Exam (elaborations) ECON

1. Please don’t open the exam until you are told to do so. 2. This exam is being administered under the University’s rules for academic conduct; the Code of Academic Integrity applies. 3. The exam consists of 5 multiple choice questions and 4 essay questions. 4. Use the white spaces (and backs of pages) in this question booklet as scratch paper for the multiple choice questions. Your final answers should be indicated with a pen in the appropriate boxes on page 1 of your answer sheet booklet. 5. Write your answers to the essay questions in the answer sheet booklet. You can use a pen or a pencil. If you need more answer sheets, you can request them, and they will be provided for you. Do not use the backs of answer sheets, since these back pages will not be graded. 6. IMPORTANT: Print your name and Penn ID number on the first page of your answer sheet booklet. 7. This is an open-book exam, i.e. you are free to use any course material. You are allowed to use a pocket calculator. Laptop computers and cell phones are not allowed. 8. You have two hours. The time left in the exam will be announced periodically. If you finish early, you can quietly hand in your answer sheet booklet and leave, unless there is less than ten minutes left in the exam. 9. Please stop writing when requested to. There will be a penalty of 20 points for the people who don’t. 10. Remain seated until all the answer sheet booklets (not just yours) have been collected. Corporate Finance (FNCE 611/612) PLACEMENT/WAIVER EXAM – PART 1 PART I: MULTIPLE CHOICE QUESTIONS (Total points: 25) INSTRUCTIONS: A correct answer to each of these questions is worth 5 points. An incorrect answer is worth 0. Also, for each question that you choose not to answer, you get 1 point. If you do choose to answer, write your answer clearly in the appropriate box on page 1 of your Answer Sheet Booklet. Your answers should be capital letters written with a pen. An empty box will be interpreted as a “no answer.” 1. A 10-year annuity paying $x at the beginning of every year (i.e. the first of ten payments is made today) is worth the same (today) as an annuity of $300 payable every 6 months for 10 years (20 payments), the first payment of which is due 66 months from now. If the annual interest rate (compounded annually) is 3%, find x. a. $232.73 d. $508.11 b. $502.48 e. $521.42 c. $506.23 2. A machine costing $3,000 must be replaced at the end of 8 years. The resale value of the machine at the time of replacement is $600. At what annual discount rate (compounded annually) would it be equally economical to use a similar machine costing $4,000 with a life of 8 years and a resale value of $1,900? (Assume that there is no taxes.) a. 2.4% d. 3.3% b. 2.7% e. 3.6% c. 3.0% 3. What is the present value of 15 payments of $100 each received every 18 months (the first one occuring in 18 months from now), if the annual discount rate (compounded annually) is 9%? a. $620.43 d. $951.28 b. $875.56 e. $1,209.10 c. $930.61 4. Corporate managers can maximize shareholder wealth by choosing positive NPV projects because: a. all investors have the same preferences. b. the unhappy shareholders can sell off their shares. c. given the existence of financial markets, investors will be satisfied with the same real investment decisions regardless of personal preferences. d. managers are wiser than shareholders regarding investments. e. none of the above