; it fullyignores any cash flows that occur after the cutoff point.b.The average accounting return is interpreted as an average measure of the accountingperformance of a project over time, computed as some average profit measure attributable tothe project divided by some average balance sheet value for the project. This text computesAAR as average net income with respect to average (total) book value. Given somepredetermined cutoff for AAR, the decision rule is to accept projects with an AAR in excess ofthe target measure, and reject all other projects. AAR is not a measure of cash flows and marketvalue, but a measure of financial statement accounts that often bear little resemblance to therelevant value of a project. In addition, the selection of a cutoff is arbitrary, and the time valueof money is ignored. For a financial manager, both the reliance on accounting numbers ratherthan relevant market data and the exclusion of time value of money considerations are troubling.Despite these problems, AAR continues to be used in practice because (1) the accountinginformation is usually available, (2) analysts often use accounting ratios to analyze firmperformance, and (3) managerial compensation is often tied to the attainment of targetaccounting ratio goals.c.The IRR is the discount rate that causes the NPV of a series of cash flows to be identically zero.IRR can thus be interpreted as a financial break-even rate of return; at the IRR discount rate,the net value of the project is zero. The acceptance and rejection criteria are:If C0 < 0 and all future cash flows are positive, accept the project if the internal rate ofreturn is greater than or equal to the discount rate.If C0 < 0 and all future cash flows are positive, reject the project if the internal rate ofreturn is less than the discount rate.If C0 > 0 and all future cash flows are negative, accept the project if the internal rate ofreturn is less than or equal to the discount rate.If C0 > 0 and all future cash flows are negative, reject the project if the internal rate ofreturn is greater than the discount rate.IRR is the interest rate that causes NPV for a series of cash flows to be zero. NPV is preferred in all situations to IRR; IRR can lead to ambiguous results if there are non-conventional cash flows, and it also ambiguously ranks some mutually exclusive projects. However, for stand-alone projects with conventional cash flows, IRR and NPV are interchangeable techniques. The IRR decision rule for projectsd.The profitability index is the present value of cash inflows relative to the project cost. As such,it is a benefit/cost ratio, providing a measure of the relative profitability of a project. The profitability index decision rule is to accept projects with a PI greater than one, and to reject projects with a PI less than one. The profitability index can be expressed as: PI = (NPV + cost)/cost = 1 + (NPV/cost). If a firm has a basket of positive NPV projects and is subject to capital rationing, PI may provide a good ranking measure of the projects, indicating the “bang for the buck” of each particu lar project.e.NPV is simply the present value of a project’s cash flows. NPV specifically measures, afterconsidering the time value of money, the net increase or decrease in firm wealth due to the project. The decision rule is to accept projects that have a positive NPV, and reject projects with a negative NPV. NPV is superior to the other methods of analysis presented in the text because it has no serious flaws. The method unambiguously ranks mutually exclusive projects, and can differentiate between projects of different scale and time horizon. The only drawback to NPV is that it relies on cash flow and discount rate values that are often estimates and not certain, but this is a problem shared by the other performance criteria as well. A project with NPV = $2,500 implies that the total shareholder wealth of the firm will increase by $2,500 if the project is accepted.4.For a project with future cash flows that are an annuity:Payback = I / CAnd the IRR is:0 = – I + C / IRRSolving the IRR equation for IRR, we get:IRR = C / INotice this is just the reciprocal of the payback. So:IRR = 1 / PBFor long-lived projects with relatively constant cash flows, the sooner the project pays back, the greater is the IRR.5.There are a number of reasons. Two of the most important have to do with transportation costs andexchange rates. Manufacturing in the U.S. places the finished product much closer to the point of sale, resulting in significant savings in transportation costs. It also reduces inventories because goods spend less time in transit. Higher labor costs tend to offset these savings to some degree, at least compared to other possible manufacturing locations. Of great importance is the fact that manufacturing in the U.S. means that a much higher proportion of the costs are paid in dollars. Since sales are in dollars, the net effect is to immunize profits to a large extent against fluctuations in exchange rates. This issue is discussed in greater detail in the chapter on international finance.6.The single biggest difficulty, by far, is coming up with reliable cash flow estimates. Determining anappropriate discount rate is also not a simple task. These issues are discussed in greater depth in the next several chapters. The payback approach is probably the simplest, followed by the AAR, but even these require revenue and cost projections. The discounted cash flow measures (discounted payback, NPV, IRR, and profitability index) are really only slightly more difficult in practice.7.Yes, they are. Such entities generally need to allocate available capital efficiently, just as for-profitsdo. However, it is frequently the case that the “revenues” from not-for-profit ventures are not tangible. For example, charitable giving has real opportunity costs, but the benefits are generally hard to measure. To the extent that benefits are measurable, the question of an appropriate required return remains. Payback rules are commonly used in such cases. Finally, realistic cost/benefit analysis along the lines indicated should definitely be used by the U.S. government and would go a long way toward balancing the budget!8.The statement is false. If the cash flows of Project B occur early and the cash flows of Project Aoccur late, then for a low discount rate the NPV of A can exceed the NPV of B. Observe the following example.C0C1C2IRR NPV @ 0% Project A –$1,000,000 $0 $1,440,000 20% $440,000 Project B –$2,000,000 $2,400,000 $0 20% 400,000However, in one particular case, the statement is true for equally risky Projects. If the lives of the two Projects are equal and the cash flows of Project B are twice the cash flows of Project A in every time period, the NPV of Project B will be twice the NPV of Project A.9. Although the profitability index (PI) is higher for Project B than for Project A, Project A should bechosen because it has the greater NPV. Confusion arises because Project B requires a smaller investment than Project A requires. Since the denominator of the PI ratio is lower for Project B than for Project A, B can have a higher PI yet have a lower NPV. Only in the case of capital rationing could the company’s decision have been incorrect.10. a.Project A would have a higher IRR since initial investment for Project A is less than that ofProject B, if the cash flows for the two projects are identical.b.Yes, since both the cash flows as well as the initial investment are twice that of Project B.11.Project B would have a more sensitive NPV to changes in the discount rate. The reason is the timevalue of money. Cash flows that occur further out in the future are always more sensitive to changes in the interest rate. This is similar to the interest rate risk of a bond.12.The MIRR is calculated by finding the present value of all cash outflows, the future value of all cashinflows to the end of the project, and then calculating the IRR of the two cash flows. As a result, the cash flows have been discounted or compounded by one interest rate (the required return), and then the interest rate between the two remaining cash flows is calculated. As such, the MIRR is not a true interest rate. In contrast, consider the IRR. If you take the initial investment, and calculate the future value at the IRR, you can replicate the future cash flows of the project exactly.13.The criticism is incorrect. It is true that if you calculate the future value of all intermediate cashflows to the end of the project at the required return, then calculate the NPV of this future value and the initial investment, you will get the same NPV. However, NPV says nothing about reinvestment of intermediate cash flows. The NPV is the present value of the project cash flows. The fact that the reinvestment works is an artifact of the time value of money.14.The criticism is incorrect for several reasons. It is true that if you calculate the future value of allintermediate cash flows to the end of the project at the IRR, then calculate the IRR of this future value and the initial investment, you will get the same IRR. This only occurs if the intermediate cash flows are reinvested at the IRR. However, similar to the previous question, IRR deals with the present value of the cash flows, not the future value. There is also another important point. This criticism deals with the reinvestment of the intermediate cash flows. As we will see in the next chapter, any reinvestment assumption concerning the intermediate cash flows is incorrect. The reason is that when we are calculating the cash flows for a project, we are concerned with the incremental cash flows from the project, that is, the cash flows the project creates. Reinvestment violates this principal. Consider the following example:C0C1C2IRR Project A –$100 $10 $110 10% Suppose this is a deposit into a bank account. The IRR of the cash flows is 10 percent. Does it the IRR change if the Year 1 cash flow is reinvested in the account, or if it is withdrawn and spent on pizza? No. Finally, think back to the yield to maturity calculation on a bond. The YTM is the IRR of the bond investment, but no mention of a reinvestment assumption of the bond coupons is inferred.The reason is that the reinvestment assumption is irrelevant to calculating the YTM on a bond; in the same way, the reinvestment assumption is irrelevant in the IRR calculation.Solutions to Questions and ProblemsNOTE: All end-of-chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred. However, the final answer for each problem is found without rounding during any step in the problem.Basic1. a.The payback period is the time that it takes for the cumulative undiscounted cash inflows toequal the initial investment.Project A:Cumulative cash flows Year 1 = €4,000 = €4,000Cumulative cash flows Year 2 = €4,000 +3,500 = €7,500 Payback period = 2 yearsProject B:Cumulative cash flows Year 1 = €2,500 = €2,500Cumulative cash flows Year 2 = €2,500 + 1,200 = €3,700Cumulative cash flows Year 3 = €2,500 + 1,200 + 3,000 = €6,700 Companies can calculate a more precise value using fractional years. To calculate the fractionalpayba ck period, find the fraction of year 3’s cash flows that is needed for the company to have cumulative undiscounted cash flows of €5,000. Divide the difference between the initial investment and the cumulative undiscounted cash flows as of year 2 by the undiscounted cashflow of year 3.Payback period = 2 + (€5,000 –€3,700) / €3,000Payback period = 2.43Since project A has a shorter payback period than project B has, the company should chooseproject A.b.Discount each project’s cash flows at 15 percent. Choose the project with the highest NPV.Project A:NPV = –€7,500 + €4,000 / 1.15 + €3,500 / 1.152 + €1,500 / 1.153NPV = –€388.96Project B:NPV = –€5,000 + €2,500 / 1.15 + €1,200 / 1.152 + €3,000 / 1.153NPV = €53.83The firm should choose Project B since it has a higher NPV than Project A has.2.To calculate the payback period, we need to find the time that the project has recovered its initialinvestment. The cash flows in this problem are an annuity, so the calculation is simpler. If the initial cost is £3,000, the payback period is:Payback = 3 + (£300 / £900) = 3.33 yearsThere is a shortcut to calculate the payback period if the future cash flows are an annuity. Just divide the initial cost by the annual cash flow. For the £3,000 cost, the payback period is:Payback = £3,000 / £900 = 3.33 yearsFor an initial cost of £5,000, the payback period is:Payback = 5 + (£500 / £900) = 5.55 yearsThe payback period for an initial cost of £10,000 is a little trickier. Notice that the total cash inflows after nine years will be:Total cash inflows = 8(£900) = £7,200If the initial cost is £10,000, the project never pays back. Notice that if you use the shortcut forannuity cash flows, you get:Payback = £10,000 / £900 = 11.11 years.This answer does not make sense since the cash flows stop after nine years, so the payback period is never.3.When we use discounted payback, we need to find the value of all cash flows today. The value todayof the project cash flows for the first four years is:Value today of Year 1 cash flow = $7,000/1.14 = $6,140.35Value today of Year 2 cash flow = $7,500/1.142 = $5,771.01Value today of Year 3 cash flow = $8,000/1.143 = $5,399.77Value today of Year 4 cash flow = $8,500/1.144 = $5,032.68To find the discounted payback, we use these values to find the payback period. The discounted first year cash flow is $6,140.35, so the discounted payback for an $8,000 initial cost is:Discounted payback = 1 + ($8,000 – 6,140.35)/$5,771.01 = 1.32 yearsFor an initial cost of $13,000, the discounted payback is:Discounted payback = 2 + ($13,000 – 6,140.35 – 5,771.01)/$5,399.77 = 2.20 yearsNotice the calculation of discounted payback. We know the payback period is between two and three years, so we subtract the discounted values of the Year 1 and Year 2 cash flows from the initial cost.This is the numerator, which is the discounted amount we still need to make to recover our initial investment. We divide this amount by the discounted amount we will earn in Year 3 to get the fractional portion of the discounted payback.If the initial cost is $18,000, the discounted payback is:Discounted payback = 3 + ($18,000 – 6,140.35 – 5,771.01 – 5,399.77) / $5,032.68 = 3.14 years4.To calculate the discounted payback, discount all future cash flows back to the present, and use thesediscounted cash flows to calculate the payback period. Doing so, we find:R = 0%: 4 + (£1,100 / £2,100) = 4.52 yearsDiscounted payback = Regular payback = 4.52 yearsR = 5%: £2,100/1.05 + £2,100/1.052 + £2,100/1.053 + £2,100/1.054 + £2,100/1.055 = £9,091.90 £2,100/1.056 = £1,567.05Discounted payback = 5 + (£9,500 – 9,091.90) / £1,567.05 = 5.26 years R = 15%: £2,100/1.15 + £2,100/1.152 + £2,100/1.153 + £2,100/1.154 + £2,100/1.155 + £2,100/1.156 = £7,947.41; The project never pays back.5. a.The average accounting return is the average project earnings after taxes, divided by theaverage book value, or average net investment, of the machine during its life. The book value of the machine is the gross investment minus the accumulated depreciation.Average book value = (Book Value0 + Book Value1 + Book Value2 + Book Value3 +Book Value4 + Book Value5) / (Economic Life)Average book value = ($16,000 + 12,000 + 8,000 + 4,000 + 0) / (5 years)Average book value = $8,000Average Project Earnings = $4,500To find the average accounting return, we divide the average project earnings by the average book value of the machine to calculate the average accounting return. Doing so, we find:Average Accounting Return = Average Project Earnings / Average Book ValueAverage Accounting Return = $4,500 / $8,000Average Accounting Return = 0.5625 or 56.25%6.First, we need to determine the average book value of the project. The book value is the grossinvestment minus accumulated depreciation.Purchase Date Year 1 Year 2 Year 3 Gross Investment €8,000 €8,000 €8,000 €8,000Less: Accumulated Depreciation 0 4,000 6,500 8,000Net Investment €8,000 €4,000 €1,500 €0 Now, we can calculate the average book value as:Average book value = (€8,000 + 4,000 + 1,500 + 0) / (4 years)Average book value = €3,375To calculate the average accounting return, we must remember to use the aftertax average netincome when calculating the average accounting return. So, the average aftertax net income is:Average aftertax net income = (1 – t c) Annual pretax net incomeAverage aftertax net income = (1 – 0.25) €2,000Average aftertax net income = €1,500The average accounting return is the average after-tax net income divided by the average book value, which is:Average accounting return = €1,500 / €3,375Average accounting return = 0.4444 or 44.44%7.The IRR is the interest rate that makes the NPV of the project equal to zero. So, the equation that definesthe IRR for this project is:0 = C0 + C1 / (1 + IRR) + C2 / (1 + IRR)2 + C3 / (1 + IRR)30 = –¥8,000,000 + ¥4,000,000/(1 + IRR) + ¥3,000,000/(1 + IRR)2 + ¥2,000,000/(1 + IRR)3Using a spreadsheet, financial calculator, or trial and error to find the root of the equation, we find that: IRR = 6.93%Since the IRR is less than the required return we would reject the project.8.The IRR is the interest rate that makes the NPV of the project equal to zero. So, the equation that definesthe IRR for this Project A is:0 = C0 + C1 / (1 + IRR) + C2 / (1 + IRR)2 + C3 / (1 + IRR)30 = – £2,000 + £1,000/(1 + IRR) + £1,500/(1 + IRR)2 + £2,000/(1 + IRR)3Using a spreadsheet, financial calculator, or trial and error to find the root of the equation, we find that: IRR = 47.15%And the IRR for Project B is:0 = C0 + C1 / (1 + IRR) + C2 / (1 + IRR)2 + C3 / (1 + IRR)30 = – £1,500 + £500/(1 + IRR) + £1,000/(1 + IRR)2 + £1,500/(1 + IRR)3Using a spreadsheet, financial calculator, or trial and error to find the root of the equation, we find that: IRR = 36.19%9.The profitability index is defined as the PV of the cash inflows divided by the PV of the cashoutflows. The cash flows from this project are an annuity, so the equation for the profitability index is:PI = C(PVIFA R,t) / C0PI = €41,000(PVIFA15%,7) / €160,000PI = 1.066110. a.The profitability index is the present value of the future cash flows divided by the initial cost.So, for Project Alpha, the profitability index is:PI Alpha = [$300 / 1.10 + $700 / 1.102 + $600 / 1.103] / $500 = 2.604And for Project Beta the profitability index is:PI Beta = [$300 / 1.10 + $1,800 / 1.102 + $1,700 / 1.103] / $2,000 = 1.519b.According to the profitability index, you would accept Project Alpha. However, remember theprofitability index rule can lead to incorrect decision when ranking mutually exclusive projects.Intermediate11. a.To have a payback equal to the project’s life, given C is a constant cash flow for N years:C = I/Nb.To have a positive NPV, I < C (PVIFA R%, N). Thus, C > I / (PVIFA R%, N).c.Benefits = C (PVIFA R%, N) = 2 × costs = 2IC = 2I / (PVIFA R%, N)12. a.The IRR is the interest rate that makes the NPV of the project equal to zero. So, the equationthat defines the IRR for this project is:0 = C0 + C1 / (1 + IRR) + C2 / (1 + IRR)2 + C3 / (1 + IRR)3 + C4 / (1 + IRR)40 = ₩5,000 –₩2,500 / (1 + IRR) –₩2,000 / (1 + IRR)2–₩1,000 / (1 + IRR)3–₩1,000 / (1 +IRR)4Using a spreadsheet, financial calculator, or trial and error to find the root of the equation, we find that:IRR = 13.99%b.This problem differs from previous ones because the initial cash flow is positive and all futurecash flows are negative. In other words, this is a financing-type project, while previous projects were investing-type projects. For financing situations, accept the project when the IRR is less than the discount rate. Reject the project when the IRR is greater than the discount rate.IRR = 13.99%Discount Rate = 12%IRR > Discount RateReject the offer when the discount rate is less than the IRR.ing the same reason as part b., we would accept the project if the discount rate is 20 percent.IRR = 13.99%Discount Rate = 19%IRR < Discount RateAccept the offer when the discount rate is greater than the IRR.d.The NPV is the sum of the present value of all cash flows, so the NPV of the project if thediscount rate is 10 percent will be:NPV = ₩5,000 –₩2,500 / 1.12 –₩2,000 / 1.122–₩1,000 / 1.123–₩1,000 / 1.124NPV = –₩173.83When the discount rate is 12 percent, the NPV of the offer is –₩359.95. Reject the offer.And the NPV of the project is the discount rate is 19 percent will be:NPV = ₩5,000 –₩2,500 / 1.19 –₩2,000 / 1.192–₩1,000 / 1.193–₩1,000 / 1.194NPV = ₩394.75When the discount rate is 19 percent, the NPV of the offer is ₩466.82. Accept the offer.e.Yes, the decisions under the NPV rule are consistent with the choices made under the IRR rulesince the signs of the cash flows change only once.13. a.The IRR is the interest rate that makes the NPV of the project equal to zero. So, the IRR foreach project is:Deepwater Fishing IRR:0 = C0 + C1 / (1 + IRR) + C2 / (1 + IRR)2 + C3 / (1 + IRR)30 = –$600,000 + $270,000 / (1 + IRR) + $350,000 / (1 + IRR)2 + $300,000 / (1 + IRR)3Using a spreadsheet, financial calculator, or trial and error to find the root of the equation, we find that:IRR = 24.30%Submarine Ride IRR:0 = C0 + C1 / (1 + IRR) + C2 / (1 + IRR)2 + C3 / (1 + IRR)30 = –$1,800,000 + $1,000,000 / (1 + IRR) + $700,000 / (1 + IRR)2 + $900,000 / (1 + IRR)3Using a spreadsheet, financial calculator, or trial and error to find the root of the equation, we find that:IRR = 21.46%Based on the IRR rule, the deepwater fishing project should be chosen because it has the higher IRR.b.To calculate the incremental IRR, we s ubtract the smaller project’s cash flows from the largerproject’s cash flows. In this case, we subtract the deepwater fishing cash flows from the submarine ride cash flows. The incremental IRR is the IRR of these incremental cash flows. So, the incremental cash flows of the submarine ride are:Year 0Year 1Year 2 Year 3 Submarine Ride –$1,800,000 $1,000,000 $700,000 $900,000Deepwater Fishing –600,000 270,000 350,000 300,000Submarine – Fishing –$1,200,000 $730,000 $350,000 $600,000 Setting the present value of these incremental cash flows equal to zero, we find the incremental IRR is:0 = C0 + C1 / (1 + IRR) + C2 / (1 + IRR)2 + C3 / (1 + IRR)30 = –$1,200,000 + $730,000 / (1 + IRR) + $350,000 / (1 + IRR)2 + $600,000 / (1 + IRR)3Using a spreadsheet, financial calculator, or trial and error to find the root of the equation, we find that:Incremental IRR = 19.92%For investing-type projects, accept the larger project when the incremental IRR is greater than the discount rate. Since the incremental IRR, 19.92%, is greater than the required rate of return of 15 percent, choose the submarine ride project. Note that this is the choice when evaluating only the IRR of each project. The IRR decision rule is flawed because there is a scale problem.That is, the submarine ride has a greater initial investment than does the deepwater fishing project. This problem is corrected by calculating the IRR of the incremental cash flows, or by evaluating the NPV of each project.c.The NPV is the sum of the present value of the cash flows from the project, so the NPV of eachproject will be:Deepwater fishing:NPV = –$600,000 + $270,000 / 1.15 + $350,000 / 1.152 + $300,000 / 1.153NPV = $96,687.76Submarine ride:NPV = –$1,800,000 + $1,000,000 / 1.15 + $700,000 / 1.152 + $900,000 / 1.153NPV = $190,630.39Since the NPV of the submarine ride project is greater than the NPV of the deepwater fishingproject, choose the submarine ride project. The incremental IRR rule is always consistent withthe NPV rule.14. a.The profitability index is the PV of the future cash flows divided by the initial investment. Thecash flows for both projects are an annuity, so:PI I = 元15,000(PVIFA10%,3 ) / 元30,000 = 1.243PI II = 元2,800(PVIFA10%,3) / 元5,000 = 1.393The profitability index decision rule implies that we accept project II, since PI II is greater thanthe PI I.b.The NPV of each project is:NPV I = –元30,000 + 元15,000(PVIFA10%,3) = 元7,302.78NPV II = –元5,000 + 元2,800(PVIFA10%,3) = 元1,963.19The NPV decision rule implies accepting Project I, since the NPV I is greater than the NPV II.ing the profitability index to compare mutually exclusive projects can be ambiguous whenthe magnitudes of the cash flows for the two projects are of different scale. In this problem,project I is roughly 3 times as large as project II and produces a larger NPV, yet the profit-ability index criterion implies that project II is more acceptable.15. a.The equation for the NPV of the project is:NPV = –₦28,000,000 + ₦53,000,000/1.11 –₦8,000,000/1.112 = ₦13,254,768.28The NPV is greater than 0, so we would accept the project.b.The equation for the IRR of the project is:0 = –₦28,000,000 + ₦53,000,000/(1+IRR) –₦8,000,000/(1+IRR)2From Descartes rule of signs, we know there are two IRRs since the cash flows change signstwice. From trial and error, the two IRRs are:IRR = 72.75%, –83.46%。

