SOLUTION TO SAMPLE FACT EXAM
1. FV = 100,000; N = 5; I = 8%. PV = $68,058.32 b
2. PV = 200; Annual Interest 7%; monthly rate = 7%/12; N = 36; FV = $246.59 d
3. PV = 20,000; N =40; FV= -92,000 I = 3.89% a
4. PV = 10,000; I = 6%; FV = -25,000 N =15.725 d
5. PV = 15,000; APR = 8%; I = 8%/12; N = 48 PMT = 366.19 a
6. CF1 = 1,000 I=6%; CF2 = 2,000 I = 8%; PV = PV1 + PV2 = 943.40 + 1,714.68 = 2,658.08 d
7. High discount rate reduced the present value; infinity discount rate gives zero PV c
8. First cash flow from the perpetuity starts end of year 5. Value of Perpetuity at the end
of year 4 = $1,000/ 4% = $25,000. Now; FV = 25,000; I =4%; N = 4; PV = $21,370 c
9. FV = 1,000; N = 10; PMT = 60; I = 8% PV = 865.80 a
10. FV = 1,000; N = 5; PMT = 60; PV = -915.48 I = YTM = 8.12% c
11. D
0
= $3.00; g = 8%; k = 14%; P
0
= D
1
/ (k – g); D
1
= $3.00 *(1+.08) = $3.24; P
0
= 3.24/6% d
12. D
3
= $2.00; g = 6%; k = 14%; P
2
= $2.00/(14% - 6%) = $25.00; FV = 25; I = 14; N =2; PV = $19.24 c
13. D
1
= $4.25; P
1
= 38.50; P
0
= 32.25 HPR = [(D
1
+ P
1
) / P
0
] - 1 = 32.56% d
14. 30% * 0 + 40% * 10 + 30% * 40 = 16 days e
15. NPV (.10; 500,000; 750,000; 1,000,000) – 1,800,695 NPV = $25,000 c
16. Accept if IRR is greater than the Weighted Average Cost of Capital (WACC) c
17. IRR c
18. Value maximization a
19. Reduce inventories and generate cash d
20. Breakeven when all the costs are covered a
21. Movement in the opposite directs is negative correlation. Gives diversification benefits c
22. k = 10% + 1.8 * [ 20% - 10%] = 28% b
23. 15% = r + 1.2* [ 13% - r] = r + 15.6% - 1.2r = 15.6% - 0.2r; or 0.2r = 15.6%-15% = 0.6%; r = 3% b
24. Leveraging increases risk a
25. d
26. Net profit Margin = 6% = Net Income / Sales = Net Income / $ 2 million; So, Net Income = $120,000
ROA = Net Income / Total Assets = $120,000 / $1,000,000 = 12% e
27. Days COGS in Invy = (450K*365/1.6m) = 102.66; new days = 94.66 = (new inv*365/1.6m)
New inv = (1.6m*94.66/365) = 414,930; change in invy = 450 – 414.93 = 35,052 a
28. Net Income = $17.50 c
29. EBIT + Depreciation -Taxes = $40 + $10 – $7.5= $42.5 e
30. d