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Use the table for the question(s) below.,,Luther Corporation,Consolidated Balance Sheet,December 31, 2006 and 2005 (in $ millions),,Assets 2006 2005 Liabilities and Stockholders’ Equity 2006 2005,Current Assets Current Liabilities ,Cash 63.6 58.5 Accounts payable 87.6 73.5,Accounts receivable 55.5 39.6 Notes payable / ,short-term debt 10.5 9.6,Inventories 45.9 42.9 Current maturities of long-term debt 39.9 36.9,Other current assets 6.0 3.0 Other current liabilities 6.0 12.0, Total current assets 171.0 144.0 Total current liabilities 144.0 132.0, ,Long-Term Assets Long-Term Liabilities , Land 66.6 62.1 Long-term debt 239.7 168.9, Buildings 109.5 91.5 Capital lease obligations — —, Equipment 119.1 99.6 Total Debt 239.7 168.9, Less accumulated, depreciation (56.1) (52.5) Deferred taxes 22.8 22.2,Net property, plant, and equipment 239.1 200.7 Other long-term liabilities — —,Goodwill 60.0 — Total long-term liabilities 262.5 191.1,Other long-term assets 63.0 42.0 Total liabilities 406.5 323.1, Total long-term assets 362.1 242.7 Stockholders’ Equity 126.6 63.6, ,Total Assets 533.1 386.7 Total liabilities and Stockholders’ Equity 533.1 386.7,, ,20) , ,What is Luther’s net working capital in 2005? ,A) , ,$12 million ,B) , ,$27 million ,C) , ,$39 million ,D) , ,$63.6 million ,, ,21) , ,If in 2006 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share, then Luther’s Market-to-book ratio would be closest to: ,A) , ,0.39 ,B) , ,0.76 ,C) , ,1.29 ,D) , ,2.57 ,,,, ,22) , ,When using the book value of equity, the debt to equity ratio for Luther in 2006 is closest to: ,A) , ,2.21 ,B) , ,2.29 ,C) , ,2.98 ,D) , ,3.03 , ,,,23) , ,,,If in 2006 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share, then using the market value of equity, the debt to equity ratio for Luther in 2006 is closest to: ,A) , ,1.71 ,B) , ,1.78 ,C) , ,2.31 ,D) , ,2.35 , ,24) ,,Which of the following statements is incorrect? ,A) , ,In general, money today is worth more than money in one year. ,B) , ,We define the risk-free interest rate, rf for a given period as the interest rate at which money can be borrowed or lent without risk over that period. ,C) , ,We refer to (1 – rf) as the interest rate factor for risk-free cash flows. ,D) , ,For most financial decisions, costs and benefits occur at different points in time. ,, ,25) , ,If the risk-free rate of interest (rf) is 6%, then you should be indifferent between receiving $250 in one year or: ,A) , ,$235.85 today ,B) , ,$250.00 today ,C) , ,$265.00 today ,D) , ,None of the above , ,26) , ,If the risk-free rate of interest (rf) is 6%, then you should be indifferent between receiving $250 today or: ,A) , ,$235.85 in one year ,B) , ,$250.00 in one year ,C) , ,$265.00 in one year ,D) , ,None of the above , , ,27) , ,A project you are considering is expected to provide benefits worth $225,000 in one year. If the risk-free rate of interest (rf) is 8%, then the value of the benefits of this project today are closest to: ,A) , ,$190,333 ,B) , ,$208,333 ,C) , ,$225,000 ,D) , ,$243,000 , , ,?, , Use the figure for the question(s) below.,, ,,,28) ,,,Which of the following statements regarding the timeline is false? ,A) , ,Date 1 is one year from now. ,B) , ,The $5000 below date 1 is the payment you will receive at the end of the first year. ,C) , ,The $5000 below date 2 is the payment you will receive at the beginning of the second year. ,D) , ,Date 0 represents today. ,, ,29) , ,Which of the following statements regarding the timeline is false? ,A) , ,Date 1 is the end of the first year. ,B) , ,Date 0 is the beginning of the first year. ,C) , ,The space between date 0 and date 1 represents the time period between two specific dates. ,D) , ,You will find the timeline most useful in tracking cash flows if you interpret each point on the timeline as a period or interval of time. , ,30) , ,Which of the following statements is false? ,A) , ,The process of moving a value or cash flow forward in time is known as compounding. ,B) , ,The effect of earning interest on interest is known as compound interest. ,C) , ,It is only possible to compare or combine values at the same point in time. ,D) , ,A dollar in the future is worth more than a dollar today. , ,31) , ,Which of the following statements is false? ,A) , ,Finding the present value and compounding are the same. ,B) , ,A dollar today and a dollar in one year are not equivalent. ,C) , ,If you want to compare or combine cash flows that occur at different points in time, you first need to convert the cash flows into the same units or move them to the same point in time. ,D) , ,The equivalent value of two cash flows at two different points in time is sometimes referred to as the time value of money. ,?, ,32) , ,Consider the following time line:,, ,,If the current market rate of interest is 8%, then the present value of this timeline is closest to: ,A) , ,$1000 ,B) , ,$857 ,C) , ,$860 ,D) , ,$926 , , ,, ,33) , ,Consider the following timeline:,, ,,, , If the current market rate of interest is 10%, then the future value of this timeline is closest to: ,A) , ,$666 ,B) , ,$500 ,C) , ,$605 ,D) $650 ,,, ,34),,,,,,35) , , if the current market rate of interest is 8%, then the future value of this timeline is closest to:,A) $630,B) $560,C) $690,D)$710,,Which of the following statements is false? ,A) , ,Because interest rates may be quoted for different time intervals, it is often necessary to adjust the interest rate to a time period that matches that of our cash flows. ,B) , ,The effective annual rate indicates the amount of interest that will be earned at the end of one year. ,C) , ,The annual percentage rate indicates the amount of simple interest earned in one year. ,D) , ,The annual percentage rate indicates the amount of interest including the effect of compounding. , ,, ,36) , ,The effective annual rate (EAR) for a loan with a stated APR of 8% compounded monthly is closest to: ,A) , ,8.30% ,B) , ,8.33% ,C) , ,8.00% ,D) , ,8.24% , , , ,Use the table for the question(s) below.,, Consider the following investment alternatives:,, ,,,,,,,,37) , ,Investment Rate Compounding,A 6.25% Annual,B 6.10% Daily,C 6.125 Quarterly,D 6.120 Monthly,,,,,,,,Which alternative offers you the highest effective rate of return? ,A) , ,Investment A ,B) , ,Investment B ,C) , ,Investment C ,D) , ,Investment D , , ,38) , ,Which alternative offers you the lowest effective rate of return? ,A) , ,Investment A ,B) , ,Investment B ,C) , ,Investment C ,D) , ,Investment D ,,,39) , ,,,Which of the following statements is false? ,A) , ,About 75% of firms surveyed used the NPV rule for making investment decisions. ,B) , ,If you are unsure of your cost of capital estimate, it is important to determine how sensitive your analysis is to errors in this estimate. ,C) , ,To decide whether to invest using the NPV rule, we need to know the cost of capital. ,D) , ,NPV is positive only for discount rates greater than the internal rate of return. , ,, ,Use the table for the question(s) below.,,Consider the following two projects:,,Project Year 0,Cash Flow Year 1,Cash Flow Year 2,Cash Flow Year 3,Cash Flow Year 4,Cash Flow Discount Rate,A -100 40 50 60 N/A .15,B -73 30 30 30 30 .15,,, ,,,,,40) , ,, 40),,,The NPV of project A is closest to: ,A) , ,12.0 ,B) , ,12.6 ,C) , ,15.0 ,D) , ,42.9 ,, ,41) , ,The NPV of project B is closest to: ,A) , ,12.6 ,B) , ,23.3 ,C) , ,12.0 ,D) , ,15. , , ,42) , ,Which of the following statements is false? ,A) , ,Sales will ultimately decline as the product nears obsolescence or faces increased competition. ,B) , ,Managers sometimes continue to invest in a project that has a negative NPV because they have already invested a large amount in the project and feel that by not continuing it, the prior investment will wasted. ,C) , ,With straight-line depreciation the asset’s cost is divided equally over its life. ,D) , ,A projects unlevered net income is equal to its incremental revenues less costs and depreciation, evaluated on an pre-tax basis. , ,43) , ,Which of the following statements is false? ,A) , ,Bonds are a securities sold by governments and corporations to raise money from investors today in exchange for promised future payments. ,B) , ,By convention the coupon rate is expressed as an effective annual rate. ,C) , ,Bonds typically make two types of payments to their holders. ,D) , ,The time remaining until the repayment date is known as the term of the bond. , , ,44) , ,Which of the following statements is false? ,A) , ,The principal or face value of a bond is the notional amount we use to compute the interest payments. ,B) , ,Payments are made on bonds until a final repayment date, called the term date of the bond. ,C) , ,The coupon rate of a bond is set by the issuer and stated on the bond certificate. ,D) , ,The promised interest payments of a bond are called coupons. , ,, ,45) , ,Which of the following statements is false? ,A) , ,There are two potential sources of cash flows from owning a stock. ,B) , ,An investor will be willing to pay a price today for a share of stock up to the point that this transaction has a zero NPV. ,C) , ,An investor might generate cash by choosing to sell the shares at some future date. ,D) , ,Because the cash flows from stock are known with certainty, we can discount them using the risk-free interest rate., ,46) You want to buy a house that cost $150,000 with no money down. If you take out a 30-year mortgage at 6% interest, your monthly payment will be:,A) $894.85,B) $906.32,C) $899.33,D) $750.00,,47) You decide that you really like the house but you can only afford a monthly payment of $800 per month. How much house can you afford (assume no change to assumptions in Question #46 above)?,A) $140,500,B) $134,100,C) $130,200,D) $133,433,,48) How much will be your monthly mortgage payment if you can get a mortgage at 5% rather than 6%?,A) $716.30,B) $713.33,C) $720.00,D) $750.00,,49) You want to buy a $200,000 house with a $20,000 down payment. How much is your mortgage payment if you get a 30-year loan at a 5% interest rate?,A) $ 962.27,B) $1,073.64,C) $1,069.19,D) $ 966.27,,50) How much is your monthly payment if you can get a 15-year mortgage?,A) $ 950.00,B) $1,423.43,C) $1,069.19,D) $1,417.52,

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