02 Jan The difference between

Question 1. Question :

Due to a pre-existing contract, Recycle America Inc. has the opportunity to acquire 10,000 pounds of scrap aluminum and 2,500 pounds of scrap lead for $10,750. If the current market price for scrap aluminum is $0.83 per pound and the current market price for lead is $1.06 per pound, then the added benefit (cost) to you if you acquire this metal is __________.

($200)

$200

($1,925)

$1,925

Question 2. Question :

If the risk-free rate of interest (rf) is 6%, then you should be indifferent between receiving $250 in one year or:

$235.85 today.

$250.00 today.

$265.00 today.

none of these.

Question 3. Question :

If the risk-free rate of interest (rf) is 3.5%, then you should be indifferent between receiving $1,000 in one-year or:

$965.00 today.

$966.18 today.

$1,000.00 today.

$1,035.00 today.

Question 4. Question :

Which of the following statements regarding Net Present Value (NPV) is incorrect?

The NPV represents the value of the project in terms of cash today.

Good projects will have a positive NPV.

The NPV of a project is the difference between the present value of its benefits and the present value of its costs.

When faced with a set of alternatives, choose the one with the lowest NPV in order to minimize the preset value of costs.

Question 5. Question :

Suppose that Bondi Inc. is a holding company that owns both Pizza Hut and Kentucky Fried Chicken franchised restaurants. If the value of Bondi is $130 million, and the Pizza Hut franchises are worth $70 million, then what is the value of the Kentucky Fried Chicken franchises?

$60 million

$70 million

$130 million

Unable to determine with the information provided

Question 6. Question :

Suppose a security with a risk-free cash flow of $1,000 in one year trades for $909 today. If there are no arbitrage opportunities, then the current risk-free interest rate is closest to __________.

8%

10%

11%

12%

Question 7. Question :

Which of the following statements is false?

The process of moving a value or cash flow forward in time is known as compounding.

The effect of earning interest on interest is known as compound interest.

It is only possible to compare or combine values at the same point in time.

A dollar in the future is worth more than a dollar today.

Question 8. Question :

Nielson Motors is considering an opportunity that requires an investment of $1,000,000 today and will provide $250,000 one year from now, $450,000 two years from now, and $650,000 three years from now. If the appropriate interest rate is 10%, then Nielson Motors should:

invest in this opportunity since the NPV is positive.

not invest in this opportunity since the NPV is positive.

invest in this opportunity since the NPV is negative.

not invest in this opportunity since the NPV is negative.

Question 9. Question :

You are interested in purchasing a new automobile that costs $35,000. The dealership offers you a special financing rate of 6% APR (0.5%) per month for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then your monthly car payments would be closest to __________.

$729

$822

$842

$647

Question 10. Question :

Which of the following statements is false?

The difference between an annuity and a perpetuity is that an annuity ends after some fixed number of payments.

Most car loans, mortgages, and some bonds are annuities.

A growing perpetuity is a cash flow stream that occurs at regular intervals and grows at a constant rate forever.

An annuity is a stream of N equal cash flows paid at irregular intervals.