罗斯公司理财Chap004全英文题库及答案

Chapter 04 Discounted Cash Flow Valuation Answer KeyMultiple Choice Questions1. An annuity stream of cash flow payments is a set of:A. level cash flows occurring each time period for a fixed length of time.B. level cash flows occurring each time period forever.C. increasing cash flows occurring each time period for a fixed length of time.D. increasing cash flows occurring each time period forever.E. arbitrary cash flows occurring each time period for no more than 10 years.Difficulty level: EasyTopic: ANNUITYType: DEFINITIONS2. Annuities where the payments occur at the end of each time period are called _____, whereas _____ refer to annuity streams with payments occurring at the beginning of each time period.A. ordinary annuities; early annuitiesB. late annuities; straight annuitiesC. straight annuities; late annuitiesD. annuities due; ordinary annuitiesE. ordinary annuities; annuities dueDifficulty level: EasyTopic: ANNUITIES DUEType: DEFINITIONS3. An annuity stream where the payments occur forever is called a(n):A. annuity due.B. indemnity.C. perpetuity.D. amortized cash flow stream.E. amortization table.Difficulty level: EasyTopic: PERPETUITYType: DEFINITIONS4. The interest rate expressed in terms of the interest payment made each period is called the _____ rate.A. stated annual interestB. compound annual interestC. effective annual interestD. periodic interestE. daily interestDifficulty level: EasyTopic: STATED INTEREST RATESType: DEFINITIONS5. The interest rate expressed as if it were compounded once per year is called the _____ rate.A. stated interestB. compound interestC. effective annualD. periodic interestE. daily interestDifficulty level: EasyTopic: EFFECTIVE ANNUAL RATEType: DEFINITIONS6. The interest rate charged per period multiplied by the number of periods per year is called the _____ rate.A. effective annualB. annual percentageC. periodic interestD. compound interestE. daily interestDifficulty level: EasyTopic: ANNUAL PERCENTAGE RATEType: DEFINITIONS7. Paying off long-term debt by making installment payments is called:A. foreclosing on the debt.B. amortizing the debt.C. funding the debt.D. calling the debt.E. None of the above.Difficulty level: EasyTopic: AMORTIZATIONType: DEFINITIONS8. You are comparing two annuities which offer monthly payments for ten years. Both annuities are identical with the exception of the payment dates. Annuity A pays on the first of each month while annuity B pays on the last day of each month. Which one of the following statements is correct concerning these two annuities?A. Both annuities are of equal value today.B. Annuity B is an annuity due.C. Annuity A has a higher future value than annuity B.D. Annuity B has a higher present value than annuity A.E. Both annuities have the same future value as of ten years from today.Difficulty level: MediumTopic: ORDINARY ANNUITY VERSUS ANNUITY DUEType: CONCEPTS9. You are comparing two investment options. The cost to invest in either option is the same today. Both options will provide you with $20,000 of income. Option A pays five annual payments starting with $8,000 the first year followed by four annual payments of $3,000 each. Option B pays five annual payments of $4,000 each. Which one of the following statements is correct given these two investment options?A. Both options are of equal value given that they both provide $20,000 of income.B. Option A is the better choice of the two given any positive rate of return.C. Option B has a higher present value than option A given a positive rate of return.D. Option B has a lower future value at year 5 than option A given a zero rate of return.E. Option A is preferable because it is an annuity due.Difficulty level: MediumTopic: UNEVEN CASH FLOWS AND PRESENT VALUEType: CONCEPTS10. You are considering two projects with the following cash flows:Which of the following statements are true concerning these two projects?I. Both projects have the same future value at the end of year 4, given a positive rate of return. II. Both projects have the same future value given a zero rate of return.III. Both projects have the same future value at any point in time, given a positive rate of return. IV. Project A has a higher future value than project B, given a positive rate of return.A. II onlyB. IV onlyC. I and III onlyD. II and IV onlyE. I, II, and III onlyDifficulty level: MediumTopic: UNEVEN CASH FLOWS AND FUTURE VALUEType: CONCEPTS11. A perpetuity differs from an annuity because:A. perpetuity payments vary with the rate of inflation.B. perpetuity payments vary with the market rate of interest.C. perpetuity payments are variable while annuity payments are constant.D. perpetuity payments never cease.E. annuity payments never cease.Difficulty level: EasyTopic: PERPETUITY VERSUS ANNUITYType: CONCEPTS12. Which one of the following statements concerning the annual percentage rate is correct?A. The annual percentage rate considers interest on interest.B. The rate of interest you actually pay on a loan is called the annual percentage rate.C. The effective annual rate is lower than the annual percentage rate when an interest rate is compounded quarterly.D. When firms advertise the annual percentage rate they are violating U.S. truth-in-lending laws.E. The annual percentage rate equals the effective annual rate when the rate on an account is designated as simple interest.Difficulty level: MediumTopic: ANNUAL PERCENTAGE RATEType: CONCEPTS13. Which one of the following statements concerning interest rates is correct?A. The stated rate is the same as the effective annual rate.B. An effective annual rate is the rate that applies if interest were charged annually.C. The annual percentage rate increases as the number of compounding periods per year increases.D. Banks prefer more frequent compounding on their savings accounts.E. For any positive rate of interest, the effective annual rate will always exceed the annual percentage rate.Difficulty level: MediumTopic: INTEREST RATESType: CONCEPTS14. Which of the following statements concerning the effective annual rate are correct?I. When making financial decisions, you should compare effective annual rates rather than annual percentage rates.II. The more frequently interest is compounded, the higher the effective annual rate.III. A quoted rate of 6% compounded continuously has a higher effective annual rate than if the rate were compounded daily.IV. When borrowing and choosing which loan to accept, you should select the offer with the highest effective annual rate.A. I and II onlyB. I and IV onlyC. I, II, and III onlyD. II, III, and IV onlyE. I, II, III, and IVDifficulty level: MediumTopic: EFFECTIVE ANNUAL RATEType: CONCEPTS15. The highest effective annual rate that can be derived from an annual percentage rate of 9% is computed as:A. .09e - 1.B. e.09 ⨯ q.C. e ⨯ (1 + .09).D. e.09 - 1.E. (1 + .09)q.Difficulty level: MediumTopic: CONTINUOUS COMPOUNDINGType: CONCEPTS16. The time value of money concept can be defined as:A. the relationship between the supply and demand of money.B. the relationship between money spent versus money received.C. the relationship between a dollar to be received in the future and a dollar today.D. the relationship between interest rate stated and amount paid.E. None of the above.Difficulty level: EasyTopic: TIME VALUEType: CONCEPTS17. Discounting cash flows involves:A. discounting only those cash flows that occur at least 10 years in the future.B. estimating only the cash flows that occur in the first 4 years of a project.C. multiplying expected future cash flows by the cost of capital.D. discounting all expected future cash flows to reflect the time value of money.E. taking the cash discount offered on trade merchandise.Difficulty level: EasyTopic: CASH FLOWSType: CONCEPTS18. Compound interest:A. allows for the reinvestment of interest payments.B. does not allow for the reinvestment of interest payments.C. is the same as simple interest.D. provides a value that is less than simple interest.E. Both A and D.Difficulty level: EasyTopic: INTERESTType: CONCEPTS19. An annuity:A. is a debt instrument that pays no interest.B. is a stream of payments that varies with current market interest rates.C. is a level stream of equal payments through time.D. has no value.E. None of the above.Difficulty level: EasyTopic: ANNUITYType: CONCEPTS20. The stated rate of interest is 10%. Which form of compounding will give the highest effective rate of interest?A. annual compoundingB. monthly compoundingC. daily compoundingD. continuous compoundingE. It is impossible to tell without knowing the term of the loan.Difficulty level: EasyTopic: COMPOUNDINGType: CONCEPTS21. The present value of future cash flows minus initial cost is called:A. the future value of the project.B. the net present value of the project.C. the equivalent sum of the investment.D. the initial investment risk equivalent value.E. None of the above.Difficulty level: EasyTopic: PRESENT VALUEType: CONCEPTS22. Find the present value of $5,325 to be received in one period if the rate is 6.5%.A. $5,000.00B. $5,023.58C. $5,644.50D. $5,671.13E. None of the above.Difficulty level: EasyTopic: PRESENT VALUE - SINGLE SUMType: PROBLEMS23. If you have a choice to earn simple interest on $10,000 for three years at 8% or annually compounded interest at 7.5% for three years which one will pay more and by how much?A. Simple interest by $50.00B. Compound interest by $22.97C. Compound interest by $150.75D. Compound interest by $150.00E. None of the above.Simple Interest = $10,000 (.08)(3) = $2,400;Compound Interest = $10,000((1.075)3 - 1) = $2,422.97;Difference = $2,422.97 - $2,400 = $22.97Difficulty level: EasyTopic: SIMPLE & COMPOUND INTERESTType: PROBLEMS24. Bradley Snapp has deposited $7,000 in a guaranteed investment account with a promised rate of 6% compounded annually. He plans to leave it there for 4 full years when he will make a down payment on a car after graduation. How much of a down payment will he be able to make?A. $1,960.00B. $2,175.57C. $8,960.00D. $8,837.34E. $9,175.57$7,000 (1.06)4 = $8,837.34Difficulty level: EasyTopic: FUTURE VALUE - SINGLE SUMType: PROBLEMS25. Your parents are giving you $100 a month for four years while you are in college. At a 6% discount rate, what are these payments worth to you when you first start college?A. $3,797.40B. $4,167.09C. $4,198.79D. $4,258.03E. $4,279.32Difficulty level: EasyTopic: ORDINARY ANNUITY AND PRESENT VALUEType: PROBLEMS26. You just won the lottery! As your prize you will receive $1,200 a month for 100 months. If you can earn 8% on your money, what is this prize worth to you today?A. $87,003.69B. $87,380.23C. $87,962.77D. $88,104.26E. $90,723.76Difficulty level: EasyTopic: ORDINARY ANNUITY AND PRESENT VALUEType: PROBLEMS27. Todd is able to pay $160 a month for five years for a car. If the interest rate is 4.9%, how much can Todd afford to borrow to buy a car?A. $6,961.36B. $8,499.13C. $8,533.84D. $8,686.82E. $9,588.05Difficulty level: EasyTopic: ORDINARY ANNUITY AND PRESENT VALUEType: PROBLEMS28. You are the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving the insurance proceeds. You can receive a lump sum of $50,000 today or receive payments of $641 a month for ten years. You can earn 6.5% on your money. Which option should you take and why?A. You should accept the payments because they are worth $56,451.91 today.B. You should accept the payments because they are worth $56,523.74 today.C. You should accept the payments because they are worth $56,737.08 today.D. You should accept the $50,000 because the payments are only worth $47,757.69 today.E. You should accept the $50,000 because the payments are only worth $47,808.17 today.Difficulty level: MediumTopic: ORDINARY ANNUITY AND PRESENT VALUEType: PROBLEMS29. Your employer contributes $25 a week to your retirement plan. Assume that you work for your employer for another twenty years and that the applicable discount rate is 5%. Given these assumptions, what is this employee benefit worth to you today?A. $13,144.43B. $15,920.55C. $16,430.54D. $16,446.34E. $16,519.02Difficulty level: MediumTopic: ORDINARY ANNUITY AND PRESENT VALUEType: PROBLEMS30. You have a sub-contracting job with a local manufacturing firm. Your agreement calls for annual payments of $50,000 for the next five years. At a discount rate of 12%, what is this job worth to you today?A. $180,238.81B. $201,867.47C. $210,618.19D. $223,162.58E. $224,267.10Difficulty level: MediumTopic: ORDINARY ANNUITY AND PRESENT VALUEType: PROBLEMS31. The Ajax Co. just decided to save $1,500 a month for the next five years as a safety net for recessionary periods. The money will be set aside in a separate savings account which pays 3.25% interest compounded monthly. It deposits the first $1,500 today. If the company had wanted to deposit an equivalent lump sum today, how much would it have had to deposit?A. $82,964.59B. $83,189.29C. $83,428.87D. $83,687.23E. $84,998.01Difficulty level: MediumTopic: ANNUITY DUE AND PRESENT VALUEType: