FIN 515 Midterm Exam (Summer 2015 and Spring 2016)

FIN 515 - Managerial Finance

DeVry - Summer 2015 and Spring 2016

Multiple Choice / Essay Type Questions and Answers

Spring 2016

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

Question 2. (TCO G) Suppose Novak Company experienced a reduction in its ROE over the last year. This fall could be attributed to

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

Question 4. (TCO B) You start saving $100 per month in an account that pays 5% interest, compounded monthly. You make the payment at the beginning of each month and interest is applied at the end of each month. How much money will you have in the account in 5 years? Show your work.

Question 5. (TCO B) You currently have $10,000 in your retirement account. If you deposit $500 per month and the account pays 5% interest, how much will be in the account in 10 years? Show your work.

Question 6. (TCO B) A homebuyer is taking out a mortgage with a balloon payment. The loan amount is $100,000 and the annual interest rate is 5%. The homebuyer will make equal monthly payments for 5 years except the last payment will include an additional payment of $20,000. How much will the equal monthly payments be? Show your work.

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

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

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

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

Question 11. (TCO F) Company A has the opportunity to do any, none, or all of the projects for which the net cash flows per year are shown below. Projects A and B can be done together. Projects B and C can be done together. But Projects A and C are mutually exclusive. The company has a cost of capital of 12%. Which should the company do and why? You must use at least two capital budgeting methods. Show your work.

            A          B          C

0          -500     -500     -600

1          200      -200     100

2          200      200      100

3          200      200      100

4          200      200      100

5          200      200      100

6          200      200      100

 

7          -300     -300     100

 

Summer 2015

Question 1. (TCO G) The firm's asset turnover measures

Question 2. (TCO G) Suppose Novak Company experienced a reduction in its ROE over the last year. This fall could be attributed to

Question 3. (TCO B) You plan on retiring in 20 years. You currently have $275,000 and think you will need $1,000,000 to retire. Assuming you don’t deposit any additional money into the account, what annual return will you need to earn to meet this goal?

Question 4. (TCO B) You take out a 4 year car loan for $18,000. The loan has a 4% annual interest rate. The payments are made monthly. What are the monthly payments? Show your work.

Question 5. (TCO B) A grandfather sets up a trust for his only grandchild. The trust consists of an annuity that will pay $5,000 monthly to the grandchild for 18 years. The annuity pays an annual return of 5% and makes the payments monthly at the end of the month. Return on the annuity is 5% annually. The payments to the grandchild are paid at the beginning of the month.  The annuity will have a value of $0 at the end of the 18 years. How much needs to be deposited to set up the annuity? Show your work.

Question 6. (TCO B) You have a two children, A and B. Child A is not going to college but is working in a business to learn the ropes. Child A plans on opening a business someday. Child B is attending college. You put a certain amount of money into an account. From this account, Child B will receive $2,000 per month for the next four years. Whatever is left at that time will go to Child A to help start the business. You want Child A to receive $96,000 at that time. The account pays 7% annually, compounded monthly. How much money do you need to start the account? Show your work.

Question 7. (TCO F) A project requires an initial cash outlay of $95,000 and has expected cash inflows of $20,000 annually for 9 years. The cost of capital is 10%. What is the project’s NPV? Show your work.

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

Question 9. (TCO F) A project requires an initial cash outlay of $60,000 and has expected cash inflows of $15,000 annually for 8 years. The cost of capital is 10%. What is the project’s IRR? Show your work.

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

Question 11. (TCO F) Company A has the opportunity to do any, none, or all of the projects for which the net cash flows per year are shown below. Projects A and C can be done together. Projects B and C can be done together. But Projects A and B are mutually exclusive. The company has a cost of capital of 18%. Which should the company do and why? You must use at least two capital budgeting methods. Show your work.

            A          B          C

0          -500     -500     -600

1          200      -200     100

2          200      600      100

3          200      400      100

4          200      200      100

5          200      -300     100

6          200                 100 

7          -300                100

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    FIN 515 Midterm Exam - Summer 2015

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