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Python代写-FINC2011
时间：2021-09-12
The University of Sydney – FINC2011 Page 1
Quiz I
Practice Questions
Multiple Choice Questions
1. Executive options can be used to address the agency problem in corporations because:
a) they motivate managers to make decisions that will increase the share price
b) they punish managers for falls in the share price
c) managers must use the options to buy shares even if the share price has fallen
d) they transfer wealth from managers to shareholders
e) managers must use the options to buy shares even if the share price has increased
2. You have $100,000 now and will receive $130,000 in exactly one years’ time. If you spend
$80,000 today and market interest rates are 10% p.a. compounded semi-annually, how
much will you have in one year?
a) $130,000
b) $152,050
c) $150,000
d) $240,000
e) $240,250
3. Mr Simon de Money wishes to purchase a new Mercedes Benz C250 CDI. The car costs
$73,200. Mr de Money has arranged a loan that only covers part of the purchase price.
He intends to finance the rest of the purchase with money from his savings. The loan
requires payments of $1,400 per month for 5 years. The interest rate on the loan is 12%
p.a. compounded monthly. How much of his savings must Mr de Money use?
a) $13,649.87
b) $9,377.09
c) $12,639.76
d) $14,899.45
e) $10,262.95
FINC2011
The University of Sydney – FINC2011 Page 2
4. A 90-day security that promises to pay $1 million at its maturity was issued 37 days ago.
Calculate its price today if it is traded at a simple interest yield of 3.6% p.a.
a) $994,799.79
b) $979,240.11
c) $991,201.39
d) $994,818.60
e) $996,363.95
5. Shareholders are said to have a ‘residual claim’ on the firm’s assets. What does this
mean?
a) Shareholders elect the Board of Directors
b) Shareholders have limited liability if the firm experiences financial distress
c) Shareholders can recover their investment first if the firm experiences financial
distress
d) Cash contributed by shareholders cannot be used to pay creditors
e) In the event of liquidation, shareholders do not receive any payoff from the firm until
all creditors are paid
6. You wish to have exactly $100,000 in one year’s time. If the interest rate is 8% p.a.
compounded daily, how much must you deposit today to reach your goal?
a) $91,481.41
b) $92,312.44
c) $91,994.27
d) $92,592.59
e) $100,000.00
7. Mr Simon Smyth is considering depositing $10,000 in a BankEast high interest savings
account that is paying interest of 18% p.a. compounded weekly. If Mr Smyth deposits his
money for 3 years what will be his account balance at the end of that time?
a) $14,251.48
b) $15,894.15
c) $16,430.32
d) $17,144.07
e) $18,000.00
The University of Sydney – FINC2011 Page 3
Questions 8 and 9 relate to the following information.
You are considering buying a new Volkswagen Passat. The car costs $45,000. BankEast Ltd is
offering car loans at 7.5% p.a. compounded monthly.
8. You plan to make monthly payments on the loan over a 3 year period. How much would
you need to pay each month to repay the interest and principal over three years?
a) $1,405.23
b) $1,386.47
c) $1,355.86
d) $1,399.78
e) $1,250.00
9. If instead you decided to make weekly repayments on the loan over a 4 year period, how
much would each weekly repayment need to be to repay the interest and the principal
(calculated on a 52 week year)?
a) $250.49
b) $251.59
c) $250.62
d) $251.83
e) $252.18
10. Jill Gates wishes to establish a perpetual scholarship fund at the Business School with the
first annual scholarship to be paid in one year. The amount of the scholarship will initially
be $40,000 but will then increase by 3% p.a. in line with expected inflation. How much is
required to establish the fund if it is invested at 5.5% p.a.?
a) $727,272.73
b) $1,333,333.33
c) $1,600,000.00
d) $1,648,000.00
e) None of the above
The University of Sydney – FINC2011 Page 4
Questions 11 to 13 relate to the following information.
Auslandsdeutsche Tecnik (AUT) Ltd is considering investing in a new project called Typhoon.
The project is expected to have the following cash flows:
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
$8,000,000 $8,000,000 $8,000,000 $8,000,000
11. Suppose similar investments are paying a return of 12% p.a. compounded monthly. How
much (to the nearest ‘000) should AUT be prepared to pay for Typhoon?
a) $19,371,000
b) $23,954,000
c) $21,258,000
d) $18,865,000
e) $24,299,000
12. If AUT were able to delay paying for the project until Year 1, how much more would the
project likely cost (rounded to the nearest ‘000 and assuming the required rate of return
remains the same)?
a) $2,324,000
b) $2,496,000
c) $2,458,000
d) $2,604,000
e) $2,393,000
13. What type of decision(s) best describes the action of the financial managers of AUT are
undertaking in investing in Project Typhoon?
a) Financing decision
b) Investment decision
c) Dividend decision
d) Investment and financing decision
e) Financing and dividend decision
The University of Sydney – FINC2011 Page 5
14. Deposits of $1,000 are placed into a fund at the beginning of each year for the next 20
years. At the end of the 20th year, annual payments from the fund commence and
continue forever. If the balance in the fund earns 8% p.a., find the value of these
payments.
a) $3,660.96
b) $1,600.00
c) $3,953.83
d) $3,315.70
e) $848.29
15. What annually compounded rate per year will give the same value at the end of 6 years
as 14% p.a. simple interest?
a) 19.92%
b) 14.77%
c) 12.63%
d) 10.70%
e) 8.51%
Questions 16 and 17 relate to the following information.
