# 1. Two mutually exclusive investments cost $10,000

1. Two mutually exclusive investments cost $10,000 each and have the following cash inflows. The firm’s cost of capital is 12%. 2. Given the following information, answer the following questions: 3. Determine the current market prices of the following

$1,000 bonds if the comparable rate is 10% and answer the following questions. Part B: Indicate whether the statement is True or False. Each answer is worth 2 points. ______ 1. Discounting refers to the process of bringing the future back to the present. ______

2. An increase in retained earnings is a cash inflow. ______ 3. If a firm doesn’t pay cash dividends, it may reinvest the earnings and grow. ______ 4. Total revenue equals price times quantity. ______ 5. The internal rate of return equates the present value

of an investment’s cash inflows and its cost (outflows). Part C: Select the one best answer to each question. Each answer is worth 4 points. 1. An investor may place a limit order that 2. Which of the following is nota financial intermediary? 3. Using accelerated

depreciation 4. The current yield on a bond is 5. The increased use of financial leverage may Part D: Solve each of the following problems. Each answer is worth 5 points. 1 If a new college graduate wants a car costing $15,000, how much must be saved annually

over the next four years if the funds earn 5%? 2 You purchase a bond for $875. It pays $80 a year (that is, the semiannual coupon is 4%), and the bond matures after 10 years. What is the yield to maturity?

$1,000 bonds if the comparable rate is 10% and answer the following questions. Part B: Indicate whether the statement is True or False. Each answer is worth 2 points. ______ 1. Discounting refers to the process of bringing the future back to the present. ______

2. An increase in retained earnings is a cash inflow. ______ 3. If a firm doesn’t pay cash dividends, it may reinvest the earnings and grow. ______ 4. Total revenue equals price times quantity. ______ 5. The internal rate of return equates the present value

of an investment’s cash inflows and its cost (outflows). Part C: Select the one best answer to each question. Each answer is worth 4 points. 1. An investor may place a limit order that 2. Which of the following is nota financial intermediary? 3. Using accelerated

depreciation 4. The current yield on a bond is 5. The increased use of financial leverage may Part D: Solve each of the following problems. Each answer is worth 5 points. 1 If a new college graduate wants a car costing $15,000, how much must be saved annually

over the next four years if the funds earn 5%? 2 You purchase a bond for $875. It pays $80 a year (that is, the semiannual coupon is 4%), and the bond matures after 10 years. What is the yield to maturity?

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