Finance : 20 questions :

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QUESTIONS :

1.Your firm spends $473,000 per year in regular maintenance of its equipment. Due to the economic downturn, the firm considers forgoing these maintenance expenses for the next 3 years. If it does so, it expects it will need to spend $1.9 million in year 4 replacing failed equipment. What is the IRR of the decision to forgo maintenance of the equipment?

The IRR of the decision is 15.94%

The IRR of the decision is 14.18%

The IRR of the decision is 15.32%.

The IRR of the decision is 18.36%

2.Your firm spends $473,000 per year in regular maintenance of its equipment. Due to the economic downturn, the firm considers forgoing these maintenance expenses for the next 3 years. If it does so, it expects it will need to spend $1.9 million in year 4 replacing failed equipment. Does the IRR rule work for this decision?

Only if the replacement cost is below $2 million.

No.

Yes.

3.The last four years of returns for a stock are as follows:

Year 1	Year 2	Year 3	Year 4
-3.9%	+27.6%	+11.5%	+3.8%

Note: Notice that the average return and standard deviation must be entered in percentage format. The variance must be entered in decimal format. What is the average annual rate? (Round to two decimal places.)

The average return is 10.15%.

The average return is 10.25%.

The average return is 10.05%.

The average return is 9.95%.

4.In mid-2009, Rite Ad had CCC-rated, 20-year bonds outstanding with a yield to maturity of 17.3%. At the time, similar maturity Treasuries had a yield of 3%. Suppose the mark risk premium is 5% and you believe Rite Aid’s bonds have a beta of 0.38. If the expected loss rate of these bonds in the event of default is 58%. What annual probability of default would be consistent with the yield to maturity of these bonds in mid-2009?

The required return for this investment is 4.90%. The annual probability of default is 23.38%.

The required return for this investment is 4.90%. The annual probability of default is 20.38%.

The required return for this investment is 4.90%. The annual probability of default is 22.38%.

The required return for this investment is 4.90%. The annual probability of default is 21.38%.

5.Weston Enterprises is an all-equity firm with two divisions. The soft drink division has an asset beta of 0.54, expects to generate free cash flow of $66 million this year, and anticipated a 3% perpetual growth rate. The individual chemicals division has an asset beta of 1.15, expects to generate free cash flow of $71 million this year, and anticipates a 4% perpetual growth rate. Suppose the risk free rate is 2% and the market premium is 5%. Estimate Weston’s current cost of capital.

Weston’s current cost of capital is 4.70%.

Weston’s current cost of capital is 3.70%.

Weston’s current cost of capital is 5.70%.

Weston’s current cost of capital is 2.70%.

6.Consider an investment with the following returns over four years:

Which is a better measure of the investment’s past performance? If the investment’s returns are independent and identically distributed, which is a better measure of the investment’s expected return next year?

Arithmetic average is a better measure of the investment’s past performance while CAGR is a better measure of the investment’s expected return next year.

CAGR is a better measure of the investment’s past performance while arithmetic average is a better measure of the investment’s expected return next year.

7.Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no trans fats. The firm expects that sales of the new pizza will be $15 million per year. While many of these sales will be to new customers, Pisa Pizza estimates that 27% will come from customers who switch to the new, healthier pizza instead of buying the original version. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza?

The incremental sales are $3 million.

The incremental sales are $9 million.

The incremental sales are $15 million.

The incremental sales are $11 million.

8.You need to estimate the equity cost of capital for XYZ Corp. Unfortunately, you only have the following data available regarding past returns:

Year	Risk-free Return	Market Return	XYZ Return
2007	4%	6%	8%
2008	1%	-43%	-50%

Estimate XYZ’s historical alpha.

XYZ’s historical alpha is 1.1%.

XYZ’s historical alpha is 1.6%.

XYZ’s historical alpha is 1.9%.

XYZ’s historical alpha is 1.3%.

9.The figure below shows the one-year return distribution of Startup, Inc.

Probability	40%	20%	20%	10%	10%
Return	-100%	-75%	-50%	-30%	1,000%

Calculate the standard deviation of the return.

The standard deviation is 324%.

The standard deviation is 330%.

The standard deviation is 328%.

The standard deviation is 326%.

