Net Present Value and Cash Flow

Corporate Financial Management
Practice Mid-Semester Examination
(Answers at back)
Disclaimer:
This practice exam covers a selection of the types of questions that may be asked in the mid-semester exam, however it should not be taken as being exhaustive as to the topics that could be included in the exam. Students should therefore not be surprised if other types of questions appear in the exam.
1.

$200 invested today and earning 8 per cent per annum compounded semi-annually will grow to what amount at the end of three years?
(A)
(B)

$251.94

(C)

$380.75

(D)
2.

$158.80

$253.06

Bill plans to fund his individual retirement account with the maximum contribution of $2,000 at the end of each year for the next 20 years. If Bill can earn an effective return of 12 per cent per annum on his contributions, how much will he have accumulated at the end of twenty years, rounded to the nearest dollar? (A)
(B)

$19,292

(C)

$144,105

(D)
3.

$14,938

$40,000

A firm’s profit before tax is $150 000 and depreciation expense is $30,000.
Assuming a company tax rate of 30%, the firm’s cash flow from operations is:
(A)

$840,000

(B)

$180,000

(C)

$135,000

(D)

$75,000

4.

Given an effective annual interest rate of 14 per cent, the present value of a perpetuity consisting of yearly payments of $25,000 starting immediately is, rounded to the nearest dollar
(A)
(B)

$203,571

(C)

$178,571

(D)
5.

$232,071

$156,641

If the present value of a perpetual income stream is increasing, the discount rate must be
(A)
(B)

decreasing

(C)

increasing proportionally

(D)
6.

increasing

changing unpredictably

Janice would like to send her parents on a cruise for their 25th wedding anniversary. She has priced the cruise at $15,000 and she has 5 years to accumulate this money. To the nearest dollar, how much must Janice deposit annually in an account paying interest of 10 per