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 1) How much are you willing to pay for one share of stock if the company just paid an \$.80 annual dividend, the dividends increase by 4% annually and you require an 8% rate of return?

 [removed] \$20.00 [removed] \$21.63 [removed] \$20.40 [removed] \$19.23 [removed] \$20.80

2)  What is the expected return on this portfolio?

 [removed] 9.67% [removed] 9.78% [removed] 10.87% [removed] 10.59% [removed] 9.50%

3) Your bank offers you a \$100,000 line of credit with an interest rate of 2.5% per quarter. The loan agreement also requires that 4% of the unused portion of the credit line be deposited in a non-interest bearing account as a compensating balance. Your short-term investments are paying 1.25% per quarter. What is your effective annual interest rate if you borrow the whole \$100,000 for the entire year? Assume that both the funds you borrow and the funds you invest use compound interest.

 [removed] 10.00% [removed] 10.25% [removed] 10.38% [removed] 10.50% [removed] 10.67%

4) Your firm has a net cash inflow for the quarter of -\$30 (negative). The beginning cash balance is \$15. Company policy is to maintain a minimum cash balance of \$5 and borrow only the amount that is necessary to maintain that balance. How much does your firm need to borrow to have a zero cumulative surplus?

 [removed] \$10 [removed] \$15 [removed] \$20 [removed] \$25 [removed] \$30

5) You are considering two projects with the following cash flows:

Which of the following statements are true concerning these two projects?
I. Both projects have the same future value at the end of year 4, given a positive rate of return.
II. Both projects have the same future value given a zero rate of return.
III. Both projects have the same future value at any point in time, given a positive rate of return.
IV. Project A has a higher future value than project B, given a positive rate of return.

 [removed] II only [removed] IV only [removed] I and III only [removed] II and IV only [removed] I, II, and III only 6) You own some equipment which you purchased three years ago at a cost of \$135,000. The equipment is 5-year property for MACRS. You are considering selling the equipment today for \$82,500. Which one of the following statements is correct if your tax rate is 34%?

 [removed] The book value today is \$8,478. [removed] The tax due on the sale is \$14,830.80. [removed] The taxable amount on the sale is \$38,880. [removed] You will receive a tax refund of \$13,219.20 as a result of this sale. [removed] The book value today is \$64,320.

7) Frank’s Formals rents apparel throughout the year. They have experienced non-payment by about 15% of their customers with an average loss of \$400. Frank’s wants to stem their losses by using an instant electronic credit check on the customer. These checks will cost them \$15 on each of the 1,000 customers. The opportunity cost is 2.0% for the credit period. Should they pursue the credit check?

 [removed] No, because the \$15,000 cost is too high. [removed] No, because a \$400 loss is minor. [removed] Yes, because the net gain is \$30,000. [removed] Yes, because the net gain is \$45,000. [removed] Yes, because the net gain is \$60,000.
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