UMUC FIN 610 Midterm with Answers

UMUC FIN 610 Midterm with Answers

BUY HERE⬊

https://mxstudent.com/umuc-fin-610-midterm-with-answers/

FIN 610 MidTerm Exam 1 Answers (UMUC)

1. The following items appear on the Left Hand Side of the Balance Sheet (Assets):

2. Which of the following is a non-cash expense?

3. If you invest $100,000 today at an interest rate of 6.90 percent a year, how much will it have by the end of year 9?

4. If the pension plan needs to accumulate $1,400,000 million in 6 years, how much must it invest today in an asset that pays an annual interest rate of 4.10 percent?

5. The stock of a firm will pay a dividend of $19 a year from now. The dividend paid by the firm will increase at a rate 3% every year. The dividends are discounted at a rate of 9.90% every year. What is the price of the stock today?

6. You have purchased a house for $410,000 and taken a loan that is to be repaid in 180 equal monthly payments beginning next month (15 year loan). The interest rate charged is 0.38% monthly. What are your monthly payments?

7. You are analyzing the prospects of installing cost saving machinery. You have the following information:

• Every year the machine generates costs savings (before taxes) of an amount $60,000.

• The cost of the machinery is 150,000.

• The machinery will be depreciated "straight line" for tax purposes over 5 years. That is the depreciation for tax purposes per year will be the price of the machinery divided by 5.

• The machinery will occupy space that would otherwise have been rented for $10,000 a year (before taxes are deducted).

• The tax rate is 36%.

8. For this question start fresh, do not carry over data from earlier questions. You are analyzing the prospects of installing cost saving machinery. You have the following information:

• The machine costs $92,000. Depreciation is calculated straight line (equal amounts) over 4 years.

• Every year the machine increases cash flows by an amount 40,000. (Taxes, Opportunity Cost etc. have all been accounted for in this number. There is no Net Working Capital.)

• After 3 years (when the machine has only been depreciated for 3 years and therefore the book value is not zero) the machine is sold for $30,000. This, therefore, is a 3 year project.

• The rate of discount is 8%

• The tax rate is 36%.

• (Hint: Here you have to consider the income due to the salvage sale of the machinery and the taxes on this sale.)

What is the NPV of installing the machinery?

This question will require you to use Excel's IRR function. A firm invests $200,000 in a project today. It receives $20,000 a year from now, $50,000 two years from now, and $195,000 three years from now and nothing more. What is the IRR of the project?

The format of Excel's IRR function is =IRR(aX:aY,Z)

Where aX:aY are cells aX to aY which have cash flows entered into them. The initial investment is a negative cash flow so it should have a negative sign.

Z is a "guess" IRR, usually you can set to 0.1 (which is 10%).

A firm is evaluating a product. The market demand for the product can be low or high.

The product requires an investment of $1,480.

If the market demand is low, then there is a 75% chance that the product will sell for $1000 and a 25% chance it will sell for $1,500.

What is the NPV of the project if the market demand is low?