Mr Lewis Nixon is 19 years old and studying his first year at university. He plans to start
working in 3 years’ time at which point he will begin depositing $3,000 per year in a BankEast
Retirement Savings Account that pays interest of 12% p.a. compounded quarterly. He will
make his first deposit immediately when he starts working. He then plans to continue making
deposits every year until he retires at age 67 (inclusive).
16. How much money will Mr Nixon have accumulated in his retirement account by the time
he makes his last deposit at age 67?
a) $4,862,900.50
b) $4,074,690.10
c) $5,477,790.75
d) $4,324,584.82
e) $4,566,652.91
The University of Sydney – FINC2011 Page 6
17. If Mr Nixon expects to live off his retirement savings for 30 years how much can he afford
to withdraw from his BankEast Retirement Savings Account each year after he retires?
a) $707,905.27
b) $526,288.17
c) $558,838.91
d) $590,119.89
e) $628,402.10
18. A management team that is inefficiently utilising the company’s scarce resources may
find itself at risk of losing their jobs due to which of the following market mechanisms?
a) Corporate regulators
b) The market for corporate control
c) Management shareholdings
d) Management remuneration incentive packages
e) Fisher’s separation theorem
19. Mrs Rose Codrington expects to receive $100,000 from an investment in 5 years’ time. If
the appropriate opportunity cost for this investment is 10% p.a. continuously
compounded, what will be its value today?
a) $164,872.13
b) $95,452.74
c) $62,092.13
d) $161,051.00
e) $60,653.07
The University of Sydney – FINC2011 Page 7
20. Which of the following statements is true?
a) Simple interest applies when an investor receives payment while compound interest
applies when an investor makes payments
b) Simple interest annualises rates while compound interest allows interest to be stated
in any time period
c) Simple interest pays interest only on principal whereas compound interest also pays
interest on interest
d) Simple interest relates to present value whereas compound interest relates to future
value
e) Simple interest relates to future value whereas compound interest relates to present
value
Questions 21 and 22 relate to the following information.
Axis Industries Pty Ltd is looking at investing in Project A that is expected to generate the
following cash flows over its six-year life:
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
$1m $1.5m $1m $1.5m $1m $1.5m
21. Suppose similar investments are paying a return of 10% p.a. compounded quarterly. How
much (rounded to the nearest ‘000) should Project A cost Axis Industries?
a) $5,392,000
b) $5,452,000
c) $5,488,000
d) $5,331,000
e) $7,500,000
22. Suppose that Axis Industries is considering investing in Project B instead. Project B costs
the same as Project A but it generates an equal cash flow each quarter for 6 years. How
much are the cash flows that Project B generates each quarter?
a) $419,346
b) $306,850
c) $304,836
d) $301,482
e) $298,071
The University of Sydney – FINC2011 Page 8
23. Mr Robert Lee wishes to buy a new boat in two years’ time. He estimates the boat will
cost $86,600 at that time. He wishes to deposit an equal sum of money into a BankEast
Ltd savings account every two weeks for the next two years in order to accumulate
enough money to purchase the boat. If the BankEast account is paying interest at a rate
of 14% p.a. compounded annually, how much must Mr Lee deposit every two weeks?
a) $1,380
b) $1,400
c) $1,433
d) $1,448
e) $1,460
24. A court is trying to determine the present value of the future income of a man badly
injured in a car accident. At the time of the accident the man was earning $80,000 a year
and could reasonably anticipate receiving an 8% rise each year. He was 30 years away
from retirement. If money is worth 5% p.a., what is the present value of his future
income? (Assume the payments are made at the end of each year with the first payment
commencing one year from now)
a) $1,018,631.36
b) $1,521,325.05
c) $2,400,000.00
d) $3,542,058.34
e) $3,825,423.01
25. You currently have $50,000 in a bank account that pays interest at 6% p.a. compounding
monthly. You wish to withdraw an equal amount at the beginning of each month from
this account, starting immediately, for the next 5 years. The most these monthly
withdrawals can be is:
a) $833.33
b) $961.83
c) $966.64
d) $1124.04
e) None of the above
The University of Sydney – FINC2011 Page 9
26. Mr Richard Winters has been awarded an insurance payout of $100,000 now plus another
$140,000 in a years’ time. What single amount today is equivalent to these payments if
the opportunity cost is 10% p.a. compounded daily?
a) $250,510.00
b) $226,678.97
c) $227,272.73
d) $140,000.00
e) $100,000.00
27. Blaxland Group Ltd is considering issuing $100 million in corporate bonds. The company
plans to use these funds to repurchase $40 million worth of equity from existing
shareholders and purchase $60 million in new assets. Which of the following best
describes what the directors of Blaxland are doing with these transactions?
a) Investment decisions
b) Financing decisions
c) Dividend decisions
d) Investment, financing and dividend decisions
e) None of the above
28. Which of the following would not constitute an investment decision by the financial
managers of the firm?
a) ABC Ltd buys 20 per cent of the outstanding shares of DEF Ltd for $9 million
b) GHI Ltd buys 10 new packaging machines for its factory for $1.2 million
c) JKL Ltd sells a retail outlet that it owns for $2.1 million
d) MNO Ltd buys 10 per cent of its outstanding shares for $8 million
e) All the above are investment decisions
The University of Sydney – FINC2011 Page 10
29. A project you are contemplating has the following cash flows:
Month 0 1 2 3 4 5 6
Cash Flow -90 30 35 45 50 55 60
If the opportunity cost of capital is 12.5% p.a. compounding quarterly, what is the maximum
price you would be willing to pay for this project?
a) $83.94
b) $87.26
c) $138.74
d) $174.28
e) $193.17
30. What is the corporate objective?
a) To maximise capital
b) To maximise shareholder wealth
c) To minimise capital
d) To minimise shareholder wealth
e) To maximise current profits
31. What simple interest rate per year will give the same value at the end of 3 years as 10%
p.a. compounded semi-annually?
a) 10.00%
b) 10.25%
c) 11.34%
d) 11.50%
e) 11.66%
32. Mr Rogers deposits $20,000 in a term deposit with BankEast Ltd for 10 years. If the
account is paying interest at a rate of 4% p.a. compounded quarterly, how much interest
will Mr Rogers earn in the final year?
a) $812.08
b) $977.73
c) $1,138.65
d) $1,161.90
e) $9,777.28
The University of Sydney – FINC2011 Page 11
33. Which of these is the most effective way to encourage directors to make decisions that
maximise the wealth of shareholders?
a) Pay bonuses to the directors based on the company’s earnings performance
b) Impose fines on directors who fail to meet predetermined earnings performance
levels
c) Provide options to the directors that have a high exercise price
d) Encourage directors to become shareholders in the firm
e) Reduce the number of non-executive board members
Questions 34 to 37 relate to the following information.
The Directors of Quantum Property Group Ltd are looking at borrowing new capital for a term
of five years from BankEast Ltd. The repayment schedule outlined by BankEast Ltd is given
below. This schedule includes both principal and interest on the loan.
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
$1,000,000 $1,500,000 $1,800,000 $2,000,000 $2,500,000
34. Regardless of the discount rate used, ______________ in the frequency of the compound
period will result in _____________ in the future value of the cash flows in Year 5 and
______________ in the present value of the cash flows in Year 0.
a) an increase; an increase; an increase
b) an increase; a decrease; an increase
c) an increase; an increase; a decrease
d) a decrease; an increase; an increase
e) a decrease; a decrease; a decrease
35. What type of decision(s) are the directors of Quantum Property Group Ltd making?
a) an investment decision
b) a financing decision
c) a dividend decision
d) a consumption decision
e) an investment/consumption decision
The University of Sydney – FINC2011 Page 12
36. Suppose BankEast Ltd requires a return of 12% p.a. compounded monthly on loans
provided to Quantum Property Group Ltd. How much (rounded to the nearest ‘000) is
Quantum Property Group looking to borrow?
a) $8,800,000
b) $7,473,000
c) $6,059,000
d) $5,944,000
e) $4,555,000
37. If Quantum Property Group Ltd would prefer to make equal repayments each month over
the life of the loan rather than the repayments listed above, how much would each
repayment be?
a) $132,220
b) $134,780
c) $130,390
d) $138,860
e) $136,940
The University of Sydney – FINC2011 Page 13
Questions 38 and 39 relate to the following information.
Ms Montcalm is considering undertaking some banking transactions with BankEast Ltd. After
doing some research she finds that BankEast Ltd is offering the following account types:
? Account A: paying 12.10% p.a. simple interest
? Account B: paying 11.90% p.a. compounded annually
? Account C: paying 11.50% p.a. compounded quarterly
? Account D: paying 11.35% p.a. compounded monthly
? Account E: paying 11.25% p.a. compounded daily
38. Ms Montcalm wishes to deposit $1,000 now in a BankEast account for a period of five
years. Which account would give her the highest account balance at the end of that time?
a) Account A
b) Account B
c) Account C
d) Account D
e) Account E
39. If instead Ms Montcalm would like to have a balance of $1,000 in her account in one
years’ time, which BankEast account would enable her to deposit the least amount of
money today?
a) Account A
b) Account B
c) Account C
d) Account D
e) Account E
The University of Sydney – FINC2011 Page 14
40. Mandy’s lifelong dream is a super-luxury holiday in the Caribbean. The trip will cost her
$156,500 but she currently only has $93,000. If Mandy puts this money away in an account
that pays 9.45% p.a. compounded monthly, how many more months must Mandy wait
until she can go to the Caribbean?
a) 47 months
b) 53 months
c) 61 months
d) 67 months
e) 75 months
Questions 41 and 42 relate to the following information.
Melrose Property Group Ltd (MPG) is considering investing in a commercial property
development that is expected to have the following cash flows. The required rate of return
on MPG’s investments is 11% p.a. compounded annually.
Year 1 2 3 4 5 6 7 8 9 10 11 12
$10m $10m $10m $10m
41. How much should MPG pay for this investment in Year 0?
a) $64.92m
b) $47.15m
c) $31.02m
d) $26.57m
e) $19.43m
42. If MPG can reinvest each of the cash flows at 11% p.a. compounded annually, what will
be the value of the investment in year 12?
a) $67.96m
b) $40.00m
c) $227.13m
d) $47.10m
e) $1,137.28m
The University of Sydney – FINC2011 Page 15
43. Mr Nigel Smythe has just been appointed the CEO of Polytech Industries Ltd. His contract
with Polytech states that if Mr Smyth is able to increase the EPS by 20% in any given year
he is entitled to receive a $10 million bonus payment. This mechanism is an example of
using __________________ to minimise the effects of the ______________________.
a) Market for corporate control; investment decision
b) Regulators; financing decision
c) The board of directors; capital problem
d) Executive remuneration, agency problem
e) Shareholder voting rights; dividend decision
44. Mr John Gray has just started work and has begun planning for his retirement. Mr Gray
has turned 21 years old today and plans to retire on his 70th birthday. He wishes to live
on $110,000 per year for 30 years after his retirement (with the first cash flow starting
on his 70th birthday). The expected interest rate over the entire period from now until
then is 7% p.a. compounded annually. Mr Gray starts putting money into his retirement
account each year, starting immediately and continuing up to (and including) his 69th
birthday. How much must Mr Gray deposit each birthday in order to reach his retirement
goal?
a) $3,357.68
b) $3,592.72
c) $3,853.69
d) $3,863.88
e) $3,601.58
45. Gamma Corp has just issued $40 million in new shares and used the proceeds of the issue
to pay back $40 million worth of debt. What type of decision(s) are the managers making
with these transactions?
a) Investment decisions only
b) Financing decisions only
c) Dividend decisions only
d) Investment and financing decisions
e) Investment, financing and dividend decisions
The University of Sydney – FINC2011 Page 16
Short Answer Questions
46. Ally Fashions is looking at establishing a new fashion retail outlet in a shopping centre
being planned. To secure the outlet, Ally Fashions will have to pay an initial cash outlay
of $100,000 now and another $250,000 in 4 years’ time when the outlet opens. The outlet
is then expected to generate after-tax net cash flows of $380,000 p.a. for a period of 5
years (the first cash flow will be at the end of year 5). At the end of that time, the lease
will expire and Ally Fashions does not anticipate that it will extend the lease. If Ally
Fashions uses a cost of capital of 7.50% p.a. compounded annually, what is the present
value of this project?
47. Optus is considering a new investment opportunity. The investment will generate $1m
per year for 10 years with the first cash flow in one years’ time. The opportunity cost for
this type of investment is expected to be 8% p.a. for years 1 to 5 rising to 10% p.a. for
years 6 to 10. What will be the present value of this investment?
48. Chun Li is 22 years old today and her superannuation account contains exactly $10,000.
Assume this balance will earn an average return rate of 5.5% p.a. compounding quarterly
until her retirement at age 67. Compare the investment returns (in dollars) this sum will
earn over the next year to the investment returns it will earn in the final year before
retirement.
49. Alpha Ltd is considering acquiring a new security known as ‘Security X’. Security X is
expected to generate cash flows of $1,000 every year for 4 years and then $2,000 every
year for another 4 years. The timeline of the 8 years of cash flows is given below:
Year 0 1 2 3 4 5 6 7 8
$1,000 $1,000 $1,000 $1,000 $2,000 $2,000 $2,000 $2,000
Suppose similar investments are paying a return of 12% p.a. compounded daily. How
much should Alpha Ltd be prepared to pay for Security X?
50. A housing loan for $400,000 is repayable over 15 years with monthly instalments at 4.8%
p.a. compounding monthly. After 5 years, the interest rate increases to 5.4% p.a.
compounding monthly. Calculate the increased monthly repayment assuming no change
to the overall loan term.
Quiz I
Practice Questions
Multiple Choice Questions
1. Executive options can be used to address the agency problem in corporations because:
a) they motivate managers to make decisions that will increase the share price
b) they punish managers for falls in the share price
c) managers must use the options to buy shares even if the share price has fallen
d) they transfer wealth from managers to shareholders
e) managers must use the options to buy shares even if the share price has increased
2. You have $100,000 now and will receive $130,000 in exactly one years’ time. If you spend
$80,000 today and market interest rates are 10% p.a. compounded semi-annually, how
much will you have in one year?
a) $130,000
b) $152,050
c) $150,000
d) $240,000
e) $240,250
3. Mr Simon de Money wishes to purchase a new Mercedes Benz C250 CDI. The car costs
$73,200. Mr de Money has arranged a loan that only covers part of the purchase price.
He intends to finance the rest of the purchase with money from his savings. The loan
requires payments of $1,400 per month for 5 years. The interest rate on the loan is 12%
p.a. compounded monthly. How much of his savings must Mr de Money use?
a) $13,649.87
b) $9,377.09
c) $12,639.76
d) $14,899.45
e) $10,262.95
FINC2011
The University of Sydney – FINC2011 Page 2
4. A 90-day security that promises to pay $1 million at its maturity was issued 37 days ago.
Calculate its price today if it is traded at a simple interest yield of 3.6% p.a.
a) $994,799.79
b) $979,240.11
c) $991,201.39
d) $994,818.60
e) $996,363.95
5. Shareholders are said to have a ‘residual claim’ on the firm’s assets. What does this
mean?
a) Shareholders elect the Board of Directors
b) Shareholders have limited liability if the firm experiences financial distress
c) Shareholders can recover their investment first if the firm experiences financial
distress
d) Cash contributed by shareholders cannot be used to pay creditors
e) In the event of liquidation, shareholders do not receive any payoff from the firm until
all creditors are paid
6. You wish to have exactly $100,000 in one year’s time. If the interest rate is 8% p.a.
compounded daily, how much must you deposit today to reach your goal?
a) $91,481.41
b) $92,312.44
c) $91,994.27
d) $92,592.59
e) $100,000.00
7. Mr Simon Smyth is considering depositing $10,000 in a BankEast high interest savings
account that is paying interest of 18% p.a. compounded weekly. If Mr Smyth deposits his
money for 3 years what will be his account balance at the end of that time?
a) $14,251.48
b) $15,894.15
c) $16,430.32
d) $17,144.07
e) $18,000.00
The University of Sydney – FINC2011 Page 3
Questions 8 and 9 relate to the following information.
You are considering buying a new Volkswagen Passat. The car costs $45,000. BankEast Ltd is
offering car loans at 7.5% p.a. compounded monthly.
8. You plan to make monthly payments on the loan over a 3 year period. How much would
you need to pay each month to repay the interest and principal over three years?
a) $1,405.23
b) $1,386.47
c) $1,355.86
d) $1,399.78
e) $1,250.00
9. If instead you decided to make weekly repayments on the loan over a 4 year period, how
much would each weekly repayment need to be to repay the interest and the principal
(calculated on a 52 week year)?
a) $250.49
b) $251.59
c) $250.62
d) $251.83
e) $252.18
10. Jill Gates wishes to establish a perpetual scholarship fund at the Business School with the
first annual scholarship to be paid in one year. The amount of the scholarship will initially
be $40,000 but will then increase by 3% p.a. in line with expected inflation. How much is
required to establish the fund if it is invested at 5.5% p.a.?
a) $727,272.73
b) $1,333,333.33
c) $1,600,000.00
d) $1,648,000.00
e) None of the above
The University of Sydney – FINC2011 Page 4
Questions 11 to 13 relate to the following information.
Auslandsdeutsche Tecnik (AUT) Ltd is considering investing in a new project called Typhoon.
The project is expected to have the following cash flows:
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
$8,000,000 $8,000,000 $8,000,000 $8,000,000
11. Suppose similar investments are paying a return of 12% p.a. compounded monthly. How
much (to the nearest ‘000) should AUT be prepared to pay for Typhoon?
a) $19,371,000
b) $23,954,000
c) $21,258,000
d) $18,865,000
e) $24,299,000
12. If AUT were able to delay paying for the project until Year 1, how much more would the
project likely cost (rounded to the nearest ‘000 and assuming the required rate of return
remains the same)?
a) $2,324,000
b) $2,496,000
c) $2,458,000
d) $2,604,000
e) $2,393,000
13. What type of decision(s) best describes the action of the financial managers of AUT are
undertaking in investing in Project Typhoon?
a) Financing decision
b) Investment decision
c) Dividend decision
d) Investment and financing decision
e) Financing and dividend decision
The University of Sydney – FINC2011 Page 5
14. Deposits of $1,000 are placed into a fund at the beginning of each year for the next 20
years. At the end of the 20th year, annual payments from the fund commence and
continue forever. If the balance in the fund earns 8% p.a., find the value of these
payments.
a) $3,660.96
b) $1,600.00
c) $3,953.83
d) $3,315.70
e) $848.29
15. What annually compounded rate per year will give the same value at the end of 6 years
as 14% p.a. simple interest?
a) 19.92%
b) 14.77%
c) 12.63%
d) 10.70%
e) 8.51%
Questions 16 and 17 relate to the following information.
