1-Project A requires less initial investment than Project B and both A and B have an IRR greater than MAKR. If Project A and B are mutually exclusive and the incremental IRR between A and B is more than the MARR. which project should be chosen? ______ (no calculation needed)
2-
3-if expected inflation rate is average at 2% per year and real interest rate is 4% per year. what is the market rate per year?(X. XX%)
4-. An IRS classified 5-year assets costs $10,000 to be installed in service with a salvage value of $3,000. Using MACRS Table below, how much is its book value for tax purpose at the end of the 3’d year (immediately after the 3rci year’s depreciation was deducted from the basis)?
5-Company Y can borrow at 5% annual rate and its stocks are expected to have a 12% annual rate of return. if it’s capital structure is 60% debt and 40% equity, what is the company’ Y’s WACC. (ignore any tax effect on debt)
6-if a company has a required WACC of 10% per year. its stocks are expected to have a 16% rate of return. The capital structure of the company has to be 65% debt and 35% equity. the income tax rate of the company is 30%. what is the maximum annual cost of debt the company can borrow (consider tax effect on debt, (X.XX%)
7-company’s x stock are currently traded at $75 per share. it is estimated by brokers that company X will issue annual dividends a $ 5.00 per share and the annual growth rate of company X would be 5%. based upon this info, what is the expected annual rate of return for company X’s stock?
8- A new machine has a first cost of $150,000 and maximum useful life of 7 years using the following salvage value and annual operating cost schedule and 15% MARR, calculate this machine’s economic service life in years? .(15% table below)
Year Salvage Value $ AOC, $ per year
1 100000 70000
2 80000 80000
3 60000 90000
4 40000 100000
5 20000 110000
6 0 120000
7 0 130000
9-When performing the replacement study for an existing equipment purchase 3 years ago, which of the following item(s) should be considered? (Choose those you will consider, could be more than one, no calculation needed)
1- salvage value 2-Market value 3- ESL 4-first (original) cost –5-Sunk cost 6-Annual operating cost.
10-If you invest a certain amount of money today, you can profit $250,000 exactly 5 years from now. The investment pays an annual market interest rate of 10% based on the expected annual inflation rate of 4%. Assuming the real rate stays the same, how much do you need to invest today to earn that $250,000 five years from now, if the expected rate drops to 2%?
11-How much can an investor afford to invest now on a project if he can receive a lump sum of S95,000 from this investment four years from now? the investor’s real MARR is 10% per year and the inflation rate is 4% per year
12-Using capital asset pricing model to determine the expected return of Google stock, which has a beta value of 1.5, if the total market expected return is 10% and the risk-free rate is 2.5%.
Answer in (xx. xx%)
13-A 30-year bond has a face value of $1,000 and a coupon rate of 6% per year, interest payments are paid semiannually. If the maturity from now is exactly 10 years and the current market rate for the same bond is 2% per year, compounded semiannually, how much is the bond worth now?
14- everything stays the same as questionabove except the current market rate is 2% today how much does the bond worth today
