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# Finance Management

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1. What is the present value of \$1,000 to be received 10 years from today? Assume that the investment pays 8.5% and it is compounded monthly (round to the nearest \$1).
a. \$893
b. \$3,106
c. \$429
d. \$833

2. The future value of \$500 deposited into an account paying 8% annually for three years is:
a. \$500.
b. \$630.
c. \$700.
d. \$620.

3. Pacific Waste, Inc. has fixed costs of \$225,000. PW's trashbins sell for \$45 and have a unit variable cost of \$20. What is PW's break-even point in units?
a. 8,500
b. 8,750
c. 9,000
d. 9,250

8. Given the following information for Kraft, determine the company's weighted average cost of capital.
Value Cost of Capital
Restaurant Division \$ 5 Billion 13%
Snack Foods Division 7 Billion 12%
Beverages Division 13 Billion 8%
a. 10.12%
b. 11.00%
c. 12.10%
d. 13.00%

13. What is the value today of an investment that pays \$500 every year at year-end during the next 15 years if the annual interest rate is 9%?
a. \$4,030.50
b. \$7,500.00
c. \$3,500.00
d. \$7,000.00

16. The Gooding Corp. plans to borrow \$10,000 for a 60-day period. At maturity, Gooding will repay the \$10,000 principal plus interest at an annual rate of 12%. What is the effective rate of interest on this loan?
a. 12.62%
b. 12.13%
c. 11.47%
d. 11.22%

25. A company has a capital structure that consists of 50% debt and 50% equity. Which of the following is true?
a. The weighted average cost of capital is less than the cost of equity financing.
b. The cost of equity financing is greater than the cost of debt financing.
c. The weighted average cost of capital is calculated on a before-tax basis.
d. Both a and b.
e. All of the above.

26. Typically, XYZ, Inc. maintains \$1 million in cash and marketable securities. The firm currently is expecting an economic recession and projects that its net cash flows from operations during the period will be \$2.5 million. XYZa expects annual interest and sinking fund payments will be \$3 million during the period. If the recession occurs, XYZ's cash balance at the end of the period will be:
a. \$6.5 million.
b. \$1 million.
c. \$500,000.
d. \$3.5 million.

#### Solution Preview

1. What is the present value of \$1,000 to be received 10 years from today? Assume that the investment pays 8.5% and it is compounded monthly (round to the nearest \$1).
a. \$893
b. \$3,106
c. \$429
d. \$833

PV = 1,000/(1 + 8.5%/12)10x12

2. The future value of \$500 deposited into an account paying 8% annually for three years is:
a. \$500.
b. \$630.
c. \$700.
d. \$620.

FV = 500(1 + 0.08)3

3. Pacific Waste, Inc. has fixed costs of \$225,000. PW's trashbins sell for \$45 and have a unit variable cost of \$20. What is PW's break-even point in units?
a. 8,500
b. 8,750 ...

#### Solution Summary

This solution is comprised of a detailed explanation to answer what is the present value of \$1,000 to be received 10 years from today.

\$2.19