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    Mid-Term – FIN 610

    INSTRUCTIONS:

    1. Please answer all ten (10) questions.  If calculations are necessary, please use Excel .
    2. For each question that requires calculations, please state all assumptions and data sources clearly.
    3. At submission time, you can ONLY submit a maximum of two (2) files for the entire exam- one Excel file (if you use Excel at all for this test) and one Word file.

    1. The percentage of sales method: 
    A. requires that all accounts grow at the same rate.
    B. separates accounts that vary with sales and those that do not vary with sales.
    C. allows the analyst to calculate how much financing the firm will need to support the predicted sales level.
    D. Both A and B.
    E. Both B and C.

    2. Neal’s Nails has an 11% return on assets and a 30% dividend payout ratio. What is the internal growth rate? 
    A. 7.11%
    B. 7.70%
    C. 8.34%
    D. 8.46%
    E. 11.99%

    3. You buy an annuity which will pay you $12,000 a year for ten years. The payments are paid on the first day of each year. What is the value of this annuity today at a 7% discount rate? 
    A. $84,282.98
    B. $87,138.04
    C. $90,182.79
    D. $96,191.91
    E. $116,916.21

    4. At stage 2 of the decision tree it shows that if a project is successful, the payoff will be $53,000 with a 2/3 chance of occurrence. There is also the 1/3 chance of a $-24,000 payoff. The cost of getting to stage 2 (1 year out) is $44,000. The cost of capital is 15%. What is the NPV of the project at stage 1? 
    A.$-13,275
    B. $-20,232
    C. $2,087
    D. $7,536
    E. Can not be calculated without the exact timing of future cash flows

    5. Le Place has sales of $439,000, depreciation of $32,000, and net working capital of $56,000. The firm has a tax rate of 34% and a profit margin of 6%. The firm has no interest expense. What is the amount of the operating cash flow? 
    A. $49,384
    B. $52,616
    C. $54,980
    D. $58,340
    E. $114,340

    6. A project is expected to create operating cash flows of $22,500 a year for three years. The initial cost of the fixed assets is $50,000. These assets will be worthless at the end of the project. An additional $3,000 of net working capital will be required throughout the life of the project. What is the project’s net present value if the required rate of return is 10%? 
    A. $2,208.11
    B. $2,954.17
    C. $4,306.09
    D. $5,208.11
    E. $5,954.17

    7. A project has earnings before interest and taxes of $5,750, fixed costs of $50,000, a selling price of $13 a unit, and a sales quantity of 11,500 units. Depreciation is $7,500.
    What is the variable cost per unit?
     
    A. $6.75
    B. $7.00
    C. $7.25
    D. $7.50
    E. $7.75

    8. A project has a contribution margin of $5, projected fixed costs of $12,000, a projected variable cost per unit of $12, and a projected present value break-even point of 5,000 units. What is the operating cash flow at this level of output? 
    A. $1,000
    B. $12,000
    C. $13,000
    D. $68,000
    E. $73,000

    9.The relationship between nominal rates, real rates, and inflation is known as the: 
    A. Miller and Modigliani theorem.

    B. Fisher effect.
    C. Gordon growth model.
    D. term structure of interest rates.
    E. interest rate risk premium.

    10.Party Time, Inc. has a 6% coupon bond that matures in 11 years. The bond pays interest semiannually. What is the market price of a $1,000 face value bond if the yield to maturity is 12.9%? 
    A. $434.59
    B. $580.86
    C. $600.34
    D. $605.92
    E. $947.87

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