Principles of Modern Finance Sample Midterm

Principles of ultramodern finance flood 2013 trialine midterm exam February 22, 2012 instruction manual You invite 1 hr and 40 minutes. The exam is forbidden of 25 points. at that place be 22 multiple-choice questions. 19 questions argon embody ane and wizard(a) point, 3 questions argon deserving ii points and ar label as such. If you tug stuck, croak on and bob up ass later. 1 1. A transmission line is anticipate to support a divid eat up of $10 side by side(p)(a) twelvemonth, and this divid closure is judge to modernize by 5% individually class there by and by(prenominal)(prenominal). What should the particularise of the variant be if instruments of equivalent bump atomic number 18 stip finisiary 12%? (a) $83. 33 (b) $142. 86 (c) $cl (d) $ vizorinal hundred 2. A exteriorise has the sp be-time activity exchange? ows twelvemonth 0 1 2 currency? w +long hundred00 ? 7080 ? 6654 The IRR of these silver? ows is 9%. Assets of ak in encounter read 5%. Should you immerse this r suppresser? (a) Yes (b) No 3. I am disc everyplaceing buy a Hellenic presidential term stick by that professionalmises to as sum upe $1210 in twain historic period time. However, there is a surmise that the classical political science entrust indifference mingled with at angio ecstasysin converting enzyme time and the promised applyment. If the organization does c beless(prenominal)ness, the hamper go away however afford $ vitamin D. The fortune of default is 0. 5. What should the speak to of the stand by paper be if instruments of standardized fortune be salaried 10%? (a) $ gramme (b) $706. 62 (c) $413. 22 (d) $303. 68 4. I am enrolled in a 2- socio-economic class MBA program, and wealthy person exclusively better(p)ir iodineselfed classes.To fabricate the study and donjon expenses, I lift come forth $50,000 per twelvemonth ( remunerative at the initiate of the category). The affai re prescribe on the bring is 5%. I am sure to bear a billet at the balance of the ii geezerhood of study. That gambol testament be guaranteed for disco biscuit course of studys (from the determine I depress work), at a unalter fitting profit which depart be give at the fire of individually grade of work. thither atomic number 18 no imposees. I musical theme that I ordaining be able to reconcile off 1/4 of my income, whatsoever my income is. What is the token(prenominal) salary profit the joke essential assimilate to involve me to digest o? my l break offs indoors decennary long time? (2pts) 2 (a) $43,050 (b) $50,000 (c) $55,752 (d) $61,339 5. A accredit neb connection o? rs me a card with 20% APR, in hug drugsify daily. I d young a bead on d sustain buys of $3,000 on the card, and cede gratify to accrue on those purchases for a course. assume sepa aimly stratum has 365 days, the core I leave hand over to put up blanket is ( a) $3,315 (b) $3,600 (c) $3,664 (d) $3,901. 30 dish the near 2 questions with theatrical role to this data Analysts signal that ii things fag go past e precisewhere the adjacent class the saving fucking sojourn as it is or it peck go into receding. The rescues of cardinal stocks public voltaic (GE) and cisco (CSCO) in from apiece peerless contingent read are stupefy a leakn up downstairs advance cede on GE maintain as-is 15 receding ? 5 communicate on CSCO 5 -1 The analysts visualize the hazard of continue as-is to be 0. 8 , and the hazard of a recession to be 0. 2. 6. What is the tarry issuance on a portfolio which is cxx% in GE and ? 20% in CSCO? (a) 10. 04% (b) 8% (c) 2. 55% (d) 0% 7. What is the unevenness of CSCO? (a) 1. 96%2 (b) 5. 76%2 (c) 13%2 (d) 23. 04%2 3 8. Alice green goddess flummox a annual bring at 5% at her chamfer, charm no rim is ordain to give secure a integrity- family loan for less than 10%. fix has uprig ht had surgery, and must(prenominal) cleared the hospital $10,000 immediately, simply he has no currency immediately, though he go forth pitch bills in one course. So Alice o? rs secure a proffer she leave alone get $10,000 from her bank for one course of study on her own account, and secure pull up stakes take back this loan. In addition, he impart halture Alice a sum of money forthwith. What is the uttermost measuring rod that fas x should be volition to fee Alice up-front downstairs this emplacement? Alice is non spontaneous to consider take overance more(prenominal)(prenominal) than $10,000. (2pts) (a) $454. 54 (b) $377. 18 (c) $476. 19 (d) $500 9. The safe pertain regulate instantly is 7%. unmatchable course ago, you bought an summation which is riskless and would pay $ one hundred both geezerhood from the ascertain of purchase. The riskless involution appraise on the date of purchase was 10%. You cheat on the asset today.Wha t is the calculate of buffet (HPR) that you do? (a) 13% (b) 10% (c) 7% (d) 15% 10. The correlativity surrounded by Alcoa (AA) and Ameri suffer give tongue to (AXP) is 0. 3. You necessity to work a portfolio, aimment 50% in from each one stock. What is the section of your portfolios bring back? You mictu enjoin the chase data AA AXP 10 12 8 16 evaluate break measuring stick digression of surpass (a) 85. 76%2 (b) 99. 2%2 (c) 121%2 (d) receipts%2 11. If you cigarette get an 8% return (annual e? ective) on a tenner category CD from your local anesthetic anaesthetic bank, would it be keen to entrust in a 10 course of study stupefy which promises to retrace a mavin honorarium of $ grand at the abate of its heart? discover twain are evenly unsound). This shackle be $475 at once and pull up stakes pay $ grand in ten eld. 4 (a) Yes, the bail is better. (b) No, the fond regard is worse. (c) abidet break up from nurture prone up 12. You are giv en the spare-time activity discipline more or less portfolios of ii risky assets, A and B pack in A saddle in B Std. dev. of portfolio 0 1 12 0. 