Question

# Year 0 Year 1 Year 2 Year 3 Year 4 TOTAL Project A \$ (200,000.00) \$...

 Year 0 Year 1 Year 2 Year 3 Year 4 TOTAL Project A \$ (200,000.00) \$ 25,000.00 \$ 50,000.00 \$    75,000.00 \$ 100,000.00 \$ 250,000.00 Project B \$ (200,000.00) \$ 50,000.00 \$ 75,000.00 \$    50,000.00 \$    75,000.00 \$ 250,000.00 Project C \$ (200,000.00) \$ 75,000.00 \$ 75,000.00 \$    50,000.00 \$    50,000.00 \$ 250,000.00

1. You have \$200,000 to invest in the above three projects with corresponding cash flows. The discount rate is 8%. Of the three projects, which, according to NPV, should you accept?

 A. Project A and Project B B. Project A and Project C C. Project B and Project C D. Accept all the projects
 Year 0 Year 1 Year 2 Year 3 Year 4 Totals: Project A \$ (200,000.00) \$ 25,000.00 \$ 50,000.00 \$    75,000.00 \$ 100,000.00 \$ 250,000.00 Project B \$ (200,000.00) \$ 50,000.00 \$ 75,000.00 \$    50,000.00 \$    75,000.00 \$ 250,000.00 Project C \$ (200,000.00) \$ 75,000.00 \$ 75,000.00 \$    50,000.00 \$    50,000.00 \$ 250,000.00

2. Of the three projects listed above, which project would be your best option?

 A. Project A B. Project B C. Project C D. None of these
 Year 0 Year 1 Year 2 Year 3 Year 4 Totals: Project A \$ (200,000.00) \$ 25,000.00 \$ 50,000.00 \$    75,000.00 \$ 100,000.00 \$ 250,000.00 Project B \$ (200,000.00) \$ 50,000.00 \$ 75,000.00 \$    50,000.00 \$    75,000.00 \$ 250,000.00 Project C \$ (200,000.00) \$ 75,000.00 \$ 75,000.00 \$    50,000.00 \$    50,000.00 \$ 250,000.00

3. If I decide to borrow my 200K required investment at a rate of 10%, which project would be the best option?

 A. Project A B. Project B C. Project C D. None of these

4. Christine bought 100 shares of AT&T stock at \$32 per share on January 1st, and sold it at \$31 in December. The stock paid an annual dividend of \$2.02 in that period. What is Christine's total return?

 A. -3.125% B. 3.29% C. 3.19% D. 6.3%

5. The Dividend Discount Model is one of the best valuation tools for analyzing a stock because:

 A. It is not a good tool since it is difficult to find the dividend growth rates B. It is the most popular method to value stocks of any company C. It can easily value a company's stock for any company that pays dividends D. It is not one of the best valuation tools since not all stocks pay dividends and few consistently grow their dividends.

6. Interest Rates are sometimes referred to as:

 A. Yield B. Future Value C. Compounding rate D. None of these

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