PROBLEMS32. You need some money today and the only friend you have that has any is your ‘miserly' friend. He agrees to loan you the money you need, if you make payments of $20 a month for the next six months. In keeping with his reputation, he requires that the first payment be paid today. He also charges you 1.5% interest per month. How much money are you borrowing?A. $113.94B. $115.65C. $119.34D. $119.63E. $119.96Difficulty level: MediumTopic: ANNUITY DUE AND PRESENT VALUEType: PROBLEMS33. You buy an annuity which will pay you $12,000 a year for ten years. The payments are paid on the first day of each year. What is the value of this annuity today at a 7% discount rate?A. $84,282.98B. $87,138.04C. $90,182.79D. $96,191.91E. $116,916.21Difficulty level: MediumTopic: ANNUITY DUE AND PRESENT VALUEType: PROBLEMS34. You are scheduled to receive annual payments of $10,000 for each of the next 25 years. Your discount rate is 8.5%. What is the difference in the present value if you receive these payments at the beginning of each year rather than at the end of each year?A. $8,699B. $9,217C. $9,706D. $10,000E. $10,850Difference = $111,040.97 - $102,341.91 = $8,699.06 = $8,699 (rounded)Note: The difference = .085 $102,341.91 = $8,699.06Difficulty level: MediumTopic: ORDINARY ANNUITY VERSUS ANNUITY DUEType: PROBLEMS35. You are comparing two annuities with equal present values. The applicable discount rate is 7.5%. One annuity pays $5,000 on the first day of each year for twenty years. How much does the second annuity pay each year for twenty years if it pays at the end of each year?A. $4,651B. $5,075C. $5,000D. $5,375E. $5,405Because each payment is received one year later, then the cash flow has to equal: $5,000 (1 + .075) = $5,375Difficulty level: MediumTopic: ORDINARY ANNUITY VERSUS ANNUITY DUEType: PROBLEMS36. Martha receives $100 on the first of each month. Stewart receives $100 on the last day of each month. Both Martha and Stewart will receive payments for five years. At an 8% discount rate, what is the difference in the present value of these two sets of payments?A. $32.88B. $40.00C. $99.01D. $108.00E. $112.50Difference = $4,964.72 - $4,931.84 = $32.88Difficulty level: MediumTopic: ORDINARY ANNUITY VERSUS ANNUITY DUEType: PROBLEMS37. What is the future value of $1,000 a year for five years at a 6% rate of interest?A. $4,212.36B. $5,075.69C. $5,637.09D. $6,001.38E. $6,801.91Difficulty level: EasyTopic: ORDINARY ANNUITY AND FUTURE VALUEType: PROBLEMS38. What is the future value of $2,400 a year for three years at an 8% rate of interest?A. $6,185.03B. $6,847.26C. $7,134.16D. $7,791.36E. $8,414.67Difficulty level: EasyTopic: ORDINARY ANNUITY AND FUTURE VALUEType: PROBLEMS39. Janet plans on saving $3,000 a year and expects to earn 8.5%. How much will Janet have at the end of twenty-five years if she earns what she expects?A. $219,317.82B. $230,702.57C. $236,003.38D. $244,868.92E. $256,063.66Difficulty level: EasyTopic: ORDINARY ANNUITY AND FUTURE VALUEType: PROBLEMS40. Toni adds $3,000 to her savings on the first day of each year. Tim adds $3,000 to his savings on the last day of each year. They both earn a 9% rate of return. What is the difference in their savings account balances at the end of thirty years?A. $35,822.73B. $36,803.03C. $38,911.21D. $39,803.04E. $40,115.31Difference = $445,725.65 - $408,922.62 = $36,803.03Note: Difference = $408,922.62 .09 = $36,803.03Difficulty level: MediumTopic: ANNUITY DUE VERSUS ORDINARY ANNUITYType: PROBLEMS41. You borrow $5,600 to buy a car. The terms of the loan call for monthly payments for four years at a 5.9% rate of interest. What is the amount of each payment?A. $103.22B. $103.73C. $130.62D. $131.26E. $133.04Difficulty level: EasyTopic: ORDINARY ANNUITY PAYMENTSType: PROBLEMS42. You borrow $149,000 to buy a house. The mortgage rate is 7.5% and the loan period is 30 years. Payments are made monthly. If you pay for the house according to the loan agreement, how much total interest will you pay?A. $138,086B. $218,161C. $226,059D. $287,086E. $375,059Total interest = ($1,041.83 ⨯ 30 ⨯ 12) - $149,000 = $226,058.80 = $226,059 (rounded) Difficulty level: MediumTopic: ORDINARY ANNUITY PAYMENTS AND COST OF INTERESTType: PROBLEMS43. The Great Giant Corp. has a management contract with its newly hired president. The contract requires a lump sum payment of $25 million be paid to the president upon the completion of her first ten years of service. The company wants to set aside an equal amount of funds each year to cover this anticipated cash outflow. The company can earn 6.5% on these funds. How much must the company set aside each year for this purpose?A. $1,775,042.93B. $1,798,346.17C. $1,801,033.67D. $1,852,617.25E. $1,938,018.22Difficulty level: EasyTopic: ORDINARY ANNUITY PAYMENTS AND FUTURE VALUEType: PROBLEMS44. You retire at age 60 and expect to live another 27 years. On the day you retire, you have $464,900 in your retirement savings account. You are conservative and expect to earn 4.5% on your money during your retirement. How much can you withdraw from your retirement savings each month if you plan to die on the day you spend your last penny?A. $2,001.96B. $2,092.05C. $2,398.17D. $2,472.00E. $2,481.27Difficulty level: MediumTopic: ORDINARY ANNUITY PAYMENTS AND PRESENT VALUEType: PROBLEMS45. The McDonald Group purchased a piece of property for $1.2 million. It paid a down payment of 20% in cash and financed the balance. The loan terms require monthly payments for 15 years at an annual percentage rate of 7.75% compounded monthly. What is the amount of each mortgage payment?A. $7,440.01B. $8,978.26C. $9,036.25D. $9,399.18E. $9,413.67Amount financed = $1,200,000 (1 - .2) = $960,000Difficulty level: MediumTopic: ORDINARY ANNUITY PAYMENTS AND PRESENT VALUEType: PROBLEMS46. You estimate that you will have $24,500 in student loans by the time you graduate. The interest rate is 6.5%. If you want to have this debt paid in full within five years, how much must you pay each month?A. $471.30B. $473.65C. $476.79D. $479.37E. $480.40Difficulty level: MediumTopic: ORDINARY ANNUITY PAYMENTS AND PRESENT VALUEType: PROBLEMS47. You are buying a previously owned car today at a price of $6,890. You are paying $500 down in cash and financing the balance for 36 months at 7.9%. What is the amount of each loan payment?A. $198.64B. $199.94C. $202.02D. $214.78E. $215.09Amount financed = $6,890 - $500 = $6,390Difficulty level: MediumTopic: ORDINARY ANNUITY PAYMENTS AND PRESENT VALUEType: PROBLEMS48. The Good Life Insurance Co. wants to sell you an annuity which will pay you $500 per quarter for 25 years. You want to earn a minimum rate of return of 5.5%. What is the most you are willing to pay as a lump sum today to buy this annuity?A. $26,988.16B. $27,082.94C. $27,455.33D. $28,450.67E. $28,806.30Difficulty level: MediumTopic: ORDINARY ANNUITY PAYMENTS AND PRESENT VALUEType: PROBLEMS49. Your car dealer is willing to lease you a new car for $299 a month for 60 months. Payments are due on the first day of each month starting with the day you sign the lease contract. If your cost of money is 4.9%, what is the current value of the lease?A. $15,882.75B. $15,906.14C. $15,947.61D. $16,235.42E. $16,289.54Difficulty level: MediumTopic: ANNUITY DUE PAYMENTS AND PRESENT VALUEType: PROBLEMS50. Your great-aunt left you an inheritance in the form of a trust. The trust agreement states that you are to receive $2,500 on the first day of each year, starting immediately and continuing for fifty years. What is the value of this inheritance today if the applicable discount rate is 6.35%?A. $36,811.30B. $37,557.52C. $39,204.04D. $39,942.42E. $40,006.09Difficulty level: MediumTopic: ANNUITY DUE PAYMENTS AND PRESENT VALUEType: PROBLEMS51. Beatrice invests $1,000 in an account that pays 4% simple interest. How much more could she have earned over a five-year period if the interest had compounded annually?A. $15.45B. $15.97C. $16.65D. $17.09E. $21.67Ending value at 4% simple interest = $1,000 + ($1,000 ⨯ .04 ⨯ 5) = $1,200.00; Ending value at 4% compounded annually = $1,000 ⨯ (1 +.04)5 = $1,216.65;Difference = $1,216.65 - $1,200.00 = $16.65Difficulty level: EasyTopic: SIMPLE VERSUS COMPOUND INTERESTType: PROBLEMS52. Your firm wants to save $250,000 to buy some new equipment three years from now. The plan is to set aside an equal amount of money on the first day of each year starting today. The firm can earn a 4.7% rate of return. How much does the firm have to save each year to achieve its goal?A. $75,966.14B. $76,896.16C. $78,004.67D. $81.414.14E. $83,333.33Difficulty level: MediumTopic: ANNUITY DUE PAYMENTS AND FUTURE VALUEType: PROBLEMS53. Today is January 1. Starting today, Sam is going to contribute $140 on the first of each month to his retirement account. His employer contributes an additional 50% of the amount contributed by Sam. If both Sam and his employer continue to do this and Sam can earn a monthly rate of ½ of 1 percent, how much will he have in his retirement account 35 years from now?A. $199,45.944B. $200,456.74C. $249,981.21D. $299,189.16E. $300,685.11Difficulty level: MediumTopic: ANNUITY DUE PAYMENTS AND FUTURE VALUEType: PROBLEMS54. You are considering an annuity which costs $100,000 today. The annuity pays $6,000 a year. The rate of return is 4.5%. What is the length of the annuity time period?A. 24.96 yearsB. 29.48 yearsC. 31.49 yearsD. 33.08 yearsE. 38.00 yearsDifficulty level: MediumTopic: ORDINARY ANNUITY TIME PERIODS AND PRESENT VALUEType: PROBLEMS55. Today, you signed loan papers agreeing to borrow $4,954.85 at 9% compounded monthly. The loan payment is $143.84 a month. How many loan payments must you make before the loan is paid in full?A. 29.89B. 36.00C. 38.88D. 40.00E. 41.03Difficulty level: MediumTopic: ORDINARY ANNUITY TIME PERIODS AND PRESENT VALUEType: PROBLEMS56. Winston Enterprises would like to buy some additional land and build a new factory. The anticipated total cost is $136 million. The owner of the firm is quite conservative and will only do this when the company has sufficient funds to pay cash for the entire expansion project. Management has decided to save $450,000 a month for this purpose. The firm earns 6% compounded monthly on the funds it saves. How long does the company have to wait before expanding its operations?A. 184.61 monthsB. 199.97 monthsC. 234.34 monthsD. 284.61 monthsE. 299.97 monthsDifficulty level: MediumTopic: ORDINARY ANNUITY TIME PERIODS AND FUTURE VALUEType: PROBLEMS57. Today, you are retiring. You have a total of $413,926 in your retirement savings and have the funds invested such that you expect to earn an average of 3%, compounded monthly, on this money throughout your retirement years. You want to withdraw $2,500 at the beginning of every month, starting today. How long will it be until you run out of money?A. 185.00 monthsB. 213.29 monthsC. 227.08 monthsD. 236.84 monthsE. 249.69 monthsDifficulty level: MediumTopic: ANNUITY DUE TIME PERIODS AND PRESENT VALUEType: PROBLEMS58. The Bad Guys Co. is notoriously known as a slow-payer. It currently needs to borrow $25,000 and only one company will even deal with Bad Guys. The terms of the loan call for daily payments of $30.76. The first payment is due today. The interest rate is 21% compounded daily. What is the time period of this loan?A. 2.88 yearsB. 2.94 yearsC. 3.00 yearsD. 3.13 yearsE. 3.25 yearsDifficulty level: MediumTopic: ANNUITY DUE TIME PERIODSType: PROBLEMS59. The Robertson Firm is considering a project which costs $123,900 to undertake. The project will yield cash flows of $4,894.35 monthly for 30 months. What is the rate of return on this project?A. 12.53%B. 13.44%C. 13.59%D. 14.02%E. 14.59%This can not be solved directly, so it's easiest to just use the calculator method to get an answer. You can then use the calculator answer as the rate in the formula just to verify that your answer is correct.Difficulty level: MediumTopic: ORDINARY ANNUITY INTEREST RATEType: PROBLEMS60. Your insurance agent is trying to sell you an annuity that costs $100,000 today. By buying this annuity, your agent promises that you will receive payments of $384.40 a month for the next 40 years. What is the rate of return on this investment?A. 3.45%B. 3.47%C. 3.50%D. 3.52%E. 3.55%This can not be solved directly, so it's easiest to just use the calculator method to get an answer. You can then use the calculator answer as the rate in the formula just to verify that you answer is correct.Difficulty level: MediumTopic: ORDINARY ANNUITY INTEREST RATEType: PROBLEMS61. You have been investing $120 a month for the last 15 years. Today, your investment account is worth $47,341.19. What is your average rate of return on your investments?A. 9.34%B. 9.37%C. 9.40%D. 9.42%E. 9.46%This can not be solved directly, so it's easiest to just use the calculator method to get an answer. You can then use the calculator answer as the rate in the formula just to verify that you answer is correct.Difficulty level: MediumTopic: ORDINARY ANNUITY INTEREST RATEType: PROBLEMS。