10.A bicycle manufacturer currently produces 356,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $2.10 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct in-house production costs are estimated to be only $1.50 per chain. The necessary machinery would cost $290,000 and would be obsolete after 10 years. This investment could be depreciated to zero for tax purposed using a 10-year straight-line depreciation schedule. The plant manager estimates that the operation would require additional working capital of $40,000, but argues that this sum can be ignored since it is recoverable at the end of the 10 years. Expected proceeds from scrapping the machinery after 10 years are $21,750. If the company pays tax at a rate of 35% and the opportunity cost of capital is 15%, what is the net present value of the decision to produce the chains in-house instead of purchasing them from the supplier?

Compute the NPV of buying the chains from the FCF.

The NPV of buying the chains from the FCF is $-438,850.

The NPV of buying the chains from the FCF is $-438,820.

The NPV of buying the chains from the FCF is $-1,438,820.

The NPV of buying the chains from the FCF is $-2,438,820.

11.Consider an investment with the following returns over four years:

What is the average annual return of the investment over the four years?

The average annual return is 1.50%.

The average annual return is 0.50%.

The average annual return is 10.50%.

The average annual return is 5.50%.

12.Bay Properties is considering starting a commercial real estate division. It has prepared the following four-year forecast of free cash flows for this division:

	Year 1	Year 2	Year 3	Year 4
Free cash flow	$-122,000	$-9,000	$100,000	$219,000

Assume cash flows after year 4 will grow at 3% per year, forever. If the cost of capital for this division is 17%, what is the value today of this division?

The value today is $528,283.

The value today is $928,283.

The value today is $228,283.

The value today is $728,283.

13.You need to estimate the equity cost of capital for XYZ Corp. Unfortunately, you only have the following data available regarding past returns:

Year	Risk-free Return	Market Return	XYZ Return
2007	4%	6%	8%
2008	1%	-43%	-50%

Would you base your estimate of XYZ’s equity cost of capital on historical return or expected return?

Expected return because the CAPM provides a better estimate of expected returns.

Historical return because the average past returns provides a better estimate of expected returns.

14.You need to estimate the equity cost of capital for XYZ Corp. Unfortunately, you only have the following data available regarding past returns:

Year	Risk-free Return	Market Return	XYZ Return
2007	4%	6%	8%
2008	1%	-43%	-50%

Compute the market’s and XYZ’s excess returns for each year. Estimate XYZ’s beta.

The market’s excess return for 2007 is 2%. The market’s excess return for 2008 is -44%. XYZ’s excess return for 2007 is 4%. XYZ’s excess return for 208 is -51%. XYZ’s beta is 1.20.

The market’s excess return for 2007 is 2%. The market’s excess return for 2008 is -44%. XYZ’s excess return for 2007 is 4%. XYZ’s excess return for 2008 is -51%. XYZ’s beta is 1.40.

The market’s excess return for 2007 is 2%. The market’s excess return for 2008 is -44%. XYZ’s excess return for 2007 is 4%. XYZ’s excess return for 2008 is -51%. XYZ’s beta is 1.10.

The market’s excess return for 2007 is 2%. The market’s excess return for 2008 is -44%. XYZ’s excess return for 2007 is 4%. XYZ’s excess return for 208 is -51%. XYZ’s beta is 1.30.

15.The last four years of returns for a stock are as follows:

Year 1	Year 2	Year 3	Year 4
-3.9%	+27.6%	+11.5%	+3.8%

Note: Notice that the average return and standard deviation must be entered in percentage format. The variance must be entered in decimal format. What is the variance of the stock’s returns? (Round to five decimal places.)

The variance of the returns is 0.01602.

The variance of the returns is 0.01702.

The variance of the returns is 0.01902.

The variance of the returns is 0.01802.

16.Consider an investment with the following returns over four years:

What is the compound annual growth rate (CAGR) for this investment over the four years?

The compound annual growth rate is 10.46%.

The compound annual growth rate is 10.36%.

The compound annual growth rate is 10.26%.

The compound annual growth rate is 10.16%.

17.Weston Enterprises is an all-equity firm with two divisions. The soft drink division has an asset beta of 0.54, expects to generate free cash flow of $66 million this year, and anticipated a 3% perpetual growth rate. The individual chemicals division has an asset beta of 1.15, expects to generate free cash flow of $71 million this year, and anticipates a 4% perpetual growth rate. Suppose the risk-free rate is 2% and the market premium is 5%. Estimate Weston’s current equity beta.

Weston’s current equity beta is 0.74.

Weston’s current equity beta is 0.66.

Weston’s current equity beta is 0.79.

Weston’s current equity beta is 0.70.

18.You are considering opening a new plant. The plant will cost $100.3 million upfront. After that, it is expected to produce profits of $31.9 million at the end of every year. The cash flows are expected to last forever. Calculate the NPV of this investment opportunity if your cost of capital is 7.1%.

