1. Smith Corp. is considering an investment in a project that requires an initial cash outlay of $900,000 and will deliver incoming cash flows as follows: Year 1: $290,000, Year 2: $270,000, Year 3: $285,000, Year 4: $380,000 and Year 5: $240,000. If Smith uses a discount rate of 5%, compute the NPV of this project and make a recommendation to either accept or reject the project.
2. Which of the following statements is FALSE?
A) Common stocks have historically had lower returns than U.S. Government bonds.
B) Common stocks have historically had higher returns than U.S. Government bonds.
C) Preferred stocks usually have lower returns than common stocks.
D) None of the above
3. Some investors prefer bonds over commons stocks because:
A) stocks are too risky for their level of risk tolerance.
B) they are concerned about preservation of wealth.
C) bond income is more predictable.
D) all of these
4. In capital budgeting decisions:
A) interest expense is typically included
B) interest expense is typically not included
C) interest expense is capitalized
D) interest expense is equal to cash flow
5. The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 15 years. The bond certificate indicates that the stated coupon rate for this bond is 8% and that the coupon payments are to be made semiannually. How much will each semiannual coupon payment be?