Question 1

Use the information for the question(s)below.
  As an oil refiner,you are able to produce $76 worth of unleaded gasoline from one barrel of Alaska North Slope (ANS)crude oil.Because of its lower sulfur content,you can produce $77 worth of unleaded gasoline from one barrel of West Texas Intermediate (WTI)crude.
-Assuming you just purchased 10,000 Bbls of WTI crude at the current market price,the total benefit (cost)to you if you were to refine this crude oil and sell the unleaded gasoline is closest to:

Accepted Answer

A) $730,600 
B) $770,000 
C) $771,400 
D) $773,908 
E) $775,000

Question 2

Like other metals,uranium 308 is traded in competitive markets like the New York Metals Exchange.Which of the following would most likely value a given weight of uranium 308 the most?

Accepted Answer

A) a power station that uses uranium 308 to produce electrical energy 
B) a metals trader who stockpiles and sells actual physical quantities of uranium 308 
C) a speculator who buys and sells uranium 308 on the market without ever using the metal 
D) a uranium mining company 
E) All buyers and sellers would have the same value for 250 pounds of uranium.

Question 3

You are scheduled to receive $10,000 in one year.An increase in the interest rate will have what effect on the present value of this cash flow?

Accepted Answer

A) It will cause the present value to fall. 
B) It will cause the present value to rise. 
C) It will have no effect on the present value. 
D) The effect cannot be determined with the information provided. 
E) It will cause the present value to rise significantly.

Question 4

A lender lends $10,000,which is to be repaid in annual payments of $2,000 for 6 years.Which of the following shows the timeline of the loan from the lender's perspective?

Accepted Answer

A)   
B)   
C)   
D)   
E)

Question 5

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

Accepted Answer

A) $235.85 in one year. 
B) $250.00 in one year. 
C) $265.00 in one year. 
D) $244.00 in one year. 
E) $256.00 in one year.

Question 6

In general,if an action increases a firm's value by providing benefits with a value greater than any costs involved,then that action is good for the firm's investors.

Accepted Answer

A) True 
 B)False

Question 7

Consider the following timeline:  If the current market rate of interest is 12%,then the value of the cash flows in year 0 and year 2 as of year 1 is closest to:

Accepted Answer

A) $257.29 
B) -$96.57 
C) $78.71 
D) $1.29 
E) -$38.71

Question 8

To enable costs and benefits to be compared,they are typically converted into cash value at the time the benefit is received.

Accepted Answer

A) True 
 B)False

Question 9

Helen is saving to start a business.If she invests $10,000 in a savings account now,which of the following is the minimum interest rate required to ensure that she has $25,000 in her account in ten years time?

Accepted Answer

A) 2.5% 
B) 6.4% 
C) 9.6% 
D) 10.2% 
E) 8.7%

Question 10

If the one-year discount factor is equal to 0.90909,the interest must be equal to:

Accepted Answer

A) 5.0% 
B) 9.1% 
C) 9.5% 
D) 10.0% 
E) 10.5%

Question 11

When computing a present value,which of the following is TRUE?

Accepted Answer

A) You should adjust the discount rate to match the time period of the cash flows. 
B) You should adjust the future value to match the present value. 
C) You should adjust the time period to match the present value. 
D) You should adjust the cash flows to match the time period of the discount rate. 
E) You should adjust the time period to match the future value.

Question 12

What is the future value (FV)of $100 in 30 years,assuming the interest rate is 8% per year?

Accepted Answer

A) $102 
B) $3,240 
C) $1,800 
D) $1,006 
E) $1,080

Question 13

The timeline shown below best describes the cash flow of which of the following people?

Accepted Answer

A) Joe,who puts down $3500 to buy a car,and then makes annual payments of $1000 
B) Harry,who borrows $3500,and then receives an annual payment of $1000 
C) Karen,who loans a friend $3500,which the friend then pays back in four annual installments of $1000 
D) Leo,who borrows $3500,and then pays back the loan in four annual payments of $1000 
E) Michelle,who contributes $3500 to an RRSP and makes four annual contributions of $1000

Question 14

How can we take a financial decision with cash flows occurring at different points in time?

Accepted Answer

The answer of How can we take a financial decision...

Question 15

A firm that provides tax services to the public intends to offer a premium tax-return service at a higher price than their current services.The managers of the company ask experts in marketing to determine how much an effective ad campaign for such a service would cost,and by how much sales would be increased.They consult experts in economics to calculate the increases in revenue from the success of the campaign,experts in operations to determine the cost of offering the service,and experts in strategy to anticipate possible counter-moves by competitors.This example illustrates which of the following points about the role of financial managers?

Accepted Answer

A) Real-world decisions are complex and require information from many sources if the decisions are to be valid. 
B) Determining the costs associated with making a decision is easier than determining the potential benefits of the decision. 
C) All of the costs and benefits associated with a decision can never be fully identified. 
D) Ultimately the decision whether to take a certain course of action rests with the financial managers of a company. 
E) A financial manager's job is to make decisions on behalf of the firm's investors.

Question 16

You decide to $10,000 in a bank account.If the value of your savings grows to $10,200 in one year's time,what is the interest rate on your savings?

