Exam Procedures – Read CarefullyAnswer only two of the three problem questions. (If you answer all three of these problem questions, I will use the average of the three scores.)Answer only two of the three problem questions. (If you answer all three of these problem questions, I will use the average of the three scores.)Finance 3322 Name (print) ________________________Practice First Exam Student ID (last 4 digits) ________________Chapters 1, 2, 3, 5, and 6Exam Procedures – Read CarefullyA. The exam is worth 100 points. (Everyone begins the exam with 8 points.)B. Multiple Choice Questions (four points each). Multiple choice questions are graded credit / no-credit. You can circle more than one answer, but will receive reduced credit. For instance, if you circle two answers and one of the two circled answers is correct, you will only receive one-half credit. If you circle three answers and one of the three circled answers is correct, you will only receive one-third credit, and so on. Answer all 18 multiple choice questions.C. Problem Questions (10 points each). Problem questions allow for partial credit. You must be within ½% of the correct answer to receive full credit. You will receive one bonus point if your answer is exactly correct. Therefore, to receive the bonus point, do not round the solutions to intermediate steps in the problem. Round your final answer to the number of decimal places indicated in the problem. Even if your answer is wrong, you may receive partial credit if you legibly and logically show your work. Only answer 2 of the 3 problem questions. If you answer all three problem question, your grade will reflect the average score on the three questions.D. This is a closed note, closed book test. However, you are allowed two crib sheets (8.5 x 11 inches), time value of money table, calculator, and calculator manual.E. Your score depends on the answers given on the answer sheet. Check to make sure you have put all of your answers on the answer sheet and that you have marked the correct answers.The ExamPart One. Multiple Choice Questions. Worth four points each. Answer all of the multiple choice questions.1. One of the advantages of the corporate form of business is limited liability. Assume Bill buys $100,000 of stock in a corporation. Limited liability means:A. The minimum value of Bill’s stock is $100,000B. The minimum value of Bill’s stock is $02. Bank A pays an annual interest rate of 4.00% per year (with annual compounding). Bank B pays an annual interest rate of 3.94% per year, but uses continuous compounding. Assume you deposit $1,000,000 into a savings account in each bank. In one year, your savings account balance in Bank A is $1,040,000. Calculate your savings account balance in Bank B one year from today. Which of the two savings accounts have the most money at the end of one year?A. The saving’s account in Bank A. B. The saving’s account in Bank B.3. Using a 10% discount rate, what is the NPV of the following investment?The initial investment is $1000The time 1, 2, 3, and 4 cash flow = $0The time 5 cash flow = $12.30. The time 6 cash flow is 30% more than the time 5 cash flow. Cash flows are expected to grow at a 30% annual rate until time 26.There are no cash flows after time 26.A. $468.51B. $492.39C. $516.27D. $528.21E. $615.36F. $641.63G. $667.90H. $681.034. Using a 7% opportunity cost of capital, what is the time zero value of the following perpetual cash flow stream?0 1 2 3 4 5 6$0 $0 $0 $0 $0 $150 $150 $150A. $1083.22B. $1180.71C. $1276.09D. $1378.18E. $1527.83F. $1634.78G. $1666.67H. $1875.00I. $2142.86Copyright © 2007 by John Cooney5. A project has a negative cash flow at time 0 and is expected to produce positive cash flows over the next ten years. The NPV of the project (using a 15% opportunity cost of capital) is positive. Based on this, the internal rate of return (IRR) for the project is in which of the following ranges?A. Greater than 15%B. Less than 0%C. Between 0% and 15%D. It is not possible to determine the range for the IRR based on the facts given in this problem.6. A project has a negative cash flow at time 0 and is expected to produce positive cash flows for the next 4 years. The project’s IRR is 12%. The opportunity cost of capital is 10%. Based on this, what is the NPV of the project?A. The project NPV is negative.B. The project NPV is positive.C. The project NPV is zero.D. It is not possible to determine whether the NPV is positive, negative, or zero in this problem.7. Using a 9% opportunity cost of capital, what is the modified internal rate of return for the following project?0 1 2 3 4-$5000 $0 $0 $2400 $4800A. 9.77%B. 10.36%C. 11.08%D. 11.82%E. 12.52%F. 13.15%G. 13.90%H. 14.34%8. A project has a negative cash flow at time zero, a positive cash flow at time one, and a negative cash flow at time two. Because the project has two sign changes, there could be two internal rates of return. However, in this case, you determine that the project has no IRRs. Using the opportunity cost of capital of 8%, you determine that the MIRR is 10%. Based on this, what is the NPV of the project? A. The project NPV is negative.B. The project NPV is positive.C. The project NPV is zero.D. It is not possible to determine whether the NPV is positive, negative, or zero in this problem.9. Your firm has an extra $1,000,000 in cash that it needs to invest for one year. It is considering one of two possible investments in the financial markets. One investment is low risk and has a low opportunity cost of capital. The other investment is high risk and has a high opportunity cost of capital. Assume the financial markets are perfect, efficient, and in equilibrium. Therefore, the NPV of each of these two investments is zero. Using this information, which of the following statements are true about the expected return for these two investments? (Remember the expected return is the same as the internal rate of return.)A. The one-year expected return for the low-risk investment is lower than the one-year expected return for the high-risk investment.B. The one-year expected return for the low-risk investment is the same as the one-year expected return for the high-risk investment.C. The one-year expected return for the low-risk investment is higher than the one-year expected return for the high-risk investment.10. A calendar-year taxpayer purchases a depreciable asset on January 1 for