FIN 515 Devry entire course DEVRY FIN 515 Week 4 Midterm | Page 2

account. From this account, Child B will receive $2,000 per month for the next four
years. Whatever is left at that time will go to Child A to help start the business. You
want Child A to receive $96,000 at that time. The account pays 7% annually,
compounded monthly. How much money do you need to start the account? Show
your work.
7. (TCO F) A project requires an initial cash outlay of $95,000 and has expected cash
inflows of $20,000 annually for 9 years. The cost of capital is 10%. What is the
project’s NPV? Show your work.
8. (TCO F) A project requires an initial cash outlay of $60,000 and has expected cash
inflows of $15,000 annually for 8 years. The cost of capital is 10%. What is the
project’s payback period? Show your work.
9. (TCO F) A project requires an initial cash outlay of $95,000 and has expected cash
inflows of $20,000 annually for 9 years. The cost of capital is 10%. What is the
project’s IRR? Show your work.
10. (TCO F) A project requires an initial cash outlay of $40,000 and has expected cash
inflows of $12,000 annually for 7 years. The cost of capital is 10%. What is the
project’s discounted payback period? Show your work.
11. (TCO F) Company A has the opportunity to do any, none, or all of the projects for
which the net cash flows per year are shown below. The projects are not mutually
exclusive. The company has a cost of capital of 15%. Which should the company do
and why? You must use at least two capital budgeting methods. Show your work.
Explain your answer thoroughly.

(1 ) (TCO A) Which of the following statements is CORRECT? (Points : 10)

(a) It is generally more expensive to form a proprietorship than a corporation
because, with a proprietorship, extensive legal documents are required.
(b) Corporations face fewer regulations than sole proprietorships.
(c) One disadvantage of operating a business as a sole proprietorship is that the firm
is subject to double taxation, at both the firm level and the owner level.
(d) One advantage of forming a corporation is that equity investors are usually
exposed to less liability than in a regular partnership.
(e) If a regular partnership goes bankrupt, each partner is exposed to liabilities only
up to the amount of his or her investment in the business.
(2) (TCO G) A security analyst obtained the following information from Prestopino
Products’ financial statements: