Introduction to Corporate Finance Coursera Quiz Answers – Networking Funda

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Introduction to Corporate Finance Week 01 Quiz Answers

Module 1 Quiz

Q1. You will receive an inheritance of \$500,000$500,000 in 20 years on your 40th birthday. What is the value of the inheritance today if the discount rate is 10\%10%?

• 74,321.8174,321.81
• 500,000500,000
• 50,00050,000
• 3,363,7493,363,749

Q2. What is the present value (i.e., price) today of a bond that will pay its owner \$1,000,000$1,000,000 five years from today if the discount rate is 4\%4% per annum?

(This is called a zero-coupon or pure discount bond)

• 821,927.11
• 40,00040,000
• 1,000,0001,000,000
• 1,216,652.901,216,652.90

Q3. Imagine that you deposit \$6,000$6,000 a year, starting one year from today, for four years into a savings account paying 6\%6% per annum.

(That is one deposit of \$6,000$6,000 per year.)

How much money will you have immediately after you make your fourth and final deposit?

• 30,299.4430,299.44
• 27,822.5627,822.56
• 26,247.7026,247.70
• 24,00024,000

Q4. Imagine that your goal is to retire 34 years from today with $1,000,000 in savings. Assuming that you currently (i.e., today) have $5,000 in savings, what rate of return must you earn on that savings to hit your goal?

(Hint: Solve your future value formula for the discount rate, R)

• 0.16860.1686
• 0.20000.2000
• 4.88244.8824
• 0.48820.4882

Q5. Assume that a bond makes 30 equal annual payments of \$1,000$1,000 starting one year from today. (This security is sometimes referred to as an amortizing bond.)

If the discount rate is 3.5\%3.5% per annum, what is the current price of the bond?

(Hint: Recognize that this cash flow stream is an annuity and that the price of an asset is the present value of its future cash flows.)

• 2,856.792,856.79
• 18,329.0518,329.05
• 356.27356.27
• 2806.792806.79

Q6. Assume that a bond makes 10 equal annual payments of \$1,000$1,000 starting one year from today. The bond will make an additional payment of \$100,000$100,000 at the end of the last year, year 10. (This security is sometimes referred to as a coupon bond.)

If the discount rate is 3.5\%3.5% per annum, what is the current price of the bond?

(Hint: Recognize that this bond can be viewed as two cash flow streams: (1) a 10-year annuity with annual payments of \$1,000$1,000, and (2) a single cash flow of \$100,000$100,000 arriving 10 years from today. Apply the tools you’ve learned to value both cash flow streams separately and then add.)

• 79,208.48579,208.485
• 8,316.6058,316.605
• 70,891.8870,891.88
• 89,283.9389,283.93

Q7. Your daughter will start college one year from today, at which time the first tuition payment of \$58,000$58,000 must be made. Assuming that tuition does not increase over time and that your daughter remains in school for four years, how much money do you need today in your savings account, earning 5\%5% per annum, in order to make the tuition payments over the next four years?

• 70,499.3670,499.36
• 1,657,142.851,657,142.85
• 205,665.13205,665.13
• 290,000290,000

Imagine that the government decided to fund its current deficit of \$431$431 billion dollars by issuing a perpetuity offering a 4\%4% annual return. How much would the government have to pay bondholders each year in perpetuity?

(Hint: The \$431$431 billion is just the present value of these cash flows at a discount rate of 4\%4%.)

• 17.2417.24 Billion Dollars
• 448.24448.24 Billion Dollars
• 107.75107.75 Billion Dollars
• 10.7810.78 Billion Dollars

Q9. A home equity line of credit (HELOC) is, loosely speaking, like a credit card for your home. You can borrow money by drawing down on the line of credit. But, because the borrowed money is for the purpose of your home, the interest is tax-deductible meaning that you can deduct the interest paid on this money from your income to reduce your taxes. If the current annual interest rate on a HELOC is 3.85\%3.85% and your tax rate is 32\%32%, what is the after-tax interest rate you will pay on any borrowings under the HELOC?

• 0.0120.012
• 0.3080.308
• 0.0260.026
• 0.1200.120

Q10. Your daughter will start college one year from today, at which time the first tuition payment of \$58,000$58,000 must be made. Assume that tuition does not increase over time and that your daughter remains in school for four years. How much money do you need today in your savings account, earning 5\%5% per annum, in order to make the tuition payments over the next four years, provided that you have to pay 35\%35% per annum in taxes on any earnings (e.g., interest on the savings)?

• 214,309.02214,309.02
• 1,784,615.381,784,615.38
• 115,822.98115,822.98
• 205,665.13205,665.13

Introduction to Corporate Finance Week 02 Quiz Answers

Module 2 Quiz

Q1. You have just purchased a home by borrowing \$400,000$400,000 for 30-years at a fixed APR of 3.87\%3.87%. The loan payments are monthly and interest is compounded monthly.

