DeVry FIN515 – Midterm Exam

| September 28, 2018

Question 1.Question :(TCO G) The firm’s asset turnover measuresStudent Answer: the value of assets held per dollar of shareholder equity. the return the firm has earned on its past investments. the firm’s ability to sell a product for more than the cost of producing it. how efficiently the firm is utilizing its assets to generate sales. Question 2.Question :(TCO G) Suppose Novak Company experienced a reduction in its ROE over the last year. This fall could be attributed toStudent Answer: an increase in net profit margin. a decrease in asset turnover. an increase in leverage. a decrease in equity.Question 3.Question :(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.Question :(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.Question :(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.Question :(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.Question :(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.Question :(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.Question :(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 IRR? Show your work.Question 10.Question :(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 discounted payback period? Show your work.Question 11.Question :(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. The projects are not mutually exclusive. The company has a cost of capital of 15%. Which should the company do and why? You must use at least two capital budgeting methods. Show your work. Explain your answer thoroughly.ABC0-300-100-3001100-10010021001001003100100100410010010051001001006100100-1007-300-2000

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