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10/12/2015

TheAceStudent:SaintMBA570module2quiz

SaintMBA570module2quiz
SaintMBA570module2quiz
Question1.1.Whichofthefollowingstatementsregardingthevaluingofcostsandbenefitsisnot
correct?(Points:10)
Thefirststepinevaluatingaprojectistoidentifyitscostsandbenefits.
Intheabsenceofcompetitivemarkets,wecanuseonesidedpricestodetermineexactcash
values.
Competitivemarketpricesallowustocalculatethevalueofadecisionwithoutworryingaboutthe
tastesoropinionsofthedecisionmaker.
Becausecompetitivemarketsexistformostcommoditiesandfinancialassets,wecanusethemto
determinecashvaluesandevaluatedecisionsinmostsituations.
Question2.2.Aprojectyouareconsideringisexpectedtoprovidebenefitsworth$225,000inone
year.Iftheriskfreerateofinterest(rf)is8%,thenthevalueofthebenefitsofthisprojecttodayare
closestto__________.(Points:10)
$190,333
$208,333
$225,000
$243,000

$190,333
$208,333
$225,000
$243,000
Question3.3.Iftheriskfreerateofinterest(rf)is6%,thenyoushouldbeindifferentbetween
receiving$250todayor:(Points:10)
$235.85inoneyear.
$250.00inoneyear.
$265.00inoneyear.
noneofthese.
Question4.4.TheowneroftheKrustyKrabisconsideringsellinghisrestaurantandretiring.An
investorhasofferedtobuytheKrustyKrabfor$350,000whenevertheownerisreadyforretirement.
Theownerisconsideringthefollowingthreealternatives:1.Selltherestaurantnowandretire.2.
Hiresomeonetomanagetherestaurantforthenextyearandretire.Thiswillrequiretheownerto
spend$50,000now,butwillgenerate$100,000inprofitnextyear.Inoneyeartheownerwillsellthe
restaurant.3.Scalebacktherestaurantshoursandeaseintoretirementoverthenextyear.This
willrequiretheownertospend$40,000onexpensesnow,butwillgenerate$75,000inprofitatthe
endoftheyear.Inoneyeartheownerwillselltherestaurant.Iftheinterestrateis7%,the
alternativewiththehighestNPVis:(Points:10)
alternative#1withanNPVofapproximately$350,000.
alternative#2withanNPVofapproximately$370,561.
alternative#3withanNPVofapproximately$357,196.
alternative#2withanNPVofapproximately$380,561.
Question5.5.Whichofthefollowingstatementsregardingarbitrageandsecuritypricesis
incorrect?(Points:10)
Wecallthepriceofasecurityinanormalmarketthenoarbitragepriceforthesecurity.
Infinancialmarketsitispossibletosellasecurityyoudonotownbydoingashortsale.
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10/12/2015

TheAceStudent:SaintMBA570module2quiz

Whenabondisunderpriced,thearbitragestrategyinvolvessellingthebondandinvestingsomeof
theproceeds.
ThegeneralformulaforthenoarbitragepriceofasecurityisPrice(security)=PV(allcashflows
paidbythesecurity).
Question6.6.Supposethatasecuritywithariskfreecashflowof$1,000inoneyeartradesfor
$930today.Iftherearenoarbitrageopportunities,thenthecurrentriskfreerateisclosestto
__________.(Points:10)
6.0%
6.5%
7.0%
7.5%
8.0%
Question7.7.Atanannualinterestrateof7%,thefuturevalueof$5,000infiveyearsisclosestto
__________.(Points:10)
$3,565
$6,750
$7,015
$7,035
Question8.8.Ifthecurrentrateofinterestis8%,thenthepresentvalueofaninvestmentthat
pays$1,000peryearandlasts20yearsisclosestto__________.(Points:10)
$18,519
$45,761
$9,818
$20,000
Question9.9.Supposethatayoungcouplehasjusthadtheirfirstbabyandtheywishtoensure
thatenoughmoneywillbeavailabletopayfortheirchildscollegeeducation.Currently,college
tuition,books,fees,andothercostsaverage$12,500peryear.Onaverage,tuitionandothercosts
havehistoricallyincreasedatarateof4%peryear.Assumingthatcostscontinuetoincreasean
averageof4%peryear,tuitionandothercostsforoneyearforthisstudentin18yearswhenshe
enterscollegewillbeclosestto__________.(Points:10)
$12,500
$21,500
$320,568
$25,323
Question10.10.NielsonMotorsisconsideringanopportunitythatrequiresaninvestmentof
$1,000,000todayandwillprovide$250,000oneyearfromnow,$450,000twoyearsfromnow,and
$650,000threeyearsfromnow.Iftheappropriateinterestrateis10%,thenNielsonMotorsshould:
(Points:10)
investinthisopportunitysincetheNPVispositive.
notinvestinthisopportunitysincetheNPVispositive.
investinthisopportunitysincetheNPVisnegative.
notinvestinthisopportunitysincetheNPVisnegative.
SaintMBA570module2quiz

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