2. The firm is replacing an old printing press with a new one. The old press is being sold for \$250,000 and it has a net book value of \$55,000. Assume that National Geographic is in the 40% income tax bracket. How much will National Geographic net from the sale? (Points : 10)

\$140,000

\$172,000

\$215,000

\$112,112

3. The firm can purchase a new assembler for \$20,573 that will provide an annual net cash flow of \$6,000 per year for five years. Calculate the net present value of the assembler if the required rate of return is 12%. (Round your answer to the nearest \$10.) (Points : 5)

\$7,621

\$4,568

\$1,156

\$1,056

4. The firm has \$6 million of debt outstanding with a coupon rate of 10 percent. Currently the yield to maturity on these bonds is 14 percent. If the firm’s tax rate is 40 percent, what is cost of debt to J & B? (Points : 10)

14.0 percent

8.4 percent

12.0 percent

6.0 percent

5. If you invest \$775 every six months at 8 percent compounded semi-annually, how much would you accumulate at the end of 9 years? (round to nearest dollar) (Points : 10)

\$10,065

\$21,731

\$10,193

\$19,875

6. Colby & Company bonds pay semi-annual interest of \$50. They mature in 10 years and have a par value of \$1,000. The market rate of interest is 8%. The market value of Colby Bonds is: (round to nearest dollar) (Points : 5)

\$1,136

\$1,000

\$743

\$827

7. Which of the following should be included in the initial outlay? (Points : 5)

shipping and installation costs

increased working capital requirements

cost of employee training associated specifically with the asset being evaluated

all of the above

8. The firm will purchase a machine that will cost \$2,575,000. Required modifications will cost \$375,000. The firm will need to invest \$75,000 for additional inventory. The machine has an IRS approved useful life of 7 years; it is presumed to have no salvage value. The firm plans to depreciate the machine by using the straight-line method. The machine is expected to increase the firm’s sales revenues by \$1,890,000 per year; operating costs excluding depreciation are estimated at \$454,600 per year. Assume that the firm’s tax rate is 40%. What is the annual operating cash flow? (Points : 15)

\$413,440

\$1,626,440

\$922,400

\$1,029,811

9. Dawn Swift discovered that twenty years ago, the average tuition for one year at an Ivy League school was \$4,500. Today, the average cost is \$29,000. What is the growth rate in tuition cost over this 20-year period? Round off to the nearest 0.1%. (Points : 10)

15.5%

10.6%

9.8%

4.2%

10. The expected dividend is \$2.00 for a share of stock priced at \$20. What is the cost of retained earnings if the long-term growth in dividends is projected to be 8 percent? (Points : 5)

25.0 percent

8.0 percent

18.0 percent

10.0 percent

11. Last year Mike bought 100 shares of Dallas Corporation for \$53 per share. During the year he has received dividends of \$1.45 per share. The stock is currently selling for \$60 per share. What rate of return did Mike earn over the year? (Points : 10)

11.7%

13.2%

15.9%

14.1%

12. The most expensive source of capital is: (Points : 5)

new common stock

debt

retained earnings

preferred stock

13. Which of the following provides the greatest annual interest? (Points : 5)

8.5% compounded monthly

8% compounded daily

9% compounded annually

14. Depreciation expenses affect tax-related cash flows by (Points : 5)

increasing taxable income, thus increasing taxes

decreasing taxable income, thus reducing taxes

decreasing taxable income, with no effect on cash flow since depreciation is a non-cash expense

none of the above

15. Given the following expected returns and standard deviation of assets B, M, Q and D, which asset should the prudent financial manager select?

(Points : 5)

Asset Q

Asset B

Asset M

Asset D

16. At 8 percent compounded annually, how long will it take \$750 to double? (Points : 10)

12 years

48 months

10 years

9 years

17. A \$1,000 par value 10-year bond with a 10 percent coupon rate recently sold for \$900. The yield to maturity is: (Points : 10)

10 percent

cannot be determined

less than 10 percent

greater than 10 percent

18.Regarding the tax treatment of payments to securities holders, it is true that _______________, while ____________________. (Points : 5)

interest and preferred stock dividends are tax-deductible; while common stock dividends are not tax-deductible

common stock dividends and preferred stock dividends are tax-deductible; while interest is not tax-deductible

interest and preferred stock dividends are not tax-deductible; while common stock dividends are tax-deductible

common stock dividends and preferred stock dividends are not tax-deductible; while interest is tax-deductible