The NVP of this investment opportunity is $349.0 million.

19.You need to estimate the equity cost of capital for XYZ Corp. Unfortunately, you only have the following data available regarding past returns:

Year	Risk-free Return	Market Return	XYZ Return
2007	4%	6%	8%
2008	1%	-43%	-50%

What was XYZ’s average historical return?

XYZ’s average historical return was -18.0%.

XYZ’s average historical return was -15.0%.

XYZ’s average historical return was -21.0%.

XYZ’s average historical return was -20.0%.

20.Weston Enterprises is an all-equity firm with two divisions. The soft drink division has an asset beta of 0.54, expects to generate free cash flow of $66 million this year, and anticipated a 3% perpetual growth rate. The individual chemicals division has an asset beta of 1.15, expects to generate free cash flow of $71 million this year, and anticipates a 4% perpetual growth rate. Suppose the risk-free rate is 2% and the market premium is 5%. Estimate the value of each division.

The estimated value of the soft drink division is $70.3 million and the estimated value of the industrial chemicals division is $76.3 million.

The estimated value of the soft drink division is $3,882.4 million and the estimated value of the industrial chemicals division is $1,893.3 million.

The estimated value of the soft drink division is $3,796.2 million and the estimated value of the industrial chemicals division is $8,774.5 million.

The estimated value of the soft drink division is $1,893.3 million and the estimated value of the industrial chemicals division is $3,882.4 million.

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July 1, 2023

Philosophy-201:Response Paper Instructions

********ALL REQUIRED MATERIAL FOR THIS ASSIGNMENT IS ATTACHED***************

Having completed the unit of philosophy of religion, you are now ready to respond to an article written by an actual atheist. This article titled “On Being an Atheist,” was written by H. J. McCloskey in 1968 for the journal Question. McCloskey is an Australian philosopher who wrote a number of atheistic works in the 1960s and 70s including the book God and Evil (Nijhoff, 1974). In this article, McCloskey is both critical of the classical arguments for God’s existence and offers the problem of evil as a reason why one should not believe in God. Please note the following parameters for this paper:

1. Your assignment is to read McCloskey’s short article found in the Reading & Study folder in Module/Week 7 and respond to each of the questions below. Your instructor is looking for a detailed response to each question.

2. The response paper is to be a minimum of 1,500 words (not including quotes) and must be written as a single essay and not just a list of answers to questions.

3. The basis for your answers must primarily come from the resources provided in the lessons covering the philosophy of religion unit of the course (Evans and Manis, Craig, and the presentation) and these sources must be mentioned in your paper. You are not merely to quote these sources as an answer to the question—answer them in your own words.

4. You may use other outside sources as well, as long as you properly document them. However, outside sources are not necessary. Each of the questions can be answered from the sources provided in the lessons.

5. While the use of the Bible is not restricted, its use is not necessary and is discouraged unless you intend to explain the context of the passage and how that context applies to the issue at hand in accordance with the guidelines provided earlier in the course. You are not to merely quote scripture passages as answers to the questions. Remember this is a philosophical essay not a biblical or theological essay.

6. While you may quote from sources, all quotations must be properly cited and quotes from sources will not count towards the 1,500 word count of the paper.

7. You may be critical of McCloskey, but must remain respectful. Any disparaging comment(s) about McCloskey will result in a significant reduction in grade.

8. Please note that this paper will be submitted through SafeAssign, which is a plagiarism detection program. The program is a database of previously submitted papers including copies of papers that have been located on the Internet. Once submitted, your paper will become part of the database as well. The program detects not only exact wording but similar wording. This means that if you plagiarize, it is very likely that it will be discovered. Plagiarism will result in a 0 for the paper and the likelihood of you being dropped from the course.

Specifically, you must address the following questions in your paper:

1. McCloskey refers to the arguments as “proofs” and often implies that they can’t definitively establish the case for God, so therefore they should be abandoned. What would you say about this in light of Foreman’s comments in his “Approaching the Question of God’s Existence” presentation?

2. On the Cosmological Argument:

a. McCloskey claims that the “mere existence of the world constitutes no reason for believing in such a being [i.e., a necessarily existing being].” Using Evans and Manis’ discussion of the non-temporal form of the argument (on pp. 69–77), explain why the cause of the universe must be necessary (and therefore uncaused).

b. McCloskey also claims that the cosmological argument “does not entitle us to postulate an all-powerful, all-perfect, uncaused cause.” In light of Evans and Manis’ final paragraph on the cosmological argument (p. 77), how might you respond to McCloskey?

