Finance Practice Essay

1010 Words Dec 23rd, 2011 5 Pages
Finance Practice Assessment
1. Frisch Fish Corp expects net income next year to be $600,000. Inventory and accounts receivable will have to be increased by $300,000 to accommodate this sales level. Frisch will pay dividends of $400,000. How much external financing will Frisch Fish need assuming no organically generated increase in liabilities?
A. No external financing is required.
B. $100,000
C. $200,000
D. $300,000 2. Under normal conditions (70% probability), Financing Plan A will produce $24,000 higher return than Plan B. Under tight money conditions (30% probability), Plan A will produce $40,000 less than Plan B. What is the expected value of returns?
A. $28,800
B. $4,000
C. $4,800
D. $35,200 3. Riley Co. is
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Marsha’s pretax cost of equity is 12%. Its pretax cost of preferred equity is 7% and its pretax cost of debt is also 7%. What is the weighted average cost of capital?
A. between 7% and 8%|
B. between 8% and 9%|
C. between 9% and 10%|
D. between 10% and 12%|

13. Assume a $4,000 investment and the following cash flows for two alternatives.

Under the payback method, which of the following would be concluded?
A. Investment X should be selected
B. Investment Y should be selected
C. Investment X and Y provide the same payback period
D. Neither investment is acceptable under the payback method 14. You buy a new piece of equipment for $5,535, and you receive a cash inflow of $1,000 per year for 8 years. What is the internal rate of return?
A. less than 10%
B. between 10% and 11%
C. between 11% and 12%
D. more than 12%

15. You require an IRR of 13% to accept a project. If the project will yield $10,000 per year for 6 years, what is the maximum amount that you would be willing to invest in the project?
A. less than $25,000
B. more than $25,000 and less than $30,000
C. more than $30,000 and less than $35,000
D. more than $35,000

Answer Key
1 B
2 C
3 B
4 B
5 A
6 B
7 A 68040 B 48.6
8 B
9 D
10 B
11 A
12 C
13 B
14 A

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