罗斯公司理财Chap004全英文题库及答案

Chapter 04 Discounted Cash Flow Valuation Answer KeyMultiple Choice Questions1. An annuity stream of cash flow payments is a set of:A. level cash flows occurring each time period for a fixed length of time.B. level cash flows occurring each time period forever.C. increasing cash flows occurring each time period for a fixed length of time.D. increasing cash flows occurring each time period forever.E. arbitrary cash flows occurring each time period for no more than 10 years.Difficulty level: EasyTopic: ANNUITYType: DEFINITIONS2. Annuities where the payments occur at the end of each time period are called _____, whereas _____ refer to annuity streams with payments occurring at the beginning of each time period.A. ordinary annuities; early annuitiesB. late annuities; straight annuitiesC. straight annuities; late annuitiesD. annuities due; ordinary annuitiesE. ordinary annuities; annuities dueDifficulty level: EasyTopic: ANNUITIES DUEType: DEFINITIONS3. An annuity stream where the payments occur forever is called a(n):A. annuity due.B. indemnity.C. perpetuity.D. amortized cash flow stream.E. amortization table.Difficulty level: EasyTopic: PERPETUITYType: DEFINITIONS4. The interest rate expressed in terms of the interest payment made each period is called the _____ rate.A. stated annual interestB. compound annual interestC. effective annual interestD. periodic interestE. daily interestDifficulty level: EasyTopic: STATED INTEREST RATESType: DEFINITIONS5. The interest rate expressed as if it were compounded once per year is called the _____ rate.A. stated interestB. compound interestC. effective annualD. periodic interestE. daily interestDifficulty level: EasyTopic: EFFECTIVE ANNUAL RATEType: DEFINITIONS6. The interest rate charged per period multiplied by the number of periods per year is called the _____ rate.A. effective annualB. annual percentageC. periodic interestD. compound interestE. daily interestDifficulty level: EasyTopic: ANNUAL PERCENTAGE RATEType: DEFINITIONS7. Paying off long-term debt by making installment payments is called:A. foreclosing on the debt.B. amortizing the debt.C. funding the debt.D. calling the debt.E. None of the above.Difficulty level: EasyTopic: AMORTIZATIONType: DEFINITIONS8. You are comparing two annuities which offer monthly payments for ten years. Both annuities are identical with the exception of the payment dates. Annuity A pays on the first of each month while annuity B pays on the last day of each month. Which one of the following statements is correct concerning these two annuities?A. Both annuities are of equal value today.B. Annuity B is an annuity due.C. Annuity A has a higher future value than annuity B.D. Annuity B has a higher present value than annuity A.E. Both annuities have the same future value as of ten years from today.Difficulty level: MediumTopic: ORDINARY ANNUITY VERSUS ANNUITY DUEType: CONCEPTS9. You are comparing two investment options. The cost to invest in either option is the same today. Both options will provide you with $20,000 of income. Option A pays five annual payments starting with $8,000 the first year followed by four annual payments of $3,000 each. Option B pays five annual payments of $4,000 each. Which one of the following statements is correct given these two investment options?A. Both options are of equal value given that they both provide $20,000 of income.B. Option A is the better choice of the two given any positive rate of return.C. Option B has a higher present value than option A given a positive rate of return.D. Option B has a lower future value at year 5 than option A given a zero rate of return.E. Option A is preferable because it is an annuity due.Difficulty level: MediumTopic: UNEVEN CASH FLOWS AND PRESENT VALUEType: CONCEPTS10. You are considering two projects with the following cash flows:Which of the following statements are true concerning these two projects?I. Both projects have the same future value at the end of year 4, given a positive rate of return. II. Both projects have the same future value given a zero rate of return.III. Both projects have the same future value at any point in time, given a positive rate of return. IV. Project A has a higher future value than project B, given a positive rate of return.A. II onlyB. IV onlyC. I and III onlyD. II and IV onlyE. I, II, and III onlyDifficulty level: MediumTopic: UNEVEN CASH FLOWS AND FUTURE VALUEType: CONCEPTS11. A perpetuity differs from an annuity because:A. perpetuity payments vary with the rate of inflation.B. perpetuity payments vary with the market rate of interest.C. perpetuity payments are variable while annuity payments are constant.D. perpetuity payments never cease.E. annuity payments never cease.Difficulty level: EasyTopic: PERPETUITY VERSUS ANNUITYType: CONCEPTS12. Which one of the following statements concerning the annual percentage rate is correct?A. The annual percentage rate considers interest on interest.B. The rate of interest you actually pay on a loan is called the annual percentage rate.C. The effective annual rate is lower than the annual percentage rate when an interest rate is compounded quarterly.D. When firms advertise the annual percentage rate they are violating U.S. truth-in-lending laws.E. The annual percentage rate equals the effective annual rate when the rate on an account is designated as simple interest.Difficulty level: MediumTopic: ANNUAL PERCENTAGE RATEType: CONCEPTS13. Which one of the following statements concerning interest rates is correct?A. The stated rate is the same as the effective annual rate.B. An effective annual rate is the rate that applies if interest were charged annually.C. The annual percentage rate increases as the number of compounding periods per year increases.D. Banks prefer more frequent compounding on their savings accounts.E. For any positive rate of interest, the effective annual rate will always exceed the annual percentage rate.Difficulty level: MediumTopic: INTEREST RATESType: CONCEPTS14. Which of the following statements concerning the effective annual rate are correct?I. When making financial decisions, you should compare effective annual rates rather than annual percentage rates.II. The more frequently interest is compounded, the higher the effective annual rate.III. A quoted rate of 6% compounded continuously has a higher effective annual rate than if the rate were compounded daily.IV. When borrowing and choosing which loan to accept, you should select the offer with the highest effective annual rate.A. I and II onlyB. I and IV onlyC. I, II, and III onlyD. II, III, and IV onlyE. I, II, III, and IVDifficulty level: MediumTopic: EFFECTIVE ANNUAL RATEType: CONCEPTS15. The highest effective annual rate that can be derived from an annual percentage rate of 9% is computed as:A. .09e - 1.B. e.09 ⨯ q.C. e ⨯ (1 + .09).D. e.09 - 1.E. (1 + .09)q.Difficulty level: MediumTopic: CONTINUOUS COMPOUNDINGType: CONCEPTS16. The time value of money concept can be defined as:A. the relationship between the supply and demand of money.B. the relationship between money spent versus money received.C. the relationship between a dollar to be received in the future and a dollar today.D. the relationship between interest rate stated and amount paid.E. None of the above.Difficulty level: EasyTopic: TIME VALUEType: CONCEPTS17. Discounting cash flows involves:A. discounting only those cash flows that occur at least 10 years in the future.B. estimating only the cash flows that occur in the first 4 years of a project.C. multiplying expected future cash flows by the cost of capital.D. discounting all expected future cash flows to reflect the time value of money.E. taking the cash discount offered on trade merchandise.Difficulty level: EasyTopic: CASH FLOWSType: CONCEPTS18. Compound interest:A. allows for the reinvestment of interest payments.B. does not allow for the reinvestment of interest payments.C. is the same as simple interest.D. provides a value that is less than simple interest.E. Both A and D.Difficulty level: EasyTopic: INTERESTType: CONCEPTS19. An annuity:A. is a debt instrument that pays no interest.B. is a stream of payments that varies with current market interest rates.C. is a level stream of equal payments through time.D. has no value.E. None of the above.Difficulty level: EasyTopic: ANNUITYType: CONCEPTS20. The stated rate of interest is 10%. Which form of compounding will give the highest effective rate of interest?A. annual compoundingB. monthly compoundingC. daily compoundingD. continuous compoundingE. It is impossible to tell without knowing the term of the loan.Difficulty level: EasyTopic: COMPOUNDINGType: CONCEPTS21. The present value of future cash flows minus initial cost is called:A. the future value of the project.B. the net present value of the project.C. the equivalent sum of the investment.D. the initial investment risk equivalent value.E. None of the above.Difficulty level: EasyTopic: PRESENT VALUEType: CONCEPTS22. Find the present value of $5,325 to be received in one period if the rate is 6.5%.A. $5,000.00B. $5,023.58C. $5,644.50D. $5,671.13E. None of the above.Difficulty level: EasyTopic: PRESENT VALUE - SINGLE SUMType: PROBLEMS23. If you have a choice to earn simple interest on $10,000 for three years at 8% or annually compounded interest at 7.5% for three years which one will pay more and by how much?A. Simple interest by $50.00B. Compound interest by $22.97C. Compound interest by $150.75D. Compound interest by $150.00E. None of the above.Simple Interest = $10,000 (.08)(3) = $2,400;Compound Interest = $10,000((1.075)3 - 1) = $2,422.97;Difference = $2,422.97 - $2,400 = $22.97Difficulty level: EasyTopic: SIMPLE & COMPOUND INTERESTType: PROBLEMS24. Bradley Snapp has deposited $7,000 in a guaranteed investment account with a promised rate of 6% compounded annually. He plans to leave it there for 4 full years when he will make a down payment on a car after graduation. How much of a down payment will he be able to make?A. $1,960.00B. $2,175.57C. $8,960.00D. $8,837.34E. $9,175.57$7,000 (1.06)4 = $8,837.34Difficulty level: EasyTopic: FUTURE VALUE - SINGLE SUMType: PROBLEMS25. Your parents are giving you $100 a month for four years while you are in college. At a 6% discount rate, what are these payments worth to you when you first start college?A. $3,797.40B. $4,167.09C. $4,198.79D. $4,258.03E. $4,279.32Difficulty level: EasyTopic: ORDINARY ANNUITY AND PRESENT VALUEType: PROBLEMS26. You just won the lottery! As your prize you will receive $1,200 a month for 100 months. If you can earn 8% on your money, what is this prize worth to you today?A. $87,003.69B. $87,380.23C. $87,962.77D. $88,104.26E. $90,723.76Difficulty level: EasyTopic: ORDINARY ANNUITY AND PRESENT VALUEType: PROBLEMS27. Todd is able to pay $160 a month for five years for a car. If the interest rate is 4.9%, how much can Todd afford to borrow to buy a car?A. $6,961.36B. $8,499.13C. $8,533.84D. $8,686.82E. $9,588.05Difficulty level: EasyTopic: ORDINARY ANNUITY AND PRESENT VALUEType: PROBLEMS28. You are the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving the insurance proceeds. You can receive a lump sum of $50,000 today or receive payments of $641 a month for ten years. You can earn 6.5% on your money. Which option should you take and why?A. You should accept the payments because they are worth $56,451.91 today.B. You should accept the payments because they are worth $56,523.74 today.C. You should accept the payments because they are worth $56,737.08 today.D. You should accept the $50,000 because the payments are only worth $47,757.69 today.E. You should accept the $50,000 because the payments are only worth $47,808.17 today.Difficulty level: MediumTopic: ORDINARY ANNUITY AND PRESENT VALUEType: PROBLEMS29. Your employer contributes $25 a week to your retirement plan. Assume that you work for your employer for another twenty years and that the applicable discount rate is 5%. Given these assumptions, what is this employee benefit worth to you today?A. $13,144.43B. $15,920.55C. $16,430.54D. $16,446.34E. $16,519.02Difficulty level: MediumTopic: ORDINARY ANNUITY AND PRESENT VALUEType: PROBLEMS30. You have a sub-contracting job with a local manufacturing firm. Your agreement calls for annual payments of $50,000 for the next five years. At a discount rate of 12%, what is this job worth to you today?A. $180,238.81B. $201,867.47C. $210,618.19D. $223,162.58E. $224,267.10Difficulty level: MediumTopic: ORDINARY ANNUITY AND PRESENT VALUEType: PROBLEMS31. The Ajax Co. just decided to save $1,500 a month for the next five years as a safety net for recessionary periods. The money will be set aside in a separate savings account which pays 3.25% interest compounded monthly. It deposits the first $1,500 today. If the company had wanted to deposit an equivalent lump sum today, how much would it have had to deposit?A. $82,964.59B. $83,189.29C. $83,428.87D. $83,687.23E. $84,998.01Difficulty level: MediumTopic: ANNUITY DUE AND PRESENT VALUEType: PROBLEMS32. You need some money today and the only friend you have that has any is your ‘miserly' friend. He agrees to loan you the money you need, if you make payments of $20 a month for the next six months. In keeping with his reputation, he requires that the first payment be paid today. He also charges you 1.5% interest per month. How much money are you borrowing?A. $113.94B. $115.65C. $119.34D. $119.63E. $119.96Difficulty level: MediumTopic: ANNUITY DUE AND PRESENT VALUEType: PROBLEMS33. You buy an annuity which will pay you $12,000 a year for ten years. The payments are paid on the first day of each year. What is the value of this annuity today at a 7% discount rate?A. $84,282.98B. $87,138.04C. $90,182.79D. $96,191.91E. $116,916.21Difficulty level: MediumTopic: ANNUITY DUE AND PRESENT VALUEType: PROBLEMS34. You are scheduled to receive annual payments of $10,000 for each of the next 25 years. Your discount rate is 8.5%. What is the difference in the present value if you receive these payments at the beginning of each year rather than at the end of each year?A. $8,699B. $9,217C. $9,706D. $10,000E. $10,850Difference = $111,040.97 - $102,341.91 = $8,699.06 = $8,699 (rounded)Note: The difference = .085 $102,341.91 = $8,699.06Difficulty level: MediumTopic: ORDINARY ANNUITY VERSUS ANNUITY DUEType: PROBLEMS35. You are comparing two annuities with equal present values. The applicable discount rate is 7.5%. One annuity pays $5,000 on the first day of each year for twenty years. How much does the second annuity pay each year for twenty years if it pays at the end of each year?A. $4,651B. $5,075C. $5,000D. $5,375E. $5,405Because each payment is received one year later, then the cash flow has to equal: $5,000 (1 + .075) = $5,375Difficulty level: MediumTopic: ORDINARY ANNUITY VERSUS ANNUITY DUEType: PROBLEMS36. Martha receives $100 on the first of each month. Stewart receives $100 on the last day of each month. Both Martha and Stewart will receive payments for five years. At an 8% discount rate, what is the difference in the present value of these two sets of payments?A. $32.88B. $40.00C. $99.01D. $108.00E. $112.50Difference = $4,964.72 - $4,931.84 = $32.88Difficulty level: MediumTopic: ORDINARY ANNUITY VERSUS ANNUITY DUEType: PROBLEMS37. What is the future value of $1,000 a year for five years at a 6% rate of interest?A. $4,212.36B. $5,075.69C. $5,637.09D. $6,001.38E. $6,801.91Difficulty level: EasyTopic: ORDINARY ANNUITY AND FUTURE VALUEType: PROBLEMS38. What is the future value of $2,400 a year for three years at an 8% rate of interest?A. $6,185.03B. $6,847.26C. $7,134.16D. $7,791.36E. $8,414.67Difficulty level: EasyTopic: ORDINARY ANNUITY AND FUTURE VALUEType: PROBLEMS39. Janet plans on saving $3,000 a year and expects to earn 8.5%. How much will Janet have at the end of twenty-five years if she earns what she expects?A. $219,317.82B. $230,702.57C. $236,003.38D. $244,868.92E. $256,063.66Difficulty level: EasyTopic: ORDINARY ANNUITY AND FUTURE VALUEType: PROBLEMS40. Toni adds $3,000 to her savings on the first day of each year. Tim adds $3,000 to his savings on the last day of each year. They both earn a 9% rate of return. What is the difference in their savings account balances at the end of thirty years?A. $35,822.73B. $36,803.03C. $38,911.21D. $39,803.04E. $40,115.31Difference = $445,725.65 - $408,922.62 = $36,803.03Note: Difference = $408,922.62 .09 = $36,803.03Difficulty level: MediumTopic: ANNUITY DUE VERSUS ORDINARY ANNUITYType: PROBLEMS41. You borrow $5,600 to buy a car. The terms of the loan call for monthly payments for four years at a 5.9% rate of interest. What is the amount of each payment?A. $103.22B. $103.73C. $130.62D. $131.26E. $133.04Difficulty level: EasyTopic: ORDINARY ANNUITY PAYMENTSType: PROBLEMS42. You borrow $149,000 to buy a house. The mortgage rate is 7.5% and the loan period is 30 years. Payments are made monthly. If you pay for the house according to the loan agreement, how much total interest will you pay?A. $138,086B. $218,161C. $226,059D. $287,086E. $375,059Total interest = ($1,041.83 ⨯ 30 ⨯ 12) - $149,000 = $226,058.80 = $226,059 (rounded) Difficulty level: MediumTopic: ORDINARY ANNUITY PAYMENTS AND COST OF INTERESTType: PROBLEMS43. The Great Giant Corp. has a management contract with its newly hired president. The contract requires a lump sum payment of $25 million be paid to the president upon the completion of her first ten years of service. The company wants to set aside an equal amount of funds each year to cover this anticipated cash outflow. The company can earn 6.5% on these funds. How much must the company set aside each year for this purpose?A. $1,775,042.93B. $1,798,346.17C. $1,801,033.67D. $1,852,617.25E. $1,938,018.22Difficulty level: EasyTopic: ORDINARY ANNUITY PAYMENTS AND FUTURE VALUEType: PROBLEMS44. You retire at age 60 and expect to live another 27 years. On the day you retire, you have $464,900 in your retirement savings account. You are conservative and expect to earn 4.5% on your money during your retirement. How much can you withdraw from your retirement savings each month if you plan to die on the day you spend your last penny?A. $2,001.96B. $2,092.05C. $2,398.17D. $2,472.00E. $2,481.27Difficulty level: MediumTopic: ORDINARY ANNUITY PAYMENTS AND PRESENT VALUEType: PROBLEMS45. The McDonald Group purchased a piece of property for $1.2 million. It paid a down payment of 20% in cash and financed the balance. The loan terms require monthly payments for 15 years at an annual percentage rate of 7.75% compounded monthly. What is the amount of each mortgage payment?A. $7,440.01B. $8,978.26C. $9,036.25D. $9,399.18E. $9,413.67Amount financed = $1,200,000 (1 - .2) = $960,000Difficulty level: MediumTopic: ORDINARY ANNUITY PAYMENTS AND PRESENT VALUEType: PROBLEMS46. You estimate that you will have $24,500 in student loans by the time you graduate. The interest rate is 6.5%. If you want to have this debt paid in full within five years, how much must you pay each month?A. $471.30B. $473.65C. $476.79D. $479.37E. $480.40Difficulty level: MediumTopic: ORDINARY ANNUITY PAYMENTS AND PRESENT VALUEType: PROBLEMS47. You are buying a previously owned car today at a price of $6,890. You are paying $500 down in cash and financing the balance for 36 months at 7.9%. What is the amount of each loan payment?A. $198.64B. $199.94C. $202.02D. $214.78E. $215.09Amount financed = $6,890 - $500 = $6,390Difficulty level: MediumTopic: ORDINARY ANNUITY PAYMENTS AND PRESENT VALUEType: PROBLEMS48. The Good Life Insurance Co. wants to sell you an annuity which will pay you $500 per quarter for 25 years. You want to earn a minimum rate of return of 5.5%. What is the most you are willing to pay as a lump sum today to buy this annuity?A. $26,988.16B. $27,082.94C. $27,455.33D. $28,450.67E. $28,806.30Difficulty level: MediumTopic: ORDINARY ANNUITY PAYMENTS AND PRESENT VALUEType: PROBLEMS49. Your car dealer is willing to lease you a new car for $299 a month for 60 months. Payments are due on the first day of each month starting with the day you sign the lease contract. If your cost of money is 4.9%, what is the current value of the lease?A. $15,882.75B. $15,906.14C. $15,947.61D. $16,235.42E. $16,289.54Difficulty level: MediumTopic: ANNUITY DUE PAYMENTS AND PRESENT VALUEType: PROBLEMS50. Your great-aunt left you an inheritance in the form of a trust. The trust agreement states that you are to receive $2,500 on the first day of each year, starting immediately and continuing for fifty years. What is the value of this inheritance today if the applicable discount rate is 6.35%?A. $36,811.30B. $37,557.52C. $39,204.04D. $39,942.42E. $40,006.09Difficulty level: MediumTopic: ANNUITY DUE PAYMENTS AND PRESENT VALUEType: PROBLEMS51. Beatrice invests $1,000 in an account that pays 4% simple interest. How much more could she have earned over a five-year period if the interest had compounded annually?A. $15.45B. $15.97C. $16.65D. $17.09E. $21.67Ending value at 4% simple interest = $1,000 + ($1,000 ⨯ .04 ⨯ 5) = $1,200.00; Ending value at 4% compounded annually = $1,000 ⨯ (1 +.04)5 = $1,216.65;Difference = $1,216.65 - $1,200.00 = $16.65Difficulty level: EasyTopic: SIMPLE VERSUS COMPOUND INTERESTType: PROBLEMS52. Your firm wants to save $250,000 to buy some new equipment three years from now. The plan is to set aside an equal amount of money on the first day of each year starting today. The firm can earn a 4.7% rate of return. How much does the firm have to save each year to achieve its goal?A. $75,966.14B. $76,896.16C. $78,004.67D. $81.414.14E. $83,333.33Difficulty level: MediumTopic: ANNUITY DUE PAYMENTS AND FUTURE VALUEType: PROBLEMS53. Today is January 1. Starting today, Sam is going to contribute $140 on the first of each month to his retirement account. His employer contributes an additional 50% of the amount contributed by Sam. If both Sam and his employer continue to do this and Sam can earn a monthly rate of ½ of 1 percent, how much will he have in his retirement account 35 years from now?A. $199,45.944B. $200,456.74C. $249,981.21D. $299,189.16E. $300,685.11Difficulty level: MediumTopic: ANNUITY DUE PAYMENTS AND FUTURE VALUEType: PROBLEMS54. You are considering an annuity which costs $100,000 today. The annuity pays $6,000 a year. The rate of return is 4.5%. What is the length of the annuity time period?A. 24.96 yearsB. 29.48 yearsC. 31.49 yearsD. 33.08 yearsE. 38.00 yearsDifficulty level: MediumTopic: ORDINARY ANNUITY TIME PERIODS AND PRESENT VALUEType: PROBLEMS55. Today, you signed loan papers agreeing to borrow $4,954.85 at 9% compounded monthly. The loan payment is $143.84 a month. How many loan payments must you make before the loan is paid in full?A. 29.89B. 36.00C. 38.88D. 40.00E. 41.03Difficulty level: MediumTopic: ORDINARY ANNUITY TIME PERIODS AND PRESENT VALUEType: PROBLEMS56. Winston Enterprises would like to buy some additional land and build a new factory. The anticipated total cost is $136 million. The owner of the firm is quite conservative and will only do this when the company has sufficient funds to pay cash for the entire expansion project. Management has decided to save $450,000 a month for this purpose. The firm earns 6% compounded monthly on the funds it saves. How long does the company have to wait before expanding its operations?A. 184.61 monthsB. 199.97 monthsC. 234.34 monthsD. 284.61 monthsE. 299.97 monthsDifficulty level: MediumTopic: ORDINARY ANNUITY TIME PERIODS AND FUTURE VALUEType: PROBLEMS57. Today, you are retiring. You have a total of $413,926 in your retirement savings and have the funds invested such that you expect to earn an average of 3%, compounded monthly, on this money throughout your retirement years. You want to withdraw $2,500 at the beginning of every month, starting today. How long will it be until you run out of money?A. 185.00 monthsB. 213.29 monthsC. 227.08 monthsD. 236.84 monthsE. 249.69 monthsDifficulty level: MediumTopic: ANNUITY DUE TIME PERIODS AND PRESENT VALUEType: PROBLEMS58. The Bad Guys Co. is notoriously known as a slow-payer. It currently needs to borrow $25,000 and only one company will even deal with Bad Guys. The terms of the loan call for daily payments of $30.76. The first payment is due today. The interest rate is 21% compounded daily. What is the time period of this loan?A. 2.88 yearsB. 2.94 yearsC. 3.00 yearsD. 3.13 yearsE. 3.25 yearsDifficulty level: MediumTopic: ANNUITY DUE TIME PERIODSType: PROBLEMS59. The Robertson Firm is considering a project which costs $123,900 to undertake. The project will yield cash flows of $4,894.35 monthly for 30 months. What is the rate of return on this project?A. 12.53%B. 13.44%C. 13.59%D. 14.02%E. 14.59%This can not be solved directly, so it's easiest to just use the calculator method to get an answer. You can then use the calculator answer as the rate in the formula just to verify that your answer is correct.Difficulty level: MediumTopic: ORDINARY ANNUITY INTEREST RATEType: PROBLEMS60. Your insurance agent is trying to sell you an annuity that costs $100,000 today. By buying this annuity, your agent promises that you will receive payments of $384.40 a month for the next 40 years. What is the rate of return on this investment?A. 3.45%B. 3.47%C. 3.50%D. 3.52%E. 3.55%This can not be solved directly, so it's easiest to just use the calculator method to get an answer. You can then use the calculator answer as the rate in the formula just to verify that you answer is correct.Difficulty level: MediumTopic: ORDINARY ANNUITY INTEREST RATEType: PROBLEMS61. You have been investing $120 a month for the last 15 years. Today, your investment account is worth $47,341.19. What is your average rate of return on your investments?A. 9.34%B. 9.37%C. 9.40%D. 9.42%E. 9.46%This can not be solved directly, so it's easiest to just use the calculator method to get an answer. You can then use the calculator answer as the rate in the formula just to verify that you answer is correct.Difficulty level: MediumTopic: ORDINARY ANNUITY INTEREST RATEType: PROBLEMS。

