1- If you have to choose between a gym membership of $5,000 for 1 year, or $12,750 for

three years. Which one do you choose as the better deal given payment due at the end of
the year and 6% expected annual price increase, where the discount rate is 10%.
2- You just inherited a trust that will pay you $100,000 per year in perpetuity. However, the

first payment will not occur till the fourth year. Assuming a 10% annual interest rate, what
is the value of this trust?
3- A stock is expected to pay $ 1.25 per share next year. Dividends are increasing at a steady
rate of 3.5%. What is the price you are willing to pay for this stock given r = 15%

4- Suppose you invest $1000 in a saving account paying 7% interest compounded monthly

for 2 years. What would be the amount in the account at the end of the two years?
5- Suppose a bank offers you an education loan to study your MBA at an annual percentage

rate 12% with interest to be paid monthly. Calculate the interest rate that you truly pay (i.e.
the effective annual rate “EAR”).

6- A corporation may incur agency costs because:

A. managers may not attempt to maximize the value of the firm to shareholders.

B. shareholders incur monitoring costs.

C. of the separation of ownership and management.

D. all of the options.

7- Limited liability is an important feature of:

A. sole proprietorships.

B. partnerships.

C. corporations.

D. both partnerships and corporations.

8- A firm's investment decision is also called its:

A. financing decision.

B. liquidity decision.

C. capital budgeting decision.

D. leasing decision.

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9- Which of the following statements regarding the NPV rule and the rate of return rule is

false?

A. Accept a project if its NPV > 0.

B. Reject a project if the NPV < 0.

C. Accept a project if its rate of return > 0.

D. Accept a project if its rate of return > opportunity cost of capital.

10-An initial investment of $500 produces a cash flow of $550 one year from today. Calculate

the rate of return on the project.

A. 10%

B. 15%

C. 20%

D. 25%
11- Which of the following statements regarding the net present value rule and the rate of

return rule is false?

A. Accept a project if NPV > cost of investment.

B. Accept a project if NPV is positive.

C. Accept a project if return on investment exceeds the rate of return on an equivalent-risk

investment in the financial market.

D. Reject a project if NPV is negative.