**1.**What is the present value of a perpetuity that pays you annual,end-of-year payments of $950.00?Use a nominal rate(monthly compounding)of 7.50%

a.$12,782

b.$11,983

c.$12,237

d.$12,730

e.$12,561

**2.**A perpetual bond with a par value of $1,000.00 and a coupon rate of 7.75% has a current market value of $900.00.What is its yield to maturity?

a.7.92%

b.8.61%

c.9.32%

d.9.45%

e.8.33%

**3.**ZZZ-Best, Inc.recently issued $65.00 par value preferred stock that pays an annual dividend of $17.00.If the stock is currently selling for $76.00,what is the expected return of this preferred stock?

a.20.27%

b.22.94%

c.22.60%

d.22.37%

e.24.42%

**4.**Delta Rockets recently issued $80.00 par value preferred stock that pays an annual dividend of $16.00.Based on your research,you estimate that the stock has a required rate of 17.50%.What is the intrinsic value of this preferred stock?

a.$84.66

b.$89.52

c.$93.13

d.83.66

e.91.43

**5.**You firm recently paid a dividend of $4 to common stockholders.Dividends are expected to grow at 8% per year for the foreseeable future.The current stock price is $54.New shares could be sold for the same price,but flotation costs would amount to $6 per share.

A $15 million bank line of credit is available with an interest rate of 9 percent.The firm’s tax rate is 34%.

What is the firm’s cost of capital if their capital structure consists of 60% (external) equity and 40% bank loans?’

a.15.20%

b.12.58%

c.11.98%

d.14.60%

e.13.21%

**6.**Last year Cayman Corporation had sales of $7,000,000,total variable costs of $3,000,000, and total fixed costs of $1,500,000. In addition,they paid $480,000 in interest to bondholders.Cayman has a 35% marginal tax rate.If Cayman’s sales increase 7%,what should be the increase in earnings per share?

a.8.7%

b.10.8%

c.13.3%

d.13.9%

e.11.2%

**7**.Last year,Cayman Corporation had sales of $30,000,000,total variable costs of $13,500,000,and total fixed costs of $5,000,000.In addition,they paid $3,000,000 in interest to bondholders.Cayman has a marginal tax rate of 35 percent.If Cayman’s sales increase by 15%,what should be the increase in operating income?

a.29.1%

b.21.5%

c.18.3%

d.23.8%

e.20.3%

**8.**This information will be used for two questions!

Sand Key Development Company has a capital structure consisting of $20 million of 10% debt and $30 million of common equity.The firm has 500,000 shares of common stock outstanding.Sand Key is planning a major expansion and will need to raise $15 million.The firm must decide whether to finance the expansion with debt or equity.If equity financing is selected,common stock will be sold at $75 per share.If debt financing is chosen,5% coupon bonds will be sold. The firm’s margin tax rate is 34%.Determine the level of operating income at which Sand Key would be indifferent between debt financing and equity financing.

a.$6,200,000

b.$5,150,000

c.5,675,000

d.6,725,000

e.4,625,000

**9.**This question is based on the other Sand Key Development Company question!

Sand Key Development Company estimates that it will generate on EBIT of $3.25 million.Which financing options should Sand Key use?

a.Sand Key is indifferent between the two options.

b.We don’t have enough information to answer this.

c.The “debt financing” option.

d.The “equity financing” option.

**10.**Your firm is selling a 3-year old machine that has a 5-year class life. The machine originally cost $580,000 and required an investment in net working capital of $20,000 at the time of installation(recoverable when the machine is no longer in use).Your firm is selling the asset for $180,000.Your firm’s marginal tax rate is 34%.What is the cash flow effect from selling this machine?

a.$207,680

b.212,680

c.197,680

d.217,680

e.202,680

**11.**A new security system has a price-tag of $7,000,000,but should save your company $3,450.00 each year for the next 10 years in reduced thefts.What is the NPV of the security system? Use a discount rate of 10.80%.

a.$14,485

b.$14,530

c.13,658

d.14,126

e.13,489

**12.**Your currently have $3,000.00 in an account and plan on depositing $2,500.00 into the account each year,starting in 1 year.If the account earns an annual effective interest rate of 6.70%,how much will be in the account (what is the future value) in 5 years just after making your final deposit?

a.$16,471

b.18,740

c.17,377

d.18,440

e.16,672

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