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13. Fine Oak Woodworks is considering a project that has cash flows of $6,000, $4,000, and
$3,000 for the next three years. If the appropriate discount rate of this project is 10
percent, which of the following statements is false?
14. You are considering two investments. Investment I, is in a software company and
Investment II, is an engineering company. The investments offer the following cash flows:
Year Software Company Engineering Company
1 $5,000 $15,000
2 $3,000 $8,000
3 $4,000 $9,000
4 $3,600 $11,000
If the appropriate discount rate is 10 percent, what is the approximate present value of the
Software Company investment?
15. North Bank offers you an APR of 13.17 percent compounded monthly, and South Bank
offers you an effective rate of 13.75 percent on a business loan. Which bank should you
choose and why?
16. Which one of the following will increase the future value of a lump sum invested today?
17. Which one of the following is an example of an annuity, but not a perpetuity?
18. Fanta Cola has $1,000 par value bonds outstanding at 12 percent interest. The bonds
mature in 25 years. What is the current price of the bond if the YTM is 13 percent?
Assume annual payments.
19. A bond’s debenture will include which of the following?
20. Bonds issued by Blue Sky Airlines have a face value of $1,000 and currently sell for
$850. The annual coupon payments are $80. If the bonds have 10 years until maturity,
what is the approximate YTM of the bonds?
21. Bean Coffee issued preferred stock many years ago. It carries a dividend of $8 per
share, fixed. As time has passed, yields have decreased from the original eight percent (at
the time of issuance) to six percent. What was the current price of the stock? Hint: Yield is
the same as required rate of return.
22. Intelligence Research, Inc. will pay a common stock dividend of $1.60 at the end of the
year. The required rate of return by common stockholders is 13 percent. The firm has a
constant growth rate of 7.5 percent. What is the current price of the stock?
23. Royal Electric paid a $4 dividend last year. The dividend is expected to grow at a
constant rate of six percent over the next four years. Common stockholders require a 13
percent return. What are the values of the dividends for years 1, 2 and 3, respectively?
24. Which of the following is true regarding the primary market?