Mr Lewis Nixon is 19 years old and studying his first year at university. He plans to start
working in 3 years’ time at which point he will begin depositing $3,000 per year in a BankEast
Retirement Savings Account that pays interest of 12% p.a. compounded quarterly. He will
make his first deposit immediately when he starts working. He then plans to continue making
deposits every year until he retires at age 67 (inclusive).
16. How much money will Mr Nixon have accumulated in his retirement account by the time
he makes his last deposit at age 67?
a) $4,862,900.50
b) $4,074,690.10
c) $5,477,790.75
d) $4,324,584.82
e) $4,566,652.91
The University of Sydney – FINC2011 Page 6
17. If Mr Nixon expects to live off his retirement savings for 30 years how much can he afford
to withdraw from his BankEast Retirement Savings Account each year after he retires?
a) $707,905.27
b) $526,288.17
c) $558,838.91
d) $590,119.89
e) $628,402.10
18. A management team that is inefficiently utilising the company’s scarce resources may
find itself at risk of losing their jobs due to which of the following market mechanisms?
a) Corporate regulators
b) The market for corporate control
c) Management shareholdings
d) Management remuneration incentive packages
e) Fisher’s separation theorem
19. Mrs Rose Codrington expects to receive $100,000 from an investment in 5 years’ time. If
the appropriate opportunity cost for this investment is 10% p.a. continuously
compounded, what will be its value today?
a) $164,872.13
b) $95,452.74
c) $62,092.13
d) $161,051.00
e) $60,653.07
The University of Sydney – FINC2011 Page 7
20. Which of the following statements is true?
a) Simple interest applies when an investor receives payment while compound interest
applies when an investor makes payments
b) Simple interest annualises rates while compound interest allows interest to be stated
in any time period
c) Simple interest pays interest only on principal whereas compound interest also pays
interest on interest
d) Simple interest relates to present value whereas compound interest relates to future
value
e) Simple interest relates to future value whereas compound interest relates to present
value
Questions 21 and 22 relate to the following information.
Axis Industries Pty Ltd is looking at investing in Project A that is expected to generate the
following cash flows over its six-year life:
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
$1m $1.5m $1m $1.5m $1m $1.5m
21. Suppose similar investments are paying a return of 10% p.a. compounded quarterly. How
much (rounded to the nearest ‘000) should Project A cost Axis Industries?
a) $5,392,000
b) $5,452,000
c) $5,488,000
d) $5,331,000
e) $7,500,000
22. Suppose that Axis Industries is considering investing in Project B instead. Project B costs
the same as Project A but it generates an equal cash flow each quarter for 6 years. How
much are the cash flows that Project B generates each quarter?
a) $419,346
b) $306,850
c) $304,836
d) $301,482
e) $298,071
The University of Sydney – FINC2011 Page 8
23. Mr Robert Lee wishes to buy a new boat in two years’ time. He estimates the boat will
cost $86,600 at that time. He wishes to deposit an equal sum of money into a BankEast
Ltd savings account every two weeks for the next two years in order to accumulate
enough money to purchase the boat. If the BankEast account is paying interest at a rate
of 14% p.a. compounded annually, how much must Mr Lee deposit every two weeks?
a) $1,380
b) $1,400
c) $1,433
d) $1,448
e) $1,460
24. A court is trying to determine the present value of the future income of a man badly
injured in a car accident. At the time of the accident the man was earning $80,000 a year
and could reasonably anticipate receiving an 8% rise each year. He was 30 years away
from retirement. If money is worth 5% p.a., what is the present value of his future
income? (Assume the payments are made at the end of each year with the first payment
commencing one year from now)
a) $1,018,631.36
b) $1,521,325.05
c) $2,400,000.00
d) $3,542,058.34
e) $3,825,423.01
25. You currently have $50,000 in a bank account that pays interest at 6% p.a. compounding
monthly. You wish to withdraw an equal amount at the beginning of each month from
this account, starting immediately, for the next 5 years. The most these monthly
withdrawals can be is:
a) $833.33
b) $961.83
c) $966.64
d) $1124.04
e) None of the above
The University of Sydney – FINC2011 Page 9
26. Mr Richard Winters has been awarded an insurance payout of $100,000 now plus another
$140,000 in a years’ time. What single amount today is equivalent to these payments if
the opportunity cost is 10% p.a. compounded daily?
