Homework Sunday

1. What is the future value of 1,300, placed in a saving account for four years if the account pays 10.00%, compound quarterly (your answer should be correct to two decimal places.)

2. Your brother, who is 6 years old, just received a trust fund that will be worth \$24,000 when he is 21 years old. if the fund earned 0.09 interest compounded annually, what is the value of the fund today?

3. If you were to borrow \$8,200 over five years at 0.13 compounded monthly, what would be your monthly payment?

4. Your uncle promises to give you \$500 per quarter for the next five years. How much is his promise worth right now if the interest rate is 0.05 compounded quarterly?

5. A stock has an expected return of 0.09 and a variance of 0.21. What is its coefficient of variation?

6. Use the following information to calculate your company’s expected return

State         Probability             Return

boom             20%                      0.02

Normal           60%                      0.10

Recession     20%                       -0.18

7. You have invested in stocks J and M. from the following information, determine the beta for your portfolio.

Return              Investment              Beta

Stock J                          0.10                  \$100,000                  1.23

Stock M                          0.11                  \$300,000                 0.71

8. Frazier manufacturing paid a dividend last year of \$2. which is expected to grow at a constant rate of 5%. Frazier has a beta of 1.3. if the market is returning 11% and the risk-free rate is 4%. calculate the value of Frazier’s stock.

9. You have invested 30 percent of your portfolio in Jacob, 40 percent in Bella, and 30 percent in Edward resources. What is the expected return of your portfolio if Jacob, Bella, and Edward have expected return of 0.06, 0.17, and 0.06, respectfully?

10. The covariance of the returns between Willow stock and Sky Diamond stock is 0.0880. the variance of Willow is 0.1430, and the variance for Sky Diamond is 0.1380. What is the correlation coefficient between the returns of the two stocks?

11. A project has the following cash flows

0           1                 2            3

(\$500)   \$160.00    \$200      \$250.00

What is the project’s NPV if the intrest rate is \$6%?

12.  Sony entertainment system is setting up to manufacture a new line of video games consoles. the cost of the manufacturing equipment is \$1,750,000. Expected cash flows over the next four years are \$725,000, \$850,000, \$1,2000,000, and \$1,500,000. Given the company’s required rate of return of 15%, what is the NPV of the projects?

13. A project requires an initial outlay of \$100,000,and to generate annual net cash inflows of \$28,000 for the next 5 years. Determine the payback period of the project

a. .28 yrs  b.1.4 yrs c. 3.57 yrs d. 17.86 yrs

14. An investment project requires an initial outlay of 100,000, and is expected to generate annual cash inflows of \$28,000 for the next 5 yrs. (round to the nearest tenth of the percentage) Determine the internal rate of return (IRR) for the project using a financial calculator.

15. Capital budgeting anaysis of mutually exclusive projects A and B yields following

Project A                Project B

IRR                                 18%                       22%

NPV                             \$270,000              \$255,000

Payback Period             2.5 yrs                    2.0 yrs

Management should choose;

a. Project B because most executives prefer the IRR method

b. Project B because two out of three methods choose it

c.Project A because NPV is the best method

d. Either project because the result are not consistant

16. John bought new machinery for \$5,135,000 million. this is expected to result in additional cash flow of\$1,225,000 million over the next 7 yrs. What is the payback period for this project? Their acceptance period is 5yrs.

17. CIT has invested \$2,165,800 on equipment. the firm uses payback period criteria of not accepting any project that takes more than four years to recover costs. The company anticipates cash flows of \$448,386, \$512,178, \$562,755, \$764,997, \$816,500, and \$825,375 over the next 6 yrs. What is the payback period?

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