1.Due to a
pre-existing contract, Recycle America Inc. has the opportunity to acquire
10,000 pounds of scrap aluminum and 2,500 pounds of scrap lead for $10,750.
If the current market price for scrap aluminum is $0.83 per pound and the
current market price for lead is $1.06 per pound, then the added benefit
(cost) to you if you acquire this metal is __________. (Points : 10)


Question 2.2.Which of the
following statements is incorrect? (Points : 10)

In general, money
today is worth more than money in one year.
We define the
risk-free interest rate,rffor a given period
as the interest rate at which money can be borrowed or lent without risk over
that period.
We refer to (1 –rf) as the interest
rate factor for risk-free cash flows.
For most financial
decisions, costs and benefits occur at different points in time.

Question 3.3.Suppose you will
receive $500 in one year and the risk-free interest rate (rf)
is 5%. The equivalent value today is closest to __________. (Points : 10)


Question 4.4.You are offered
an investment opportunity in which you will receive $23,750 today in
exchange for paying $25,000 in one year. Suppose the risk-free interest
rate is 6% per year. Should you take this project? The NPV for this project
is closest to: (Points : 10)

Yes; NPV = $165
No; NPV = $165
Yes; NPV = -$165
No; NPV = -$165

Question 5.5.Suppose that
Bondi Inc. is a holding company that owns both Pizza Hut and Kentucky Fried
Chicken franchised restaurants. If the value of Bondi is $130 million, and
the Pizza Hut franchises are worth $70 million, then what is the value of
the Kentucky Fried Chicken franchises? (Points : 10)

$60 million
$70 million
$130 million
Unable to determine
with the information provided

Question 6.6.An independent
film maker is considering producing a new movie. The initial cost for
making this movie will be $20 million today. Once the movie is completed,
in one year, the movie will be sold to a major studio for $25 million.
Rather than paying for the $20 million investment entirely using its own
cash, the film maker is considering raising additional funds by issuing a
security that will pay investors $11 million in one year. Suppose the
risk-free rate of interest is 10%. What is the NPV of this project if the
film maker invests his own money and does not issue the new security? What
is the NPV if the film maker issues the new security? (Points : 10)

$1.7 million; $1.7
$1.7 million; $2.7
$2.7 million; $1.7
$2.7 million; $2.7

Question 7.7.Which of the
following statements is false? (Points : 10)

The process of
moving a value or cash flow forward in time is known as compounding.
The effect of
earning interest on interest is known as compound interest.
It is only possible
to compare or combine values at the same point in time.
A dollar in the
future is worth more than a dollar today.

Question 8.8.If the current
rate of interest is 8%, then the present value of an investment that pays
$1,000 per year and lasts 20 years is closest to __________. (Points : 10)


Question 9.9.You are looking
for a new truck and see the following advertisement: “Own a new truck!
No money down. Just five easy annual payments of $8,000.” You know
that you can get the same truck from the dealer across town for only
$31,120. The interest rate for the deal advertised is closest to
__________. (Points : 10)


Question 10.10.Which of the
following statements is false? (Points : 10)

The difference
between an annuity and a perpetuity is that an annuity ends after some fixed
number of payments.
Most car loans,
mortgages, and some bonds are annuities.
A growing
perpetuity is a cash flow stream that occurs at regular intervals and grows
at a constant rate forever.
An annuity is a
stream ofNequal cash flows
paid at irregular intervals.