Missouri Southern State University

ECON 350

Financial Management Exam Chapter 8

SHORT QUESTIONS

1)Asset A was purchased six months ago for $25,000 and has generated $1,500 cash flow during that period. What is the asset's rate of return if it can be sold for $26,750 today?

 

 

2. The following historical returns have been reported for Best Buy:

 

2002	9%
2003	11.5%
2004	3%
2005	7.0%
2006	10.0%

 

1. What was the average return for Best Buy during this five year period?

 

 

2. What is the standard deviation of Best Buy’s returns for this period?

 

 

3. What is the coefficient of variation of Best Buy?

 

 

3. capital project has an initial investment of $100,000 and cash flows in years 1-6 of $25,000,

$10,000, $50,000, $10,000, $10,000, and $60,000, respectively. Given a 15 percent cost of capital,

 

1. compute the net present value.

 

 

2. compute the internal rate of return

 

 

3. should the project be accepted? Why or why not?

 

4. Promo Pak has compiled the following financial data: Source of Capital                  Book Value        Market Value     Cost

Long-term debt	$10,000,000	$ 8,500,000	5.0%
Preferred stock	1,000,000	1,500,000	14.0
Common stock equity	9,000,000	15,000,000	20.0
	$20,000,000	$25,000,000

1. 1. Calculate the weighted average cost of capital using book value weights.
   2. Calculate the weighted average cost of capital using market value weights.