(公司理财)英文版罗斯公司理财习题答案C

CHAPTER 20INTERNATIONAL CORPORATE FINANCEAnswers to Concepts Review and Critical Thinking Questions1. a.The dollar is selling at a premium because it is more expensive in the forward market than inthe spot market (SFr 1.53 versus SFr 1.50).b.The franc is expected to depreciate relative to the dollar because it will take more francs to buyone dollar in the future than it does today.c.Inflation in Switzerland is higher than in the United States, as are nominal interest rates.2.The exchange rate will increase, as it will take progressively more pesos to purchase a dollar. This isthe relative PPP relationship.3. a.The Australian dollar is expected to weaken relative to the dollar, because it will take moreA$ in the future to buy one dollar than it does today.b.The inflation rate in Australia is higher.c.Nominal interest rates in Australia are higher; relative real rates in the two countries are thesame.4. A Yankee bond is most accurately described by d.5. No. For example, if a country’s currency strengthens, imports become cheaper (good), but its exportsbecome more expensive for others to buy (bad). The reverse is true for currency depreciation.6.Additional advantages include being closer to the final consumer and, thereby, saving ontransportation, significantly lower wages, and less exposure to exchange rate risk. Disadvantages include political risk and costs of supervising distant operations.7.One key thing to remember is that dividend payments are made in the home currency. Moregenerally, it may be that the owners of the multinational are primarily domestic and are ultimately concerned about their wealth denominated in their home currency because, unlike a multinational, they are not internationally diversified.8. a.False. If prices are rising faster in Great Britain, it will take more pounds to buy the sameamount of goods that one dollar can buy; the pound will depreciate relative to the dollar.b.False. The forward market would already reflect the projected deterioration of the euro relativeto the dollar. Only if you feel that there might be additional, unanticipated weakening of the euro that isn’t reflected in forward rates today, will the forward hedge protect you against additional declines.c.True. The market would only be correct on average, while you would be correct all the time.9. a.American exporters: their situation in general improves because a sale of the exported goods fora fixed number of euros will be worth more dollars.American importers: their situation in general worsens because the purchase of the imported goods for a fixed number of euros will cost more in dollars.b.American exporters: they would generally be better off if the British government’s intentionsresult in a strengthened pound.American importers: they would generally be worse off if the pound strengthens.c.American exporters: they would generally be much worse off, because an extreme case of fiscalexpansion like this one will make American goods prohibitively expensive to buy, or else Brazilian sales, if fixed in cruzeiros, would become worth an unacceptably low number of dollars.American importers: they would generally be much better off, because Brazilian goods will become much cheaper to purchase in dollars.10.IRP is the most likely to hold because it presents the easiest and least costly means to exploit anyarbitrage opportunities. Relative PPP is least likely to hold since it depends on the absence of market imperfections and frictions in order to hold strictly.11.It all depends on whether the forward market expects the same appreciation over the period andwhether the expectation is accurate. Assuming that the expectation is correct and that other traders do not have the same information, there will be value to hedging the currency exposure.12.One possible reason investment in the foreign subsidiary might be preferred is if this investmentprovides direct diversification that shareholders could not attain by investing on their own. Another reason could be if the political climate in the foreign country was more stable than in the home country. Increased political risk can also be a reason you might prefer the home subsidiary investment. Indonesia can serve as a great example of political risk. If it cannot be diversified away, investing in this type of foreign country will increase the systematic risk. As a result, it will raise the cost of the capital, and could actually decrease the NPV of the investment.13.Yes, the firm should undertake the foreign investment. If, after taking into consideration all risks, aproject in a foreign country has a positive NPV, the firm should undertake it. Note that in practice, the stated assumption (that the adjustment to the discount rate has taken into consideration all political and diversification issues) is a huge task. But once that has been addressed, the net present value principle holds for foreign operations, just as for domestic.14.If the foreign currency depreciates, the U.S. parent will experience an exchange rate loss when theforeign cash flow is remitted to the U.S. This problem could be overcome by selling forward contracts. Another way of overcoming this problem would be to borrow in the country where the project is located.15.False. If the financial markets are perfectly competitive, the difference between the Eurodollar rateand the U.S. rate will be due to differences in risk and government regulation. Therefore, speculating in those markets will not be beneficial.16.The difference between a Eurobond and a foreign bond is that the foreign bond is denominated in thecurrency of the country of origin of the issuing company. Eurobonds are more popular than foreign bonds because of registration differences. Eurobonds are unregistered securities.Solutions to Questions and ProblemsNOTE: All end-of-chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred. However, the final answer for each problem is found without rounding during any step in the problem.Basicing the quotes from the table, we get:a.$50(€0.7870/$1) = €39.35b.$1.2706c.€5M($1.2706/€) = $6,353,240d.New Zealand dollare.Mexican pesof.(P11.0023/$1)($1.2186/€1) = P13.9801/€This is a cross rate.g.The most valuable is the Kuwait dinar. The least valuable is the Indonesian rupiah.2. a.You would prefer £100, since:(£100)($.5359/£1) = $53.59b.You would still prefer £100. Using the $/£ exchange rate and the SF/£ exchange rate to find theamount of Swiss francs £100 will buy, we get:(£100)($1.8660/£1)(SF .8233) = SF 226.6489ing the quotes in the book to find the SF/£ cross rate, we find:(SF 1.2146/$1)($0.5359/£1) = SF 2.2665/£1The £/SF exchange rate is the inverse of the SF/£ exchange rate, so:£1/SF .4412 = £0.4412/SF 13. a.F180= ¥104.93 (per $). The yen is selling at a premium because it is more expensive in theforward market than in the spot market ($0.0093659 versus $0.009530).b.F90 = $1.8587/£. The pound is selling at a discount because it is less expensive in the forwardmarket than in the spot market ($0.5380 versus $0.5359).c.The value of the dollar will fall relative to the yen, since it takes more dollars to buy one yen inthe future than it does today. The value of the dollar will rise relative to the pound, because it will take fewer dollars to buy one pound in the future than it does today.4. a.The U.S. dollar, since one Canadian dollar will buy:(Can$1)/(Can$1.26/$1) = $0.7937b.The cost in U.S. dollars is:(Can$2.19)/(Can$1.26/$1) = $1.74Among the reasons that absolute PPP doe sn’t hold are tariffs and other barriers to trade, transactions costs, taxes, and different tastes.c.The U.S. dollar is selling at a discount, because it is less expensive in the forward market thanin the spot market (Can$1.22 versus Can$1.26).d.The Canadian dollar is expected to appreciate in value relative to the dollar, because it takesfewer Canadian dollars to buy one U.S. dollar in the future than it does today.e.Interest rates in the United States are probably higher than they are in Canada.5. a.The cross rate in ¥/£ terms is:(¥115/$1)($1.70/£1) = ¥195.5/£1b.The yen is quoted too low relative to the pound. Take out a loan for $1 and buy ¥115. Use the¥115 to purchase pounds at the cross-rate, which will give you:¥115(£1/¥185) = £0.6216Use the pounds to buy back dollars and repay the loan. The cost to repay the loan will be:£0.6216($1.70/£1) = $1.0568You arbitrage profit is $0.0568 per dollar used.6.We can rearrange the interest rate parity condition to answer this question. The equation we will useis:R FC = (F T– S0)/S0 + R USUsing this relationship, we find:Great Britain: R FC = (£0.5394 – £0.5359)/£0.5359 + .038 = 4.45%Japan: R FC = (¥104.93 – ¥106.77)/¥106.77 + .038 = 2.08%Switzerland: R FC = (SFr 1.1980 – SFr 1.2146)/SFr 1.2146 + .038 = 2.43%7.If we invest in the U.S. for the next three months, we will have:$30M(1.0045)3 = $30,406,825.23If we invest in Great Britain, we must exchange the dollars today for pounds, and exchange the pounds for dollars in three months. After making these transactions, the dollar amount we would have in three months would be:($30M)(£0.56/$1)(1.0060)3/(£0.59/$1) = $28,990,200.05We should invest in U.S.ing the relative purchasing power parity equation:F t = S0 × [1 + (h FC– h US)]tWe find:Z3.92 = Z3.84[1 + (h FC– h US)]3h FC– h US = (Z3.92/Z3.84)1/3– 1h FC– h US = .0069Inflation in Poland is expected to exceed that in the U.S. by 0.69% over this period.9.The profit will be the quantity sold, times the sales price minus the cost of production. Theproduction cost is in Singapore dollars, so we must convert this to U.S. dollars. Doing so, we find that if the exchange rates stay the same, the profit will be:Profit = 30,000[$145 – {(S$168.50)/(S$1.6548/$1)}]Profit = $1,295,250.18If the exchange rate rises, we must adjust the cost by the increased exchange rate, so:Profit = 30,000[$145 – {(S$168.50)/1.1(S$1.6548/$1)}]Profit = $1,572,954.71If the exchange rate falls, we must adjust the cost by the decreased exchange rate, so:Profit = 30,000[$145 – {(S$168.50)/0.9(S$1.6548/$1)}]Profit = $955,833.53To calculate the breakeven change in the exchange rate, we need to find the exchange rate that make the cost in Singapore dollars equal to the selling price in U.S. dollars, so:$145 = S$168.50/S TS T = S$1.1621/$1S T = –.2978 or –29.78% decline10. a.If IRP holds, then:F180 = (Kr 6.43)[1 + (.08 – .05)]1/2F180 = Kr 6.5257Since given F180 is Kr6.56, an arbitrage opportunity exists; the forward premium is too high.Borrow Kr1 today at 8% interest. Agree to a 180-day forward contract at Kr 6.56. Convert the loan proceeds into dollars:Kr 1 ($1/Kr 6.43) = $0.15552Invest these dollars at 5%, ending up with $0.15931. Convert the dollars back into krone as$0.15931(Kr 6.56/$1) = Kr 1.04506Repay the Kr 1 loan, ending with a profit of:Kr1.04506 – Kr1.03868 = Kr 0.00638b.To find the forward rate that eliminates arbitrage, we use the interest rate parity condition, so:F180 = (Kr 6.43)[1 + (.08 – .05)]1/2F180 = Kr 6.525711.The international Fisher effect states that the real interest rate across countries is equal. We canrearrange the international Fisher effect as follows to answer this question:R US– h US = R FC– h FCh FC = R FC + h US– R USa.h AUS = .05 + .035 – .039h AUS = .046 or 4.6%b.h CAN = .07 + .035 – .039h CAN = .066 or 6.6%c.h TAI = .10 + .035 – .039h TAI = .096 or 9.6%12. a.The yen is expected to get stronger, since it will take fewer yen to buy one dollar in the futurethan it does today.b.h US– h JAP (¥129.76 – ¥131.30)/¥131.30h US– h JAP = – .0117 or –1.17%(1 – .0117)4– 1 = –.0461 or –4.61%The approximate inflation differential between the U.S. and Japan is – 4.61% annually.13. We need to find the change in the exchange rate over time, so we need to use the relative purchasingpower parity relationship:F t = S0 × [1 + (h FC– h US)]TUsing this relationship, we find the exchange rate in one year should be:F1 = 215[1 + (.086 – .035)]1F1 = HUF 225.97The exchange rate in two years should be:F2 = 215[1 + (.086 – .035)]2F2 = HUF 237.49And the exchange rate in five years should be:F5 = 215[1 + (.086 – .035)]5F5 = HUF 275.71ing the interest-rate parity theorem:(1 + R US) / (1 + R FC) = F(0,1) / S0We can find the forward rate as:F(0,1) = [(1 + R US) / (1 + R FC)] S0F(0,1) = (1.13 / 1.08)$1.50/£F(0,1) = $1.57/£Intermediate15.First, we need to forecast the future spot rate for each of the next three years. From interest rate andpurchasing power parity, the expected exchange rate is:E(S T) = [(1 + R US) / (1 + R FC)]T S0So:E(S1) = (1.0480 / 1.0410)1 $1.22/€ = $1.2282/€E(S2) = (1.0480 / 1.0410)2 $1.22/€ = $1.2365/€E(S3) = (1.0480 / 1.0410)3 $1.22/€ = $1.2448/€Now we can use these future spot rates to find the dollar cash flows. The dollar cash flow each year will be:Year 0 cash flow = –€$12,000,000($1.22/€) = –$14,640,000.00Year 1 cash flow = €$2,700,000($1.2282/€) = $3,316,149.86Year 2 cash flow = €$3,500,000($1.2365/€) = $4,327,618.63Year 3 cash flow = (€3,300,000 + 7,400,000)($1.2448/€) = $13,319,111.90And the NPV of the project will be:NPV = –$14,640,000 + $3,316,149.86/1.13 + $4,4327,618.63/1.132 + $13,319,111.90/1.133NPV = $914,618.7316. a.Implicitly, it is assumed that interest rates won’t change over the life of the project, but theexchange rate is projected to decline because the Euroswiss rate is lower than the Eurodollar rate.b.We can use relative purchasing power parity to calculate the dollar cash flows at each time. Theequation is:E[S T] = (SFr 1.72)[1 + (.07 – .08)]TE[S T] = 1.72(.99)TSo, the cash flows each year in U.S. dollar terms will be:t SFr E[S T] US$0 –27.0M –$15,697,674.421 +7.5M 1.7028 $4,404,510.222 +7.5M 1.6858 $4,449,000.223 +7.5M 1.6689 $4,493,939.624 +7.5M 1.6522 $4,539,332.955 +7.5M 1.6357 $4,585,184.79And the NPV is:NPV = –$15,697,674.42 + $4,404,510.22/1.13 + $4,449,000.22/1.132 + $4,493,939.62/1.133 + $4,539,332.95/1.134 + $4,585,184.79/1.135NPV = $71,580.10c.Rearranging the relative purchasing power parity equation to find the required return in Swissfrancs, we get:R SFr = 1.13[1 + (.07 – .08)] – 1R SFr = 11.87%So, the NPV in Swiss francs is:NPV = –SFr 27.0M + SFr 7.5M(PVIFA11.87%,5)NPV = SFr 123,117.76Converting the NPV to dollars at the spot rate, we get the NPV in U.S. dollars as:NPV = (SFr 123,117.76)($1/SFr 1.72)NPV = $71,580.10Challenge17. a.The domestic Fisher effect is:1 + R US = (1 + r US)(1 + h US)1 + r US = (1 + R US)/(1 + h US)This relationship must hold for any country, that is:1 + r FC = (1 + R FC)/(1 + h FC)The international Fisher effect states that real rates are equal across countries, so:1 + r US = (1 + R US)/(1 + h US) = (1 + R FC)/(1 + h FC) = 1 + r FCb.The exact form of unbiased interest rate parity is:E[S t] = F t = S0 [(1 + R FC)/(1 + R US)]tc.The exact form for relative PPP is:E[S t] = S0 [(1 + h FC)/(1 + h US)]td.For the home currency approach, we calculate the expected currency spot rate at time t as:E[S t] = (€0.5)[1.07/1.05]t= (€0.5)(1.019)tWe then convert the euro cash flows using this equation at every time, and find the present value. Doing so, we find:NPV = –[€2M/(€0.5)] + {€0.9M/[1.019(€0.5)]}/1.1 + {€0.9M/[1.0192(€0.5)]}/1.12 + {€0.9M/[1.0193(€0.5/$1)]}/1.13NPV = $316,230.72For the foreign currency approach, we first find the return in the euros as:R FC = 1.10(1.07/1.05) – 1 = 0.121Next, we find the NPV in euros as:NPV = –€2M + (€0.9M)/1.121 + (€0.9M)/1.1212+ (€0.9M)/1.1213= €158,115.36And finally, we convert the euros to dollars at the current exchange rate, which is:NPV ($) = €158,115.36 /(€0.5/$1) = $316,230.72。

