Questions And Topics We Can Help You To Answer
Please explain how you solve the problem in detail on the excel sheet.

MBA 6010
Quiz 1
Summer 2015
Student: ___________________________________________________________________________(1point)
Each question is worth 4 points
1. The Quick-Start Company has the following pattern of potential cash flows with its planned investment in a new cold weather starting system for fuel injected cars.

  

If the company has a discount rate of 17%, should it decide to invest? 
A. Yes, NPV = $2.2 million
B. Yes, NPV = $8.6 million
C. Yes, NPV = $21.6 million
D. No, since more than one branch is NPV = 0 or negative, the firm must reject.
E. No, NPV = -$1.9 million

2. Changes in the net working capital: 
A. are generally excluded from project analysis due to their irrelevance to the total project.
B. affect the initial and the final cash flows of a project but not the cash flows of the middle years.
C. can affect the cash flows of a project every year of the project's life.
D. are included in project analysis only if they represent cash outflows.
E. only affect the initial cash flows of a project.

3. You are considering the following two mutually exclusive projects. Both projects will be depreciated using straight-line depreciation to a zero book value over the life of the project. Neither project has any salvage value.

  

Required rate of return 10% 13%
Required payback period 2.0 years 2.0 years

Based upon the payback period and the information provided in the problem, you should: 
A. require that management extend the payback period for project A since it has a higher initial cost.
B. accept project B and reject project A.
C. accept both project A and project B.
D. reject both project A and project B.
E. accept project A and reject project B.

4. Peter's Boats has sales of $760,000 and a profit margin of 5%. The annual depreciation expense is $80,000. What is the amount of the operating cash flow if the company has no long-term debt? 
A. $34,000
B. $118,000
C. $120,400
D. $123,900
E. $86,400

5. You have a sub-contracting job with a local manufacturing firm. Your agreement calls for annual payments of $50,000 for the next five years. At a discount rate of 12%, what is this job worth to you today? 
A. $224,267.10
B. $210,618.19
C. $180,238.81
D. $201,867.47
E. $223,162.58

6. Which of the following amounts is closest to the end value of investing $5,000 for 14 months at a stated annual interest rate of 6% compounded monthly? 
A. $5,345
B. $5,293
C. $5,352
D. $6,183
E. $5,362

7.    

  

What is the operating cash flow for 2011? 
A. $845
B. $3,060
C. $1,930
D. $2,215
E. $2,845

8. What is the effective annual rate of 14.9% compounded continuously? 
A. 16.07%
B. 15.96%
C. 16.17%
D. 16.01%
E. 16.05%

9. Which one of the following is the best example of two mutually exclusive projects? 
A. Using an empty warehouse for storage or renting it entirely out to another firm.
B. Planning to build a warehouse and a retail outlet side by side.
C. Buying both inventory and fixed assets using funds from the same bond issue.
D. Buying sufficient equipment to manufacture both desks and chairs simultaneously.
E. Using the company sales force to promote sales of both shoes and socks.

10. Ben's Border Café is considering a project which will produce sales of $16,000 and increase cash expenses by $10,000. If the project is implemented, taxes will increase from $23,000 to $24,500 and depreciation will increase from $4,000 to $5,500. What is the amount of the operating cash flow using the top-down approach? 
A. $4,000
B. $8,500
C. $6,000
D. $7,500
E. $4,500

11. An investment with an initial cost of $14,000 produces cash flows of $4,000 annually for 5 years. If the cash flow is evenly spread out over the year and the firm can borrow at 10%, the discounted payback period is _____ years. 
A. Never
B. 2.5
C. 4.87
D. 2.68
E. 4.53

12.    

