zero coupon bonds

Which of the following statements is most true about zero coupon bonds?

[removed] | They are always convertible to common stock. |

[removed] | They typically sell at a premium over par when they are first issued. |

[removed] | They typically sell at a deep discount below par when they are first issued. |

[removed] | They typically sell for a higher price than similar coupon bonds. |

The expected return on Kiwi Computers stock is 16.6 percent. If the risk-free rate is 4 percent and the expected return on the market is 10 percent, then what is Kiwi’s beta?

[removed] | 3.15 |

[removed] | 2.10 |

[removed] | 1.26 |

[removed] | 2.80 |

**Payback: **Binder Corp. has invested in new machinery at a cost of $1,450,000. This investment is expected to produce cash flows of $640,000, $715,250, $823,330, and $907,125 over the next four years. What is the payback period for this project?

[removed] | 1.88 years |

[removed] | 3.00 years |

[removed] | 4.00 years |

[removed] | 2.12 years |

**Payback:** Elmer Sporting Goods is getting ready to produce a new line of gold clubs by investing $1.85 million. The investment will result in additional cash flows of $525,000, $812,500, and 1,200,000 over the next three years. What is the payback period for this project?

[removed] | 2.43 years |

[removed] | 3 years |

[removed] | 1.57 years |

[removed] | More than 3 years |

**Payback:** Kathleen Dancewear Co. has bought some new machinery at a cost of $1,250,000. The impact of the new machinery will be felt in the additional annual cash flows of $375,000 over the next five years. What is the payback period for this project? If their acceptance period is three years, will this project be accepted?

[removed] | 2.67 years; yes |

[removed] | 2.67 years; no |

[removed] | 3.33 years; yes |

[removed] | 3.33 years; no |

**Payback: **Carmen Electronics bought new machinery for $5 million. This is expected to result in additional cash flows of $1.2 million over the next seven years. What is the payback period for this project? If their acceptance period is five years, will this project be accepted?

[removed] | 4.17 years; no |

[removed] | 3.83 years; yes |

[removed] | 3.83 years; no |

[removed] | 4.17 years; yes |

**Discounted payback:** Carmen Electronics bought new machinery for $5 million. This is expected to result in additional cash flows of $1.2 million over the next seven years. The firm’s cost of capital is 12 percent. What is the discounted payback period for this project? If the firm’s acceptance period is five years, will this project be accepted?

[removed] | 6.1 years; no |

[removed] | 4.6 years; yes |

[removed] | 5.4 years; no |

[removed] | 4.2 years; yes |

Stillwater Drinks is trying to determine when to harvest the water from the fountain of youth that it currently owns. If it harvests the water in year 1, the NPV of the project would increase over an immediate harvest by 18 percent. A year 2 harvest would create an NPV increase of 12 percent over that of year 1 and year 3 would create an NPV increase of 8 percent over that of year 2. If the cost of capital is 17 percent for Stillwater, then which harvest year would maximize the NPV for the firm? Assume that all NPVs are calculated from the perspective of today.

[removed] | Harvest in year 1. |

[removed] | Harvest immediately. |

[removed] | Harvest in year 3. |

[removed] | Harvest in year 2. |

The proper time to harvest an asset is when

[removed] | the percentage NPV increase of harvesting a project at a future point in time is at the last date where the increase is greater than the cost of capital. |

[removed] | the percentage NPV increase of harvesting a project at a future point in time is at the first date where the increase is less than the cost of capital. |

[removed] | the percentage NPV increase of harvesting a project at a future point in time is at the first date where the increase is greater than the cost of capital. |

[removed] | None of the above. |

Norman, Inc., is considering two mutually exclusive projects. Project A is a six-year project with a NPV of $3,000 and Project B is a four-year project with an NPV of $2,278. Project A has an equivalent annual cash flow of $730 and Project B has an equivalent annual cash flow of $750. Which project should the firm select?

[removed] | Choose Project B because it has the lower NPV. |

[removed] | Choose Project B because it has the higher equivalent annual cash flow. |

[removed] | Choose Project A because it has the lower equivalent annual cash flow. |

[removed] | Choose Project A because it has the higher NPV. |

Champagne, Inc., had revenues of $12 million, cash operating expenses of $8 million, and depreciation and amortization of $1.5 million during 2008. The firm purchased $700,000 of equipment during the year while increasing its inventory by $500,000 (with no corresponding increase in current liabilities). The marginal tax rate for Champagne is 30 percent.

**Free cash flow:** What are Champagne’s cash flows associated with investments for 2008?

[removed] | $500,000 |

[removed] | $700,000 |

[removed] | $1,200,000 |

[removed] | None of these |

**Calculating operating leverage. **Swan’s Bicycle Boats had a degree of accounting operating leverage equal to 1.50 during the most recent period. If the firm’s EBITDA was $5,000 and its fixed costs were equal to $1,750, then what was Swan’s depreciation and amortization expense during the same period?

[removed] | $1,500 |

[removed] | $2,833 |

[removed] | $500 |

[removed] | $1,000 |

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