3. On the Teleological Argument:

a. McCloskey claims that “to get the proof going, genuine indisputable examples of design and purpose are needed.” Discuss this standard of “indisputability” which he calls a “very conclusive objection.” Is it reasonable?

b. From your reading in Evans and Manis, can you offer an example of design that, while not necessarily “indisputable,” you believe provides strong evidence of a designer of the universe?

c. McCloskey implies that evolution has displaced the need for a designer. Assuming evolution is true, for argument’s sake, how would you respond to McCloskey (see Evans and Manis pp. 82–83)?

d. McCloskey claims that the presence of imperfection and evil in the world argues against “the perfection of the divine design or divine purpose in the world.” Remembering Evans’ comments about the limitations of the conclusion of the cosmological argument, how might you respond to McCloskey’s charge about the teleological argument?

4. On the Problem of Evil:

a. McCloskey’s main objection to theism is the presence of evil in the world and he raises it several times: “No being who was perfect could have created a world in which there was avoidable suffering or in which his creatures would (and in fact could have been created so as not to) engage in morally evil acts, acts which very often result in injury to innocent persons.” The language of this claim seems to imply that it is an example of the logical form of the problem. Given this implication and using Evans and Manis’ discussion of the logical problem (pp. 159–168, noting especially his concluding paragraphs to this section), how might you respond to McCloskey?

b. McCloskey specifically discusses the free will argument, asking “might not God have very easily so have arranged the world and biased man to virtue that men always freely chose what is right?” From what you have already learned about free will in the course, and what Evans and Manis says about the free will theodicy, especially the section on Mackie and Plantinga’s response (pp. 163–166) and what he says about the evidential problem (pp. 168–172), how would you respond to McCloskey’s question?

5. On Atheism as Comforting:

a. In the final pages of McCloskey’s article, he claims that atheism is more comforting than theism. Using the argument presented by William Lane Craig in the article “The Absurdity of Life without God,” (located in Reading & Study for Module/Week 6), respond to McCloskey’s claim.

Submit this assignment by 11:59 p.m. (ET) on Monday of Module/Week 7.

July 1, 2023

Philosophy-201:Response Paper Instructions

********ALL REQUIRED MATERIAL FOR THIS ASSIGNMENT IS ATTACHED***************

2. The response paper is to be a minimum of 1,500 words (not including quotes) and must be written as a single essay and not just a list of answers to questions.

6. While you may quote from sources, all quotations must be properly cited and quotes from sources will not count towards the 1,500 word count of the paper.

7. You may be critical of McCloskey, but must remain respectful. Any disparaging comment(s) about McCloskey will result in a significant reduction in grade.

Specifically, you must address the following questions in your paper:

2. On the Cosmological Argument:

3. On the Teleological Argument:

b. From your reading in Evans and Manis, can you offer an example of design that, while not necessarily “indisputable,” you believe provides strong evidence of a designer of the universe?

c. McCloskey implies that evolution has displaced the need for a designer. Assuming evolution is true, for argument’s sake, how would you respond to McCloskey (see Evans and Manis pp. 82–83)?

4. On the Problem of Evil:

5. On Atheism as Comforting:

Submit this assignment by 11:59 p.m. (ET) on Monday of Module/Week 7.

July 1, 2023

Philosophy-201:Response Paper Instructions

********ALL REQUIRED MATERIAL FOR THIS ASSIGNMENT IS ATTACHED***************

2. The response paper is to be a minimum of 1,500 words (not including quotes) and must be written as a single essay and not just a list of answers to questions.

6. While you may quote from sources, all quotations must be properly cited and quotes from sources will not count towards the 1,500 word count of the paper.

7. You may be critical of McCloskey, but must remain respectful. Any disparaging comment(s) about McCloskey will result in a significant reduction in grade.

Specifically, you must address the following questions in your paper:

2. On the Cosmological Argument:

3. On the Teleological Argument:

b. From your reading in Evans and Manis, can you offer an example of design that, while not necessarily “indisputable,” you believe provides strong evidence of a designer of the universe?

c. McCloskey implies that evolution has displaced the need for a designer. Assuming evolution is true, for argument’s sake, how would you respond to McCloskey (see Evans and Manis pp. 82–83)?

4. On the Problem of Evil:

5. On Atheism as Comforting:

Submit this assignment by 11:59 p.m. (ET) on Monday of Module/Week 7.

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