a) $250,510.00
b) $226,678.97
c) $227,272.73
d) $140,000.00
e) $100,000.00
27. Blaxland Group Ltd is considering issuing $100 million in corporate bonds. The company
plans to use these funds to repurchase $40 million worth of equity from existing
shareholders and purchase $60 million in new assets. Which of the following best
describes what the directors of Blaxland are doing with these transactions?
a) Investment decisions
b) Financing decisions
c) Dividend decisions
d) Investment, financing and dividend decisions
e) None of the above
28. Which of the following would not constitute an investment decision by the financial
managers of the firm?
a) ABC Ltd buys 20 per cent of the outstanding shares of DEF Ltd for $9 million
b) GHI Ltd buys 10 new packaging machines for its factory for $1.2 million
c) JKL Ltd sells a retail outlet that it owns for $2.1 million
d) MNO Ltd buys 10 per cent of its outstanding shares for $8 million
e) All the above are investment decisions
The University of Sydney – FINC2011 Page 10
29. A project you are contemplating has the following cash flows:
Month 0 1 2 3 4 5 6
Cash Flow -90 30 35 45 50 55 60
If the opportunity cost of capital is 12.5% p.a. compounding quarterly, what is the maximum
price you would be willing to pay for this project?
a) $83.94
b) $87.26
c) $138.74
d) $174.28
e) $193.17
30. What is the corporate objective?
a) To maximise capital
b) To maximise shareholder wealth
c) To minimise capital
d) To minimise shareholder wealth
e) To maximise current profits
31. What simple interest rate per year will give the same value at the end of 3 years as 10%
p.a. compounded semi-annually?
a) 10.00%
b) 10.25%
c) 11.34%
d) 11.50%
e) 11.66%
32. Mr Rogers deposits $20,000 in a term deposit with BankEast Ltd for 10 years. If the
account is paying interest at a rate of 4% p.a. compounded quarterly, how much interest
will Mr Rogers earn in the final year?
a) $812.08
b) $977.73
c) $1,138.65
d) $1,161.90
e) $9,777.28
The University of Sydney – FINC2011 Page 11
33. Which of these is the most effective way to encourage directors to make decisions that
maximise the wealth of shareholders?
a) Pay bonuses to the directors based on the company’s earnings performance
b) Impose fines on directors who fail to meet predetermined earnings performance
levels
c) Provide options to the directors that have a high exercise price
d) Encourage directors to become shareholders in the firm
e) Reduce the number of non-executive board members
Questions 34 to 37 relate to the following information.
The Directors of Quantum Property Group Ltd are looking at borrowing new capital for a term
of five years from BankEast Ltd. The repayment schedule outlined by BankEast Ltd is given
below. This schedule includes both principal and interest on the loan.
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
$1,000,000 $1,500,000 $1,800,000 $2,000,000 $2,500,000
34. Regardless of the discount rate used, ______________ in the frequency of the compound
period will result in _____________ in the future value of the cash flows in Year 5 and
______________ in the present value of the cash flows in Year 0.
a) an increase; an increase; an increase
b) an increase; a decrease; an increase
c) an increase; an increase; a decrease
d) a decrease; an increase; an increase
e) a decrease; a decrease; a decrease
35. What type of decision(s) are the directors of Quantum Property Group Ltd making?
a) an investment decision
b) a financing decision
c) a dividend decision
d) a consumption decision
e) an investment/consumption decision
The University of Sydney – FINC2011 Page 12
36. Suppose BankEast Ltd requires a return of 12% p.a. compounded monthly on loans
provided to Quantum Property Group Ltd. How much (rounded to the nearest ‘000) is
Quantum Property Group looking to borrow?
a) $8,800,000
b) $7,473,000
c) $6,059,000
d) $5,944,000
e) $4,555,000
37. If Quantum Property Group Ltd would prefer to make equal repayments each month over
the life of the loan rather than the repayments listed above, how much would each
repayment be?
a) $132,220
b) $134,780
c) $130,390
d) $138,860
e) $136,940
The University of Sydney – FINC2011 Page 13
Questions 38 and 39 relate to the following information.
Ms Montcalm is considering undertaking some banking transactions with BankEast Ltd. After
doing some research she finds that BankEast Ltd is offering the following account types:
? Account A: paying 12.10% p.a. simple interest
? Account B: paying 11.90% p.a. compounded annually
? Account C: paying 11.50% p.a. compounded quarterly
? Account D: paying 11.35% p.a. compounded monthly
? Account E: paying 11.25% p.a. compounded daily
38. Ms Montcalm wishes to deposit $1,000 now in a BankEast account for a period of five
years. Which account would give her the highest account balance at the end of that time?
a) Account A
b) Account B
c) Account C
d) Account D
e) Account E
39. If instead Ms Montcalm would like to have a balance of $1,000 in her account in one
years’ time, which BankEast account would enable her to deposit the least amount of
money today?
a) Account A
b) Account B
c) Account C
d) Account D
e) Account E
The University of Sydney – FINC2011 Page 14
40. Mandy’s lifelong dream is a super-luxury holiday in the Caribbean. The trip will cost her
$156,500 but she currently only has $93,000. If Mandy puts this money away in an account
that pays 9.45% p.a. compounded monthly, how many more months must Mandy wait
until she can go to the Caribbean?
a) 47 months
b) 53 months
c) 61 months
d) 67 months
e) 75 months
Questions 41 and 42 relate to the following information.
