MBA 570 quiz 2

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MBA 570 quiz 2, 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)

($200)
$200
($1,925)
$1,925

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,r_ffor a given period as the interest rate at which money can be borrowed or lent without risk over that period.
We refer to (1 –r_f) 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 (r_f) is 5%. The equivalent value today is closest to __________. (Points : 10)

$475
$476
$500
$525

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

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)

$18,519
$45,761
$9,818
$20,000

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)

9%
8%
8.5%
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.

MBA 570 quiz 2, MBA 570 quiz 2, MBA 570 quiz 2

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