1) You must add one of two investments to an already well- diversified portfolio.,Security A Security B,Expected Return = 12% Expected Return = 12%,Standard Deviation of Standard Deviation of,Returns = 20.9% Returns = 10.1%,Beta = .8 Beta = 2,If you are a risk-averse investor, which one is the better choice?,a. Security A,b. Security B,c. Either security would be acceptable.,d. Cannot be determined with information given.,,2) In 1998 Fischer Corp. issued bonds with an 8 percent coupon rate and a $1,000,face value. The bonds mature on March 1, 2023. If an investor purchased one of,these bonds on March 1, 2008, determine the yield to maturity if the investor paid,$1,050 for the bond.,a. 8.5%,b. The yield to maturity must be greater than 8% because the price paid for the bond,exceeds the face value.,c. The yield to maturity is $950 ($1,000 interest less $50 capital loss).,d. 7.44%,,3) Zellars, Inc. is considering two mutually exclusive projects, A and B. Project A costs,$75,000 and is expected to generate $48,000 in year one and $45,000 in year two.,Project B costs $80,000 and is expected to generate $34,000 in year one, $37,000,in year two, $26,000 in year three, and $25,000 in year four. Zellars, Inc.’s required,rate of return for these projects is 10%. The net present value for Project A is:,a. $5,826,b. $6,347,c. $18,000,d. $9,458,4) Zellars, Inc. is considering two mutually exclusive projects, A and B. Project A costs,$75,000 and is expected to generate $48,000 in year one and $45,000 in year two.,Project B costs $80,000 and is expected to generate $34,000 in year one, $37,000,in year two, $26,000 in year three, and $25,000 in year four. Zellars, Inc.’s required,rate of return for these projects is 10%. The net present value for Project B is:,a. $18,097,b. $42,000,c. $34,238,d. $21,378,,5) Market value added is equal to,a. the current stock price per share minus the par value per share of stock.,b. the total market value of the company minus total invested capital.,c. the total market value of the company less retained earnings.,d. the total market value of the company minus the debt owed by the company.,,6) Based on the data contained in Table A, what is the break-even point in units pro-,duced and sold?,TABLE A,Average selling price per unit $15.00,Variable cost per unit $10.00,Units sold 200,000,Fixed costs $450,000,Interest expense $ 40,000,a. 98,000,b. 30,000,c. 75,000,d. 90,000,,7) Which of the following statements about financial leverage is true?,a. Financial leverage reduces a firm’s risk.,b. Financial leverage involves the incurrence of fixed operating costs in the firm’s income,stream.,c. Financial leverage is the responsiveness of the firm’s EBIT to fluctuations in sales.,d. Financial leverage is the responsiveness of the firm’s EPS to fluctuations in EBIT.,,8) Fielding Wilderness Outfitters had projected its sales for the first six months of 2008,to be as follows:,Jan. $ 50,000 April $180,000,Feb. $ 60,000 May $240,000,Mar. $100,000 June $240,000,Cost of goods sold is 60% of sales. Purchases are made and paid for two months prior to the sale. 40% of sales are collected in the month of the sale, 40% are collected in the month following the sale, and the remaining 20% in the second month following the sale. Total other cash expenses are $40,000/month. The company’s cash balance as of March 1st, 2008 is projected to be $40,000, and the company wants to maintain a minimum cash balance of $15,000. Excess cash will be used to retire short-term borrowing (if any exists). Fielding has no short-term borrowing as of March 1st, 2008. Assume that the interest rate on short-term borrowing is 1% per month. What was Fielding’s projected loss for March?,a. $84,000,b. $110,000,c. $184,000,d. none of the above,,9) The effective annual cost of not taking advantage of the 2/10, net 50 terms offered,by a supplier is,a. 18.37%.,b. 14.69%.,c. 20.45%.,d. 2.27%.
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