Melrose Property Group Ltd (MPG) is considering investing in a commercial property
development that is expected to have the following cash flows. The required rate of return
on MPG’s investments is 11% p.a. compounded annually.
Year 1 2 3 4 5 6 7 8 9 10 11 12
$10m $10m $10m $10m
41. How much should MPG pay for this investment in Year 0?
a) $64.92m
b) $47.15m
c) $31.02m
d) $26.57m
e) $19.43m
42. If MPG can reinvest each of the cash flows at 11% p.a. compounded annually, what will
be the value of the investment in year 12?
a) $67.96m
b) $40.00m
c) $227.13m
d) $47.10m
e) $1,137.28m
The University of Sydney – FINC2011 Page 15
43. Mr Nigel Smythe has just been appointed the CEO of Polytech Industries Ltd. His contract
with Polytech states that if Mr Smyth is able to increase the EPS by 20% in any given year
he is entitled to receive a $10 million bonus payment. This mechanism is an example of
using __________________ to minimise the effects of the ______________________.
a) Market for corporate control; investment decision
b) Regulators; financing decision
c) The board of directors; capital problem
d) Executive remuneration, agency problem
e) Shareholder voting rights; dividend decision
44. Mr John Gray has just started work and has begun planning for his retirement. Mr Gray
has turned 21 years old today and plans to retire on his 70th birthday. He wishes to live
on $110,000 per year for 30 years after his retirement (with the first cash flow starting
on his 70th birthday). The expected interest rate over the entire period from now until
then is 7% p.a. compounded annually. Mr Gray starts putting money into his retirement
account each year, starting immediately and continuing up to (and including) his 69th
birthday. How much must Mr Gray deposit each birthday in order to reach his retirement
goal?
a) $3,357.68
b) $3,592.72
c) $3,853.69
d) $3,863.88
e) $3,601.58
45. Gamma Corp has just issued $40 million in new shares and used the proceeds of the issue
to pay back $40 million worth of debt. What type of decision(s) are the managers making
with these transactions?
a) Investment decisions only
b) Financing decisions only
c) Dividend decisions only
d) Investment and financing decisions
e) Investment, financing and dividend decisions
The University of Sydney – FINC2011 Page 16
Short Answer Questions
46. Ally Fashions is looking at establishing a new fashion retail outlet in a shopping centre
being planned. To secure the outlet, Ally Fashions will have to pay an initial cash outlay
of $100,000 now and another $250,000 in 4 years’ time when the outlet opens. The outlet
is then expected to generate after-tax net cash flows of $380,000 p.a. for a period of 5
years (the first cash flow will be at the end of year 5). At the end of that time, the lease
will expire and Ally Fashions does not anticipate that it will extend the lease. If Ally
Fashions uses a cost of capital of 7.50% p.a. compounded annually, what is the present
value of this project?
47. Optus is considering a new investment opportunity. The investment will generate $1m
per year for 10 years with the first cash flow in one years’ time. The opportunity cost for
this type of investment is expected to be 8% p.a. for years 1 to 5 rising to 10% p.a. for
years 6 to 10. What will be the present value of this investment?
48. Chun Li is 22 years old today and her superannuation account contains exactly $10,000.
Assume this balance will earn an average return rate of 5.5% p.a. compounding quarterly
until her retirement at age 67. Compare the investment returns (in dollars) this sum will
earn over the next year to the investment returns it will earn in the final year before
retirement.
49. Alpha Ltd is considering acquiring a new security known as ‘Security X’. Security X is
expected to generate cash flows of $1,000 every year for 4 years and then $2,000 every
year for another 4 years. The timeline of the 8 years of cash flows is given below:
Year 0 1 2 3 4 5 6 7 8
$1,000 $1,000 $1,000 $1,000 $2,000 $2,000 $2,000 $2,000
Suppose similar investments are paying a return of 12% p.a. compounded daily. How
much should Alpha Ltd be prepared to pay for Security X?
50. A housing loan for $400,000 is repayable over 15 years with monthly instalments at 4.8%
p.a. compounding monthly. After 5 years, the interest rate increases to 5.4% p.a.
compounding monthly. Calculate the increased monthly repayment assuming no change
to the overall loan term.
