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1. Which of the following statements regarding annuities is FALSE?
A. Most car loans, mortgages, and some bonds are annuities
B. PV of an annuity= C X 1/r (1- (1/ (1+r)^N)
C. An annuity is a stream of N equal cash flows paid at regular intervals.
D. The difference between an annuity and a perpetunity is that a perpetuity ends after some fixed number of payments.
2. Fitness Company reports the following data for 2009, its first year of operations:
What are the total manufacturing costs to be accounted for?
$300,000
$190,000
$160,000
$570,000
Assume that Lincoln Electric's projected free cash flow for next year is FCF1 = $500,000, and FCF is expected to grow at a constant rate of 3.5%. If the company's weighted average cost of capital is 11.5%, what is the value of its operations?
River bend inc. received a 220,000 dividend from stock it held in hobble corporation. Riverbend's taxable income is 3,020,000 before deducting the dividends received deduction (DRD), a 23,500 domestic production activities deduction,and a 189,000 cha..
A company will buy 1000 units of a certain commodity in one year. It decides to hedge 80% of its exposure using futures contracts. Spot price and futures price are currently $100 and $90. The one year futures price of the commodity is $90. If the spo..
Carlyle Inc is considering two mutually exclusive projects. Both require an initial investment of 15,000 at t= 0. Project S has an expected life of 2 years with after cash inflows of 7,000 and 12000 at the end of years 1 and 2, respectively. Project ..
Explain, in your own words, when and how the composition of capital (the mix of debt and equity) does not affect the value of the firm and Discuss this statement: leverage gives the illusion of higher returns.
A broker is considering buying a dividend paying stock. The dividend will be paid at the end of the year. The analyst consensus is the stock will worth $36 in one year. The company pays a $2.25 annual dividend and the broker expects 12% rate of retur..
Find the value of a European call option with:
What are the issues surrounding too big to fail? Is it possible for Congress to simply outlaw TBTF institutions? Why or why not?
Schultz Industries is considering the purchase of Arras Manufacturing. Arras is currently a supplier for Schultz, and the acquisition would allow Schultz to better control its material supply. The current cash flow from assets for Arras is $8.0 milli..
Security Systems, Inc. needs to raise $150 million for asset expansion. As it raises the capital funding, Nuran wants to maintain its current debt ratio of 60 percent. Calculate the amount of debt and equity funding Nuran Security Systems will need t..
A firm has 20 year $5 million of debt which was acquired 2 years ago and is currently selling at 115% of par value. The debt has a coupon rate of 7% and the current tax rate is 35%. What is the before tax cost of debt?
Arthur Anderson wants to retire in 15 years, and would like to put aside enough to give himself an income of $25,000 per year for 25 years after retirement. If he an earn 10% compounded annually over the whole time span and save and equal amount each..
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