What is the periodic interest rate? (I.e., what is the monthly interest rate?)

• 0.00320.0032
• 0.01290.0129
• 0.00130.0013
• 0.03940.0394

Q2. You have just purchased a home by borrowing \$400,000$400,000 for 30-years at a fixed APR of 3.87\%3.87%. The loan payments are monthly and interest is compounded monthly.

What is the effective annual rate on the loan? (I.e., what is the interest rate once we take into account compounding?)

• 2.03942.0394
• 0.03940.0394
• 1.03941.0394
• 2.12392.1239

Q3. You have just purchased a home by borrowing \$400,000$400,000 for 30-years at a fixed APR of 3.87\%3.87%. What is the monthly mortgage payment?

(Hint: A mortgage is just an annuity where the borrowed amount is the present value of the annuity.

So, use the annuity formula, but solved for the cash flow in terms of the present value:

CF = \frac{PV\times R/k}{1 – (1 + R/k)^{(-T\times k)}} 1−(1+R/k)(−T×k)PV×R/k​

• 1,879.801,879.80
• 751.92751.92
• 1,895.851,895.85
• 757.95757.95

Q4. You invest \$100$100 into a CD offering 5% APR with semi-annual compounding (i.e., two times per year).

How much money will you have in the account after 1 year?

• 125.32125.32
• 120.00120.00
• 118.54118.54
• 105.06105.06

Q5. You put \$1,000$1,000 into a savings account today that offers a 5\%5% APR with semi-annual compounding (i.e., two times per year).

How much money will you have in the account after 2 years?

• 1,215.511,215.51
• 814.50814.50
• 1,102.501,102.50
• 902.50902.50

Q6. You put \$1,000$1,000 into a savings account today that offers a 5\%5% APR with semi-annual compounding (i.e., two times per year).

What is the effective annual rate of the saving account?

• 0.02500.0250
• 0.09750.0975
• 0.10250.1025
• 1.10251.1025

Q7. Consider the following figure that presents three yield curves:

Based on the yield curves in the figure, what is the approximate cost of borrowing for highly rated corporate borrowers over a 5-year term?

• 3.54\%3.54%
• None of the answers are correct
• 1.50\%1.50%
• 0.00\%0.00%
• 2.27\%2.27%

Q8. Consider the following figure that presents three yield curves:

Based on the yield curves in the figure, what is the approximate cost of borrowing for highly rated corporate borrowers over a 20-year term?

• 0.00\%0.00%
• 4.66\%4.66%
• 3.54\%3.54%
• 1.50\%1.50%
• None of the answers are correct

Q9. A one-year zero coupon bond costs \$99.43$99.43 today. Exactly one year from today, it will pay \$100$100.

What is the annual yield-to-maturity of the bond? (I.e., what is the discount rate one needs to use to get the price of the bond given the future cash flow of \$100$100 in one year?)

• 1.00571.0057
• 0.00570.0057
• -0.0057−0.0057
• 2.00572.0057

Q10. You have a treasury bond that pays \$100$100 one year from today and \$1,100$1,100 two years from today.

You notice that the yield-to-maturity on a one year-zero coupon treasury bond is 1\%1% and the yield-to-maturity on a two year-zero coupon treasury bond is 2\%2%. What should the price of your bond be?

• 1,156.301,156.30
• 1,246.371,246.37
• 1,177.441,177.44
• 1,223.461,223.46

Introduction to Corporate Finance Week 03 Quiz Answers

Module 3 Quiz

Q1. GoPro’s earnings before interest and taxes (EBIT) was \$190$190 million.

Assuming GoPro’s tax rate is 35\%35%, what is their net operating profit after taxes (NOPAT) for 2014 expressed in millions of dollars?

• 256.5256.5
• 123.5123.5
• 66.566.5
• 292.3292.3

Q2. Fusion Energy Co’s earnings before interest and taxes (EBIT) was \$275$275 million.

Assuming Fusion Energy’s tax rate is 25\%25%, what is their net operating profit after taxes (NOPAT) for 2015 expressed in millions of dollars?

• 366.67366.67
• 343.75343.75
• 206.25206.25
• 68.7568.75

Q3. Momo’s Candy Inc.’s earnings before interest and taxes (EBIT) was \$12$12 million.

Assuming Momo’s Candy’s tax rate is 10\%10%, what is their net operating profit after taxes (NOPAT) for 2013 expressed in millions of dollars?

• 13.213.2
• 10.810.8
• 12.912.9
• 13.313.3

Q4. Fragile Express Delivery Company’s earnings before interest and taxes (EBIT) was \$725$725 million.

Assuming Fragile Express Delivery’s tax rate is 37\%37%, what is their net operating profit after taxes (NOPAT) for 2019 expressed in millions of dollars?

