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# FIN 515 Midterm Exam 2

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## FIN 515 Midterm Exam 2

 1. (TCO G) The firm’s asset turnover measures (Points : 10)

the value of assets held per dollar of shareholder equity.
the return the firm has earned on its past investments.
the firm’s ability to sell a product for more than the cost of producing it.
how efficiently the firm is utilizing its assets to generate sales.

 Question 2.2. (TCO G) If Moon Corporation has an increase in sales, which of the following would result in no change in its EBIT margin? (Points : 10)

A proportional increase in its net income.
A proportional decrease in its EBIT.
A proportional increase in its EBIT.
An increase in its operating expenses.

3. (TCO B) You plan on retiring in 20 years. You currently have \$275,000 and think you will need \$1,000,000 to retire. Assuming you don’t deposit any additional money into the account, what annual return will you need to earn to meet this goal? (Points : 20)

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1. (TCO B) You take out a 5 year car loan for \$20,000. The loan has a 5% annual interest rate. The payments are made monthly. What are the monthly payments? Show your work.(Points : 20)

1. (TCO B) A grandfather sets up a trust for his only grandchild. The trust consists of an annuity that will pay \$5,000 monthly to the grandchild for 18 years. The annuity pays an annual return of 5% and makes the payments monthly at the end of the month. Return on the annuity is 5% annually. The payments to the grandchild are paid at the beginning of the month.  The annuity will have a value of \$0 at the end of the 18 years. How much needs to be deposited to set up the annuity? Show your work.(Points : 20)
2. (TCO B) A homebuyer is taking out a mortgage with a balloon payment. The loan amount is \$100,000 and the annual interest rate is 5%. The homebuyer will make equal monthly payments for 5 years except the last payment will include an additional payment of \$20,000. How much will the equal monthly payments be? Show your work.(Points : 20)

1. (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 NPV? Show your work.(Points: 10)

1. (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 payback period? Show your work.(Points : 10)

1. (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 IRR? Show your work.(Points : 20)

1. (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 discounted payback period? Show your work.(Points : 20)

1. (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. Projects A and C can be done together. Projects B and C can be done together. But Projects A and B are mutually exclusive. The company has a cost of capital of 18%. Which should the company do and why? You must use at least two capital budgeting methods. Show your work.
 A B C 0 -500 -500 -600 1 200 -200 100 2 200 600 100 3 200 400 100 4 200 200 100 5 200 -300 100 6 200 100 7 -300 100

(Points : 40)