Accepted Answer

A) 5% 
B) 4% 
C) 3% 
D) 2% 
E) 1%

Question 17

Consider the following timeline:  If the current market rate of interest is 9%,then the present value (PV)of this timeline as of year 0 is closest to:

Accepted Answer

A) $492 
B) $637 
C) $600 
D) $400 
E) $463

Question 18

A company intends to install new management software for its warehouse.The software will cost $50,000 to buy and will cost an additional $150,000 to install and implement.It is anticipated that it will save the company $45,000 through reductions in staff and $65,000 in general inventory costs in the first year after installation.What is the benefit to the company in the first year if they choose to install the software?

Accepted Answer

A) $45,000 
B) $90,000 
C) $110,000 
D) $180,000 
E) $65,000

Question 19

Use the table for the question(s)below.
Consider the following prices from a McDonald's Restaurant:
 
-A McDonald's Big Mac value meal consists of a Big Mac sandwich,large Coke,and a large fry.Assume that there is a competitive market for McDonald's food items and that McDonald's sells the Big Mac value meal for $4.79.Does an arbitrage opportunity exists and if so how would you exploit it and how much would you make on one value meal?

Accepted Answer

A) Yes,buy a value meal and then sell the Big Mac,Coke,and fries to make arbitrage profit of $0.68. 
B) No,no arbitrage opportunity exists. 
C) Yes,buy a Big Mac,Coke,and fries,then sell a value meal to make arbitrage profit of $1.09. 
D) Yes,buy a Big Mac,Coke,and fries,then sell a value meal to make arbitrage profit of $0.68. 
E) Yes,buy a value meal and then sell the Big Mac,Coke,and fries to make arbitrage profit of $1.09.

Question 20

Stella deposits $5000 in a savings account at a bank that offers interest of 5.5% on such accounts.What is the value of the money in her savings account in one year's time?

Accepted Answer

A) $4739 
B) $5135 
C) $5275 
D) $7750 
E) $5000

Exam 3: The Valuation Principle: the Foundation of Financial Decision Making

Like other metals,uranium 308 is traded in competitive markets like the New York Metals Exchange.Which of the following would most likely value a given weight of uranium 308 the most?

You are scheduled to receive $10,000 in one year.An increase in the interest rate will have what effect on the present value of this cash flow?

A lender lends $10,000,which is to be repaid in annual payments of $2,000 for 6 years.Which of the following shows the timeline of the loan from the lender's perspective?

If the risk-free rate of interest (r_f) is 6%,then you should be indifferent between receiving $250 today or

In general,if an action increases a firm's value by providing benefits with a value greater than any costs involved,then that action is good for the firm's investors.

Consider the following timeline: If the current market rate of interest is 12%,then the value of the cash flows in year 0 and year 2 as of year 1 is closest to:

To enable costs and benefits to be compared,they are typically converted into cash value at the time the benefit is received.

Helen is saving to start a business.If she invests $10,000 in a savings account now,which of the following is the minimum interest rate required to ensure that she has $25,000 in her account in ten years time?

If the one-year discount factor is equal to 0.90909,the interest must be equal to:

When computing a present value,which of the following is TRUE?

What is the future value (FV) of $100 in 30 years,assuming the interest rate is 8% per year?

The timeline shown below best describes the cash flow of which of the following people?

How can we take a financial decision with cash flows occurring at different points in time?

You decide to $10,000 in a bank account.If the value of your savings grows to $10,200 in one year's time,what is the interest rate on your savings?

Consider the following timeline: If the current market rate of interest is 9%,then the present value (PV) of this timeline as of year 0 is closest to:

Stella deposits $5000 in a savings account at a bank that offers interest of 5.5% on such accounts.What is the value of the money in her savings account in one year's time?

Exam 3: The Valuation Principle: the Foundation of Financial Decision Making

Like other metals,uranium 308 is traded in competitive markets like the New York Metals Exchange.Which of the following would most likely value a given weight of uranium 308 the most?

You are scheduled to receive $10,000 in one year.An increase in the interest rate will have what effect on the present value of this cash flow?

A lender lends $10,000,which is to be repaid in annual payments of $2,000 for 6 years.Which of the following shows the timeline of the loan from the lender's perspective?

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

In general,if an action increases a firm's value by providing benefits with a value greater than any costs involved,then that action is good for the firm's investors.

Consider the following timeline: If the current market rate of interest is 12%,then the value of the cash flows in year 0 and year 2 as of year 1 is closest to:

To enable costs and benefits to be compared,they are typically converted into cash value at the time the benefit is received.

Helen is saving to start a business.If she invests $10,000 in a savings account now,which of the following is the minimum interest rate required to ensure that she has $25,000 in her account in ten years time?

If the one-year discount factor is equal to 0.90909,the interest must be equal to:

When computing a present value,which of the following is TRUE?

What is the future value (FV) of $100 in 30 years,assuming the interest rate is 8% per year?

The timeline shown below best describes the cash flow of which of the following people?

How can we take a financial decision with cash flows occurring at different points in time?

You decide to $10,000 in a bank account.If the value of your savings grows to $10,200 in one year's time,what is the interest rate on your savings?

Consider the following timeline: If the current market rate of interest is 9%,then the present value (PV) of this timeline as of year 0 is closest to:

Stella deposits $5000 in a savings account at a bank that offers interest of 5.5% on such accounts.What is the value of the money in her savings account in one year's time?

If the risk-free rate of interest (r_f) is 6%,then you should be indifferent between receiving $250 today or