• 725.63725.63
• 993.25993.25
• 1,150.791,150.79
• 456.75456.75

Q5. In 2014, GoPro spent \$27.5$27.5 million on capital expenditures, experienced an increase in net working capital (including cash) equal to \$239$239 million, and realized \$18$18 million in depreciation.

What is GoPro’s unlevered free cash flow for 2014?

• 8
• -125−125
• -161−161
• 43.843.8

Q6. In 2015, Fusion Energy spent \$30$30 million on capital expenditures, experienced a decrease in net working capital (including cash) equal to \$70$70 million, and realized \$10$10 million in depreciation.

What is Fusion Energy’s unlevered free cash flow for 2015?

• 256.25256.25
• 373.75373.75
• 393.75393.75
• 116.25116.25

Q7. In 2013, Momo’s Candy spent \$2$2 million on capital expenditures, experienced an increase in net working capital (including cash) equal to \$3$3 million, and realized \-0.5 million in depreciation.

What is Momo’s Candy’s unlevered free cash flow for 2013?

• 5.35.3
• 11.311.3
• 9.39.3
• 6.36.3

Q8. In 2019, Fragile Express Delivery spent \$28.9$28.9 million on capital expenditures, experienced a decrease in net working capital (including cash) equal to \$72.8$72.8 million, and realized \$26$26 million in depreciation.

What is Fragile Express Delivery’s unlevered free cash flow for 2019?

• 329.05329.05
• 526.65526.65
• 381.05381.05
• 438.85438.85

Q9. What does a negative value for unlevered free cash flow imply for the claimants of a firm?

• Revenues are less than costs
• Shareholders have made a bad investment
• The firm must raise capital from the capital markets (e.g., debt, equity), or liquidate internal assets (e.g., cash)
• The firm is over-investing
• Management is doing a bad job

Q10. True/False: When a firm changes its capital structure by issuing or retiring debt, for example, this change alters the firms unlevered free cash flow.

• True
• False

Introduction to Corporate Finance Week 04 Quiz Answers

Module 4 Quiz

Q1. Jones Corp is evaluating a project that has the following annual free cash flows:

Period	00	11	22
Free Cash Flow	-150−150	100100	150150

If the project’s discount rate is 12\%12%, then what is the NPV of the project?

• 52.5652.56
• 58.8658.86
• 157.33157.33
• 178.79178.79

Q2. Jones Corp is evaluating a project that has the following annual free cash flows:

Period	00	11	22
Free Cash Flow	-200−200	150150	-70−70

If the project’s discount rate is 12\%12%, then what is the NPV of the project?

• -119.94−119.94
• -108.82−108.82
• -121.875−121.875
• -136.29−136.29

Q3. Fusion Energy is evaluating a project that has the following annual free cash flows:

Period	00	11	22
Free Cash Flow	-500−500	250250	300300

If the project’s discount rate is 27\%27%, then what is the NPV of the project?

• 255.35255.35
• 471.49471.49
• 262.37262.37
• 489.08489.08

Q4. Momo’s Candy is evaluating a project that has the following annual free cash flows:

Period	00	11	22
Free Cash Flow	-100−100	-100−100	250250

If the project’s discount rate is 10\%10%, then what is the NPV of the project?

• 97.5397.53
• 14.2714.27
• 108.37108.37
• 15.7015.70

Q5. Fragile Express Delivery is evaluating a project that has the following annual free cash flows:

Period	00	11	22
Free Cash Flow	-500−500	200200	320320

If the project’s discount rate is 36\%36%, then what is the NPV of the project?

• 593.75593.75
• -132.30−132.30
• -179.93−179.93
• 927.73927.73

Q6. Donald’s Inc. is evaluating a project that has the following annual free cash flows:

Period	00	11
Free Cash Flow	-175−175	200200

What is the project’s IRR?

• 1.1431.143
• 0.1430.143
• 2.1432.143
• -0.125−0.125

Q7. Jones Corp is evaluating a project that has the following annual free cash flows:

Period	00	11
Free Cash Flow	-150−150	100100

What is the project’s IRR?

• 1.6671.667
• -0.333−0.333
• 0.6670.667
• 0.50.5

Q8. Fusion Energy is evaluating a project that has the following annual free cash flows:

Period	00	11
Free Cash Flow	-500−500	250250

What is the project’s IRR?

• 1.51.5
• 3.53.5
• 2.52.5
• -0.6−0.6

Q9. Momo’s Candy is evaluating a project that has the following annual free cash flows:

Period	00	11
Free Cash Flow	-100−100	-100−100

What is the project’s IRR?

• -2
• 0
• 1
• 2

Q10. Fragile Express Delivery is evaluating a project that has the following annual free cash flows:

Period	00	11
Free Cash Flow	-500−500	200200

What is the project’s IRR?

• -0.6−0.6
• 0.40.4
• 1.41.4
• 1.51.5

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