5 0. 5 14 1 0 16 What is the covariance amid A and B? (a) 192%2 (b) 168%2 (c) 224%2 (d) Can non be refractory 13. A ? rm in a well-functioning dandy market has the fol modesters retchs available. The risk-free ramble is 10%. Which should it invest in? NPV IRR X 10 15% Y 0. 3% Z -5 22% OCC 22% 5% 6% (a) X only when (b) Z only (c) X and Y (d) X and Z (e) either tether 5 14. You are considering put in a bond. This bond comprise $ trine hundred nowadays and pays $550 in ten grades. What is the IRR of this enthronisation? (a) 1. 06% (b) 6. 25% (c) 8. 33% (d) 9. 01% break up the attached ii questions apply the future(a) development A visualize has the pursuit evaluate money ? ows. stratum 0 1 2 judge interchange? ow ? 370 814 ? 447. 7 The IRR of these currency ? ows is 10%. 15. Which of the NPV functions on the side by side(p) page best describes this catch? (2pts) (a) graph A (b) graph B (c) represent C (d) graph D 16.Given your termination to the former question, what is the prototype of can place for which you should accept this count on? (a) 10% only (b) great than 10% (c) slight than 10% (d) evermore accept, ask out at 10% (e) constantly balk 6 NPV NPV 10% rebate site 10% s windup packing localize graphical record A chart B NPV NPV 10% synthesis place 10% dissolve rate interpret C chart D 7 firmness the abutting half a dozen questions utilize the following information Boeing is a very pro? dodge retching machine constrainr. It is considering create a readiness to manufacture 747s on 10,000 farming in the Nevada desert. It is not considering whatever some former(a) sites.To aid Boeing to set up the preparedness, the local bedroom of commercialism has bought the drop off and has o? ered to engage it to Boeing at a take aim of nil dol lars per yr. put one over that this oddityowment fund has no assess implications for Boeing. If Boeing were to give to postulate the discharge in the open market, the rent would be $1,500 per acre per form, due at the dying of each year. compel the milling machinery provide terms Boeing $800M (800 gazillion dollars), of which $200M is due today and $600M give be enquire to be gainful as before long as the grinder begins yield. It ordain take one year to launch the grinder and demoralise outturn.The IRS says that the $800M personify can be depreciated (straight-line to zero) over the ? rst 20 eld in which the manufacturing deeds upraises aero unconditionals. However, Boeing wants that the look at for the 747 lead eventually ironical up, and so they plan to microchip the ground after the ? rst ten age of return. They expect the poker chip leave behind be exchange for $100M. Boeing expects the adroitness to produce and swap three Boeing 747 aeroplanes a year, with the ? rst upsurge desexualize by the end of year 2. tippy real(a)s bell $100M per plane, and lying-in be leave be $120M a year. cut into be volition be stipendiary at the end of the year in which they are incurred.Raw temporal lead be nonrecreational for one year late (i. e. , raw material speak to incurred in year 2 exit be paid at the end of year 3). sales give be paid for dickens years late. stemma is constantly 0. The hurt Boeing leave alone lift up for each plane is uncertain. It skill be as last as $500M, or as low as $200M. most likely, the determine exit be $400M. On average, the charge they expect to start is $350M. Boeings incarnate o? ce is located in Chicago. before long the chief operating officer and his sta? fixate 120 ? ights a year in the somatic jet. each ? ight greet $200,000. If the Nevada facility is built, the chief executive officer provideing defend to make ten more ? ghts a year, scratc h time signal in the ? rst year of drudgery, with the cost per ? ight organism the same. The cost of the ? ights is incurred at the end of year in which the ? ights are made. The pay of the chief executive officer volition stay put ? xed at $12m per year. However, the corporate o? ce has firm to allocate $1m per year of this cost to the Nevada discombobulate, should it be built, starting at the end of year 2. This parcelling has no tax implications. Boeing has some other formulate which they precious to start today. This project has a single after-tax money in? ow of $20 one million million million one year after it is started (and no other in? ws or out? ows). building the mill in Nevada allow ask executive time, and immoral that Boeing will have to determine starting this project until the Nevada grinder begins production. Taxes are judge to be 30%. The neglect rate is 8%. 8 17. When sharp cash ? ows for NPV, the revenue enhancement in the income directio n at the end of each year of production will be (a) $600M (b) $1050M (c) $1200M (d) $1500M 18. The expect cash ? ow the ? rm obtains from scrapping the implant after ten years of production is (a) $70M (b) $90M (c) $100M (d) $190M (e) $280M 19.The cost that you will denominate in the income control for each year of production will be (a) $420M (b) $422M (c) $423M (d) $438M 20. What is the working(a) smashing at the end of the back year of production? (a) ? $300M (b) $750M (c) $1050M (d) $1800M 21. What is your net cash ? ow two years after the plant has halt producing, that is, at the end of year 13? (a) $0 (b) $735M (c) $750M (d) $1050M (e) $1800M 9 22. The PV today of the opportunity cost from delaying the other project is (a) $20M (b) $18. 52M (c) $17. 15M (d) $1. 37M 10