  

What is the change in the net working capital from 2010 to 2011? 
A. $1,335
B. $4,740
C. $1,235
D. $3,405
E. $1,035

13. A firm has a market capitalization of $2 million, market value of interest bearing debt of $1 million, book value of interest bearing debt of $500,000 and cash of $100,000. What is the enterprise value? 
A. $3.6 million
B. $3.0 million
C. $3.5 million
D. $2.5 million
E. $2.9 million

14. The McDonald Group purchased a piece of property for $1.2 million. It paid a down payment of 20% in cash and financed the balance. The loan terms require monthly payments for 15 years at an annual percentage rate of 7.75% compounded monthly. What is the amount of each mortgage payment? 
A. $7,440.01
B. $9,413.67
C. $9,036.25
D. $8,978.26
E. $9,399.18

15. Sensitivity analysis evaluates the NPV with respect to: 
A. changes in the underlying assumptions.
B. one variable changing while holding the others constant.
C. None of these.
D. All of these.
E. different economic conditions.

16. Today you earn a salary of $28,500. What will be your annual salary fifteen years from now if you earn annual raises of 3.5%? 
A. $47,747.44
B. $48,201.60
C. $48,091.91
D. $47,035.35
E. $47,522.89

17. A project has earnings before interest and taxes of $5,750, fixed costs of $50,000, a selling price of $13 a unit, and a sales quantity of 11,500 units. Depreciation is $7,500.
What is the variable cost per unit? 
A. $7.50
B. $7.25
C. $7.75
D. $6.75
E. $7.00

18. Samson's purchased a corner lot five years ago at a cost of $640,000. The lot was recently appraised at $820,000. At the time of the purchase, the company spent $50,000 to grade the lot and another $4,000 to build a small building on the lot to house a parking lot attendant who has overseen the use of the lot for daily commuter parking. The company now wants to build a new retail store on the site. The building cost is estimated at $1.5 million. What amount should be used as the initial cash flow for this building project? 
A. $1,823,000
B. $694,000
C. $1,514,000
D. $2,320,000
E. $1,460,000

19. Matty's Place is considering the installation of a new computer system that will cut annual operating costs by $11,000. The system will cost $48,000 to purchase and install. This system is expected to have a 5-year life and will be depreciated to zero using straight-line depreciation. What is the amount of the earnings before interest and taxes for this project? 
A. $1,400
B. $11,000
C. $20,600
D. -$9,600
E. $1,000

20. In order to make a decision with a decision tree: 
A. any path can be taken to get to the end.
B. None of these.
C. any path can be taken to get back to the beginning.
D. one starts farthest out in time to make the first decision.
E. one must begin at time 0.

21. An investment with an initial cost of $15,000 produces cash flows of $5,000 annually for 5 years. If the cash flow is evenly spread out over the year and the firm can borrow at 10%, the discounted payback period is _____ years. 
A. 5
B. 3.2
C. 3.75
D. 3
E. 4

22. Sustainable growth can be determined by the: 
A. Either profit margin, total asset turnover and the price to earnings ratio or profit margin, the payout ratio, the debt-to-equity ratio, and the asset requirement or asset turnover ratio.
B. Total growth less capital gains growth.
C. profit margin, the payout ratio, the debt-to-equity ratio, and the asset requirement or asset turnover ratio.
D. profit margin, total asset turnover and the price to earnings ratio.
E. None of these.

23. A project has a contribution margin of $5, projected fixed costs of $10,000, a projected variable cost per unit of $12, and a projected present value break-even point of 6,000 units. What is the operating cash flow at this level of output? 
A. $2,000
B. $20,000
C. $10,000
D. $120,000
E. $30,000

24. Which of the following help convince managers to work in the best interest of the stockholders?

I. compensation based on the value of the stock
II. stock option plans
III. threat of a proxy fight
IV. threat of conversion to a partnership 
A. I, II and III only
B. I and II only
C. I and III only
D. I, II, III, and IV
E. II and III only

25. Ralph and Emma's is considering a project with total sales of $17,500, total variable costs of $9,800, total fixed costs of $3,500, and estimated production of 400 units. The depreciation expense is $2,400 a year. What is the contribution margin per unit? 
A. $14.14
B. $10.50
C. $19.25
D. $19.09
E. $4.50