公司理财罗斯课后习题答案

第一章1.在所有权形式的公司中,股东是公司的所有者。

股东选举公司的董事会,董事会任命该公司的管理层。

企业的所有权和控制权分离的组织形式是导致的代理关系存在的主要原因。

管理者可能追求自身或别人的利益最大化,而不是股东的利益最大化。

在这种环境下,他们可能因为目标不一致而存在代理问题。

2.非营利公司经常追求社会或政治任务等各种目标。

非营利公司财务管理的目标是获取并有效使用资金以最大限度地实现组织的社会使命。

3.这句话是不正确的。

管理者实施财务管理的目标就是最大化现有股票的每股价值，当前的股票价值反映了短期和长期的风险、时间以及未来现金流量。

4.有两种结论。

一种极端,在市场经济中所有的东西都被定价。

因此所有目标都有一个最优水平，包括避免不道德或非法的行为，股票价值最大化。

另一种极端,我们可以认为这是非经济现象,最好的处理方式是通过政治手段。

一个经典的思考问题给出了这种争论的答案:公司估计提高某种产品安全性的成本是30美元万。

然而,该公司认为提高产品的安全性只会节省20美元万。

请问公司应该怎么做呢?”5.财务管理的目标都是相同的,但实现目标的最好方式可能是不同的,因为不同的国家有不同的社会、政治环境和经济制度。

6.管理层的目标是最大化股东现有股票的每股价值。

如果管理层认为能提高公司利润，使股价超过35美元,那么他们应该展开对恶意收购的斗争。

如果管理层认为该投标人或其它未知的投标人将支付超过每股35美元的价格收购公司,那么他们也应该展开斗争。

然而,如果管理层不能增加企业的价值,并且没有其他更高的投标价格,那么管理层不是在为股东的最大化权益行事。

现在的管理层经常在公司面临这些恶意收购的情况时迷失自己的方向。

7.其他国家的代理问题并不严重,主要取决于其他国家的私人投资者占比重较小。

较少的私人投资者能减少不同的企业目标。

高比重的机构所有权导致高学历的股东和管理层讨论决策风险项目。

此外,机构投资者比私人投资者可以根据自己的资源和经验更好地对管理层实施有效的监督机制。

罗斯公司理财英文练习题附带答案第九章

罗斯公司理财英文练习题附带答案第九章(总26页)-CAL-FENGHAI.-(YICAI)-Company One1-CAL-本页仅作为文档封面，使用请直接删除CHAPTER 9Risk Analysis, Real Options, and Capital Budgeting Multiple Choice Questions:I. DEFINITIONSSCENARIO ANALYSISb 1. An analysis of what happens to the estimate of the net present valuewhen you examine a number of different likely situations is called_____ analysis.a. forecastingb. scenarioc. sensitivityd. simulatione. break-evenDifficulty level: EasySENSITIVITY ANALYSISc 2. An analysis of what happens to the estimate of net present value whenonly one variable is changed is called _____ analysis.a. forecastingb. scenarioc. sensitivityd. simulatione. break-evenDifficulty level: EasySIMULATION ANALYSISd 3. An analysis which combines scenario analysis with sensitivity analysisis called _____ analysis.a. forecastingb. scenarioc. sensitivityd. simulatione. break-evenDifficulty level: EasyBREAK-EVEN ANALYSISe 4. An analysis of the relationship between the sales volume and variousmeasures of profitability is called _____ analysis.a. forecastingb. scenarioc. sensitivityd. simulatione. break-evenDifficulty level: EasyVARIABLE COSTSa 5. Variable costs:a. change in direct relationship to the quantity of output produced.b. are constant in the short-run regardless of the quantity of outputproduced.c. reflect the change in a variable when one more unit of output isproduced.d. are subtracted from fixed costs to compute the contribution margin.e. form the basis that is used to determine the degree of operatingleverage employed by a firm.Difficulty level: EasyFIXED COSTSb 6. Fixed costs:a. change as the quantity of output produced changes.b. are constant over the short-run regardless of the quantity of outputproduced.c. reflect the change in a variable when one more unit of output isproduced.d. are subtracted from sales to compute the contribution margin.e. can be ignored in scenario analysis since they are constant over thelife of a project.Difficulty level: EasyACCOUNTING BREAK-EVENc 7. The sales level that results in a project’s net income exactlyequaling zero is called the _____ break-even.a. operationalb. leveragedc. accountingd. cashe. present valueDifficulty level: EasyPRESENT VALUE BREAK-EVENe 8. The sales level that results in a project’s net present value exactlyequaling zero is called the _____ break-even.a. operationalb. leveragedc. accountingd. cashe. present valueDifficulty level: EasyII. CONCEPTSSCENARIO ANALYSISb 9. Conducting scenario analysis helps managers see the:a. impact of an individual variable on the outcome of a project.b. potential range of outcomes from a proposed project.c. changes in long-term debt over the course of a proposed project.d. possible range of market prices for their stock over the life of a project.e. allocation distribution of funds for capital projects under conditions of hard rationing.Difficulty level: EasySENSITIVITY ANALYSISb 10. Sensitivity analysis helps you determine the:a. range of possible outcomes given possible ranges for every variable.b. degree to which the net present value reacts to changes in a single variable.c. net present value given the best and the worst possible situations.d. degree to which a project is reliant upon the fixed costs.e. level of variable costs in relation to the fixed costs of a project.Difficulty level: EasySENSITIVITY ANALYSISc 11. As the degree of sensitivity of a project to a single variable rises, the:a. lower the forecasting risk of the project.b. smaller the range of possible outcomes given a pre-defined range of values for theinput.c. more attention management should place on accurately forecasting thefuture value ofthat variable.d. lower the maximum potential value of the project.e. lower the maximum potential loss of the project.Difficulty level: MediumSENSITIVITY ANALYSISc 12. Sensitivity analysis is conducted by:a. holding all variables at their base level and changing the required rate of returnassigned to a project.b. changing the value of two variables to determine their interdependency.c. changing the value of a single variable and computing the resulting change in thecurrent value of a project.d. assigning either the best or the worst possible value to each variable and comparing theresults to those achieved by the base case.e. managers after a project has been implemented to determine how each variable relates to the level of output realized.Difficulty level: MediumSENSITIVITY ANALYSISd 13. To ascertain whether the accuracy of the variable cost estimate for a project will havemuch effect on the final outcome of the project, you should probably conduct _____analysis.a. leverageb. scenarioc. break-evend. sensitivitye. cash flowDifficulty level: EasySIMULATIONd 14. Simulation analysis is based on assigning a _____ and analyzing the results.a. narrow range of values to a single variableb. narrow range of values to multiple variables simultaneouslyc. wide range of values to a single variabled. wide range of values to multiple variables simultaneouslye. single value to each of the variablesDifficulty level: MediumSIMULATIONe 15. The type of analysis that is most dependent upon the use of a computer is _____ analysis.a. scenariob. break-evenc. sensitivityd. degree of operating leveragee. simulationDifficulty level: EasyVARIABLE COSTSd 16. Which one of the following is most likely a variable costa. office rentb. property taxesc. property insuranced. direct labor costse. management salariesDifficulty level: EasyVARIABLE COSTSa 17. Which of the following statements concerning variable costs is (are) correctI. Variable costs minus fixed costs equal marginal costs.II. Variable costs are equal to zero when production is equal to zero.III. A n increase in variable costs increases the operating cash flow.a. II onlyb. III onlyc. I and III onlyd. II and III onlye. I and II onlyDifficulty level: MediumVARIABLE COSTSa 18. All else constant, as the variable cost per unit increases, the:a. contribution margin decreases.b. sensitivity to fixed costs decreases.c. degree of operating leverage decreases.d. operating cash flow increases.e. net profit increases.Difficulty level: MediumFIXED COSTSc 19. Fixed costs:I. are variable over long periods of time.II. must be paid even if production is halted.III. a re generally affected by the amount of fixed assets owned by a firm.IV. per unit remain constant over a given range of production output.a. I and III onlyb. II and IV onlyc. I, II, and III onlyd. I, II, and IV onlye. I, II, III, and IVDifficulty level: MediumCONTRIBUTION MARGINc 20. The contribution margin must increase as:a. both the sales price and variable cost per unit increase.b. the fixed cost per unit declines.c. the gap between the sales price and the variable cost per unit widens.d. sales price per unit declines.e. the sales price minus the fixed cost per unit increases.Difficulty level: MediumACCOUNTING BREAK-EVENa 21. Which of the following statements are correct concerning the accounting break-evenpointI. The net income is equal to zero at the accounting break-even point.II. The net present value is equal to zero at the accounting break-even point.III. T he quantity sold at the accounting break-even point is equal to the total fixed costs plus depreciation divided by the contribution margin.IV. The quantity sold at the accounting break-even point is equal to the total fixed costs divided by the contribution margin.a. I and III onlyb. I and IV onlyc. II and III onlyd. II and IV onlye. I, II, and IV onlyDifficulty level: MediumACCOUNTING BREAK-EVENb 22. All else constant, the accounting break-even level of sales will decrease when the:a. fixed costs increase.b. depreciation expense decreases.c. contribution margin decreases.d. variable costs per unit increase.e. selling price per unit decreases.Difficulty level: MediumPRESENT VALUE BREAK-EVENd 23. The point where a project produces a rate of return equal to the required return isknown as the:a. point of zero operating leverage.b. internal break-even point.c. accounting break-even point.d. present value break-even point.e. internal break-even point.Difficulty level: EasyPRESENT VALUE BREAK-EVENb 24. Which of the following statements are correct concerning the present value break-evenpoint of a projectI. The present value of the cash inflows equals the amount of the initial investment.II. The payback period of the project is equal to the life of the project.III. T he operating cash flow is at a level that produces a net present value of zero.IV. The project never pays back on a discounted basis.a. I and II onlyb. I and III onlyc. II and IV onlyd. III and IV onlye. I, III, and IV onlyDifficulty level: MediumINVESTMENT TIMING DECISIONb 25. The investment timing decision relates to:a. how long the cash flows last once a project is implemented.b. the decision as to when a project should be started.c. how frequently the cash flows of a project occur.d. how frequently the interest on the debt incurred to finance a project is compounded.e. the decision to either finance a project over time or pay out the initial cost in cash.Difficulty level: MediumOPTION TO WAITe 26. The timing option that gives the option to wait:I. may be of minimal value if the project relates to a rapidly changing technology.II. is partially dependent upon the discount rate applied to the project being evaluated.III. i s defined as the situation where operations are shut down for a period of time.IV. has a value equal to the net present value of the project if it is started today versus thenet present value if it is started at some later date.a. I and III onlyb. II and IV onlyc. I and II onlyd. II, III, and IV onlye. I, II, and IV onlyDifficulty level: ChallengeOPTION TO EXPANDb 27. Last month you introduced a new product to the market. Consumer demand has beenoverwhelming and appears that strong demand will exist over the long-term. Given thissituation, management should consider the option to:a. suspend.b. expand.c. abandon.d. contract.e. withdraw.Difficulty level: EasyOPTION TO EXPANDc 28. Including the option to expand in your project analysis will tend to:a. extend the duration of a project but not affect the project’s net present value.b. increase the cash flows of a project but decrease the project’s net present value.c. increase the net present value of a project.d. decrease the net present value of a project.e. have no effect on either a project’s cash flows or its net present value.Difficulty level: MediumSENSITIVITY AND SENARIO ANALYSISd 29. Theoretically, the NPV is the most appropriate method to determinethe acceptability of a project. A false sense of security can beoverwhelm the decision-maker when the procedure is applied properlyand the positive NPV results are accepted blindly. Sensitivity andscenario analysis aid in the process bya. changing the underlying assumptions on which the decision is based.b. highlights the areas where more and better data are needed.c. providing a picture of how an event can affect the calculations.d. All of the above.e. None of the above.Difficulty level: MediumDECSION TREEa 30. In order to make a decision with a decision treea. one starts farthest out in time to make the first decision.b. one must begin at time 0.c. any path can be taken to get to the end.d. any path can be taken to get back to the beginning.e. None of the above.Difficulty level: MediumDECISION TREEc 31. In a decision tree, the NPV to make the yes/no decision is dependentona. only the cash flows from successful path.b. on the path where the probabilities add up to one.c. all cash flows and probabilities.d. only the cash flows and probabilities of the successful path.e. None of the above.Difficulty level: MediumDECISION TREEe 32. In a decision tree, caution should be used in analysis becausea. early stage decisions are probably riskier and should not likely usethe same discount rate.b. if a negative NPV is actually occurring, management should opt out ofthe project and minimize their loss.c. decision trees are only used for planning, not actually dailymanagement.d. Both A and C.e. Both A and B.Difficulty level: MediumSENSITIVITY ANALYSISd 33. Sensitivity analysis evaluates the NPV with respect toa. changes in the underlying assumptions.b. one variable changing while holding the others constant.c. different economic conditions.d. All of the above.e. None of the above.Difficulty level: MediumSENSITIVITY ANALYSISd 34. Sensitivity analysis provides information ona. whether the NPV should be trusted, it may provide a false sense ofsecurity if all NPVs are positive.b. the need for additional information as it tests each variable inisolation.c. the degree of difficulty in changing multiple variables together.d. Both A and B.e. Both A and C.Difficulty level: MediumFIXED COSTSb 35. Fixed production costs area. directly related to labor costs.b. measured as cost per unit of time.c. measured as cost per unit of output.d. dependent on the amount of goods or services produced.e. None of the above.Difficulty level: MediumVARIABLE COSTSd 36. Variable costsa. change as the quantity of output changes.b. are zero when production is zero.c. are exemplified by direct labor and raw materials.d. All of the above.e. None of the above.Difficulty level: EasySENSITIVITY ANALYSISb 37. An investigation of the degree to which NPV depends on assumptionsmade about any singular critical variable is called a(n)a. operating analysis.b. sensitivity analysis.c. marginal benefit analysis.d. decision tree analysis.e. None of the above.Difficulty level: EasySENSITIVITY AND SCENARIOS ANALYSISb 38. Scenario analysis is different than sensitivity analysisa. as no economic forecasts are changed.b. as several variables are changed together.c. because scenario analysis deals with actual data versus sensitivityanalysis which deals with a forecast.d. because it is short and simple.e. because it is 'by the seat of the pants' technique.Difficulty level: MediumEQUIVALENT ANNUAL COSTc 39. In the present-value break-even the EAC is used toa. determine the opportunity cost of investment.b. allocate depreciation over the life of the project.c. allocate the initial investment at its opportunity cost over the lifeof the project.d. determine the contribution margin to fixed costs.e. None of the above.Difficulty level: MediumBREAK-EVENb 40. The present value break-even point is superior to the accountingbreak-even point becausea. present value break-even is more complicated to calculate.b. present value break-even covers the economic opportunity costs of theinvestment.c. present value break-even is the same as sensitivity analysis.d. present value break-even covers the fixed costs of production, whichthe accounting break-even does not.e. present value break-even covers the variable costs of production,which the accounting break-even does not.Difficulty level: EasyABANDONMENTd 41. The potential decision to abandon a project has option value becausea. abandonment can occur at any future point in time.b. a project may be worth more dead than alive.c. management is not locked into a negative outcome.d. All of the above.e. None of the above.Difficulty level: EasyTYPES OF BREAK-EVEN ANALYSISd 42. Which of the following are types of break-even analysisa. present value break-evenb. accounting profit break-evenc. market value break-evend. Both A and B.e. Both A and C.Difficulty level: EasyMONTE CARLO SIMULATIONc 43. The approach that further attempts to model real word uncertainty byanalyzing projects the way one might analyze gambling strategies iscalleda. gamblers approach.b. blackjack approach.c. Monte Carlo simulation.d. scenario analysis.e. sensitivity analysis.Difficulty level: MediumMONTE CARLO SIMULATIONc 44. Monte Carlo simulation isa. the most widely used by executives.b. a very simple formula.c. provides a more complete analysis that sensitivity or scenario.d. the oldest capital budgeting technique.e. None of the above.Difficulty level: EasyOPTIONS IN CAPITAL BUDGETINGd 45. Which of the following are hidden options in capital budgetinga. option to expand.b. timing option.c. option to abandon.d. All of the above.e. None of the above.Difficulty level: EasyIII. P ROBLEMSUse this information to answer questions 46 through 50.The Adept Co. is analyzing a proposed project. The company expects to sell 2,500units, give or take 10 percent. The expected variable cost per unit is $8 and the expected fixed costs are $12,500. Cost estimates areconsidered accurate within a plus or minus 5 percent range. Thedepreciation expense is $4,000. The sale price is estimated at $16 aunit, give or take 2 percent. The company bases their sensitivityanalysis on the expected case scenario.SCENARIO ANALYSISd 46. What is the sales revenue under the optimistic case scenarioa. $40,000b. $43,120c. $44,000d. $44,880e. $48,400Difficulty level: MediumSCENARIO ANALYSISd 47. What is the contribution margin under the expected case scenarioa. $b. $c. $d. $e. $Difficulty level: MediumSCENARIO ANALYSISc 48. What is the amount of the fixed cost per unit under the pessimistic case scenarioa. $b. $c. $d. $e. $Difficulty level: MediumSENSITIVITY ANALYSISb 49. The company is conducting a sensitivity analysis on the sales price using a salesprice estimate of $17. Using this value, the earnings before interest and taxes will be:a. $4,000b. $6,000c. $8,500d. $10,000e. $18,500Difficulty level: MediumSENSITIVITY ANALYSISb 50. The company conducts a sensitivity analysis using a variable cost of $9. The totalvariable cost estimate will be:a. $21,375b. $22,500c. $23,625d. $24,125e. $24,750Difficulty level: MediumUse this information to answer questions 51 through 55.The Can-Do Co. is analyzing a proposed project. The company expects tosell 12,000units, give or take 4 percent. The expected variable cost per unit is $7 and the expected fixed cost is $36,000. The fixed and variable costestimates are considered accurate within a plus or minus 6 percent range.The depreciation expense is $30,000. The tax rate is 34 percent. Thesale price is estimated at $14 a unit, give or take 5 percent. Thecompany bases their sensitivity analysis on the expected case scenario.SCENARIO ANALYSISa 51. What is the earnings before interest and taxes under the expected case scenarioa. $18,000b. $24,000c. $36,000d. $48,000e. $54,000Difficulty level: MediumSCENARIO ANALYSISc 52. What is the earnings before interest and taxes under anoptimistic case scenarioa. $22,b. $24,c. $37,d. $52,e. $67,Difficulty level: ChallengeSCENARIO ANALYSISb 53. What is the earnings before interest and taxes under the pessimistic case scenarioa. -$b. -$c. -$d. $3,e. $5,Difficulty level: ChallengeSENSITIVITY ANALYSISd 54. What is the operating cash flow for a sensitivity analysis using total fixed costs of$32,000a. $14,520b. $16,520c. $22,000d. $44,520e. $52,000Difficulty level: MediumSENSITIVITY ANALYSISd 55. What is the contribution margin for a sensitivity analysis using a variable cost per unit of $8a. $3b. $4c. $5d. $6e. $7Difficulty level: MediumVARIABLE COSTc 56. A firm is reviewing a project with labor cost of $ per unit, raw materials cost of$ a unit, and fixed costs of $8,000 a month. Sales are projected at 10,000 unitsover the three-month life of the project. What are the total variablecosts of the projecta. $216,300b. $297,300c. $305,300d. $313,300e. $329,300Difficulty level: MediumVARIABLE COSTd 57. A project has earnings before interest and taxes of $5,750, fixed costs of $50,000, aselling price of $13 a unit, and a sales quantity of 11,500 units.Depreciation is $7,500.What is the variable cost per unita. $b. $c. $d. $e. $Difficulty level: MediumFIXED COSTb 58. At a production level of 5,600 units a project has total costs of$89,000. The variable cost per unit is $. What is the amount of the total fixed costsa. $24,126b. $26,280c. $27,090d. $27,820e. $28,626Difficulty level: MediumFIXED COSTe 59. At a production level of 6,000 units a project has total costs of$120,000. The variable cost per unit is $. What is the amount of the total fixed costsa. $25,165b. $28,200c. $30,570d. $32,000e. $33,000Difficulty level: MediumCONTRIBUTION MARGINc 60. Wilson’s Meats has computed their fixed costs to be $.60 for every pound of meatthey sell given an average daily sales level of 500 pounds. Theycharge $ per pound of top-grade ground beef. The variable cost perpound is $. What is the contribution margin per pound of ground beefsolda. $.30b. $.60c. $.90d. $e. $Difficulty level: MediumCONTRIBUTION MARGINe 61. R alph and Emma’s is considering a project with total sales of $17,500, total variable costs of $9,800, total fixed costs of $3,500, and estimated production of 400 units. Thedepreciation expense is $2,400 a year. What is the contribution margin per unita. $b. $c. $d. $e. $Difficulty level: MediumACCOUNTING BREAK-EVENa 62. You are considering a new project. The project has projected depreciation of $720,fixed costs of $6,000, and total sales of $11,760. The variable cost per unit is$. What is the accounting break-even level of productiona. 1,200 unitsb. 1,334 unitsc. 1,372 unitsd. 1,889 unitse. 1,910 unitsDifficulty level: MediumACCOUNTING BREAK-EVENb 63. The accounting break-even production quantity for a project is 5,425 units. The fixedcosts are $31,600 and the contribution margin is $6. What is the projecteddepreciation expensea. $700b. $950c. $1,025d. $1,053e. $1,100Difficulty level: MediumACCOUNTING BREAK-EVENd 64. A project has an accounting break-even point of 2,000 units. The fixed costs are$4,200 and the depreciation expense is $400. The projected variable cost per unit is$. What is the projected sales pricea. $b. $c. $d. $e. $Difficulty level: MediumACCOUNTING BREAK-EVENa 65. A proposed project has fixed costs of $3,600, depreciation expense of $1,500, and asales quantity of 1,300 units. What is the contribution margin if the projected level ofsales is the accounting break-even pointa. $b. $c. $d. $e. $Difficulty level: MediumPRESENT VALUE BREAK-EVENc 66. A project has a contribution margin of $5, projected fixed costs of $12,000, projectedvariable cost per unit of $12, and a projected present value break-even point of 5,000units. What is the operating cash flow at this level of outputa. $1,000b. $12,000c. $13,000d. $68,000e. $73,000Difficulty level: MediumPRESENT VALUE BREAK-EVENa 67. Thompson & Son have been busy analyzing a new product. They have determined thatan operating cash flow of $16,700 will result in a zero net present value, which is a company requirement for project acceptance. The fixed costs are $12,378 and thecontribution margin is $. The company feels that they canrealistically capture 10 percent of the 50,000 unit market for this product. Should the company develop the new product Why or why nota. yes; because 5,000 units of sales exceeds the quantity required for a zero net presentvalueb. yes; because the internal break-even point is less than 5,000 unitsc. no; because the firm can not generate sufficient sales to obtain at least a zero netpresent valued. no; because the project has an expected internal rate of return of negative 100percente. no; because the project will not pay back on a discounted basisDifficulty level: ChallengePRESENT VALUE BREAK-EVENe 68. Kurt Neal and Son is considering a project with a discounted payback just equal to theproject’s life. The projections include a sales price of $11, variable cost per unit of$, and fixed costs of $4,500. The operating cash flow is $6,200. What is the break-even quantitya. 1,800 unitsb. 2,480 unitsc. 3,057 unitsd. 3,750 unitse. 4,280 unitsDifficulty level: MediumDECISION TREE NET PRESENT VALUEb 69. At stage 2 of the decision tree it shows that if a project issuccessful, the payoff will be $53,000 with a 2/3 chance ofoccurrence. There is also the 1/3 chance of a $-24,000 payoff. Thecost of getting to stage 2 (1 year out) is $44,000. The cost ofcapital is 15%. What is the NPV of the project at stage 1a. $-13,275b. $-20,232c. $ 2,087d. $ 7,536e. Can not be calculated without the exact timing of future cash flows. Difficulty level: MediumUse the following to answer questions 70-71:The Quick-Start Company has the following pattern of potential cash flows with their planned investment in a new cold weather starting system forfuel injected cars.DECISION TREEa 70. If the company has a discount rate of 17%, what is the value closestto time 1 net present valuea. $ millionb. $ millionc. $ milliond. $ millione. None of the above.Difficulty level: ChallengeDECISION TREEb 71. If the company has a discount rate of 17%, should they decide toinvesta. yes, NPV = $ millionb. yes, NPV = $ millionc. no, NPV = $ milliond. yes, NPV = $ millione. No, since more than one branch is NPV = 0 or negative you must reject.Difficulty level: ChallengeACCOUNTING BREAK-EVENe 72. The Mini-Max Company has the following cost information on their newprospective project. Calculate the accounting break-even point.Initial investment: $700Fixed costs: $200 per yearVariable costs: $3 per unitDepreciation: $140 per year.Price: $8 per unitDiscount rate: 12%Project life: 5 yearsTax rate: 34%a. 25 units per yearb. 68 units per yearc. 103 units per yeard. 113 units per yeare. None of the above.Difficulty level: MediumPRESENT VALUE BREAK-EVENd 73. The Mini-Max Company has the following cost information on their newprospective project. Calculate the present value break-even point.Initial investment: $700Fixed costs are $ 200 per yearVariable costs: $ 3 per unitDepreciation: $ 140 per yearPrice: $8 per unitDiscount rate: 12%Project life: 3 yearsTax rate: 34%a. 68 units per yearb. 75 units per yearc. 84 units per yeard. 114 units per yeare. None of the above.Difficulty level: ChallengeACCOUNTING BREAK-EVENd 74. From the information below, calculate the accounting break-even point.Initial investment: $2,000Fixed costs are $2,000 per year。