# 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
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

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
15

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