Fin500 Exam

1. You are considering an annuity which costs $100,000 today. The annuity pays $6,000 a year. The rate of return is 4.5%. What is the length of the annuity time period?

| 31.49 years |

| 38.00 years |

| 24.96 years |

| 33.08 years |

| 29.48 years |

2. Which one of the following statements is correct concerning corporations?

| The income of a corporation is taxed as personal income of the stockholders. |

| The largest firms are usually corporations. |

| The ability of a corporation to raise capital is quite limited. |

| The stockholders are usually the managers of a corporation. |

| The majority of firms are corporations. |

3. Southern California Publishing Company is trying to decide whether to revise its popular textbook, Financial Psychoanalysis Made Simple. The company has estimated that the revision will cost $65,000. Cash flows from increased sales will be $18,000 the first year. These cash flows will increase by 4 percent per year. The book will go out of print five years from now. Assume that the initial cost is paid now and revenues are received at the end of each year. |

Required: |

(a) | Calculate the present value of the increased cash flows. (Do not include the dollar sign ($). Round your answer to 2 decimal places. (e.g., 32.16)) |

Present value | $ |

Required: |

(b) | If the company requires an 11 percent return for such an investment, should it undertake the revision? |

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4. Which one of the following is a capital budgeting decision?

| deciding when to repay a long-term debt |

| deciding whether or not to open a new store |

| determining how much money should be kept in the checking account |

| determining how much inventory to keep on hand |

| determining how much debt should be borrowed from a particular lender |

5. You have $2,500 that you want to use to open a savings account. You have found five different accounts that are acceptable to...