Fundamentals of Finance - Tests

8/2/2019 Fundamentals of Finance - Tests

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Fundamentals of Finance BUS 3310 - Spring A.D. 2009 - Prof. GasperExamination October 15, 2009

This exam has two parts. Follow the specific instructions for each part. You are expected to useyour calculator on the problems. This is otherwise a "closed book" exam. Laptops, cell phones,and all electronic devices except for your calculator must be turned off and kept off the table.You may leave when you are finished and tum in your answers. Do NOT tum in this copy of thequestions, but keep it for your later reference. The exam period ends promptly at 1:50 p.m.

PART I. 48 points. [Each question counts equally.]Instructions: Choose four of the following eight questions and write a brief but completeanswer to every part of each of your chosen questions. Do not answer all eight questions; youwill be penalized if you do. "Bullet" lists or outlines are not acceptable. BE SURE to numbereach answer to correspond to the number of the question you are answering. Although it is notnecessary for you to present your answers in numeric order, it is more convenient for me if youare able to do so.

)" 1.What kinds of investment risk are there? Explain what sorts.of events cause each of thesetypes of risk .

..) 2. Identify and briefly explain the two factors responsible for making finance both an interestingand difficult subject.

J3.Define beta. Explain why a stock with a beta of zero on the one hand is risk-free, but inanother way is not. .

. 4. If an analysis of a set of financial statement is to be comprehensive and systematic, what areasmust it focus on? Name two ratios that might be used in each of those areas.5. What is the most basic measure of risk? What is it measuring, that is, what causes us to saythere is risk?6. What is the method for reducing market risk? Why or how does it work?7. How is the DuPont equation used? What area of interest in ratio analysis does it not cover?

8. Explain the objective of business finance, including a mention of why an accountant may havea little difficulty in appreciating that objective.


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Part II. 51 points. [Each problem counts equally.]Instructions: Six problems are presented, lettered A through F. Select three of the problems forsolution. Do not solve all the problems. Be sure to letter each solution to correspond to theproblem you are solving.You must show each step of your work. I must be able to reconstruct exactly what you did to getto your solution. Credit will not be given for merely providing the correct answer, and will bereduced to the extent you skip showing steps in your work. Partial credit will be awarded to theextent the work was correct and properly shown.Show data entries, including signs. If you enter a series of data for one variable, it is notnecessary to specify every single entry. You may instead write, for example, "Enter percentagerates of return as X values, percentage probabilities as Y values in the DATA worksheet."Please double underline your final numeric solution. If the question asks whether, for example, acertain stock should be purchased at the given price, be sure to answer the question; don't stopwith a numeric solution that is merely the basis for answering the question.

A. Refer to the following table showing annual rates of return to investments in the common'-V""0stock shares of two different companies in several different yeq~s,and the corresponding returns~j(n each year to investment in the broad equities market (that is, in the average common stock).C ' j _ Calculate for each stock, and for the market, the mean return and the s~~:~a~~deviation, and for

stocks A and B, calculate the betas.As a potential investor, would you favor one of these stocks over the other? Why, or why not?

Year KA Kn K ~ I _2002 7.6% 9.7% 6.8%2001 12.3 -4.2 11.02000 -0.1 7.4 5.51999 6.S 9.8 7.21998 10.6 16.4 9.11997 5.3 5 .1 4.7

B. The Arthur King Corporation is contemplating the acquisition of another company, Lee Baad,Inc. which is about half the size of Arthur King. At present, the beta of Arthur King's commonstock is 1.28. The beta of Lee Baad is 1.77. Thirty-year Treasury bonds, which may be assumedto be risk-free, are presently yielding 4.2%, and the market risk premium is 6.4%. Assuming theacquisition goes through, then according to the Capital Asset Pricing Model what return will themarket require on investment in the combined company, to be known as A. King-Lee Baad?


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C. Jim Weintraub, who is celebrating his19th birthday today, is the beneficiary of a trust whichwill be dissolved on his 25th birthday, at which time the corpus of the trust will be his propertyabsolutely. Between now and then, however, he receives a stated income of$140,000 annuallyfrom the trust investments. The present market value of these investments is $3,200,000 and thetrust is yielding a 6% annual return. Any trust income or appreciation in excess of the annualobligation to Jim is reinvested, at the same yield of 6%. Calculate the future value of the trust atthe time it matures in six years.D. Jeremy Scully is trying to figure out what has been happening at Keal Corporation. Formerly,the Return on Equity (ROE) was 7.2%. He knows that sales did, and still do, equal 40% of totalassets. He also knows that the company has recently taken on more debt. Whereas equity wasequal to % of assets, it is now equal to only lfi of assets. The ROE of Keal has increased to 8%.Jeremy thinks that somehow that just doesn't seem right. It seems a small increase in ROErelative to the size of the increase in debt. What else has happened at Keal, which explains andreconciles these ratios?E. The following ratio information is presented for a certain company:

Ratio 2008 2007Gross profit margin on sales 37.3~'o 38.4%Net profit margin (after tax) 4.4% 9.3%Return on assets (after tax) 5.5% 9.0%Return on equity 23.4% 34.7%Inventory turnover 13.7 11.3Total asset turnover (TA/Sales) 0.8 0.9Current ratio 1.2 1.2Quick ratio 1.1 1.1Times- interest -earned 52.9 49.9Equity multiplier (TA/Equity) 6.5 4.0Total debt to equity 3.2 2.9Debt to total assets ratio 0.8 0.7

Based only on this information, identify areas you believe warrant further investigation, andsuggest what might be responsible for what you discern in those areas.


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F. Madge has a small portfolio of stocks, summarized in the following table:Stock Value Beta Present return L I,) 't.\A $80,000 0.9 12.9% \ 'vi 1//B $48,000 1.2 11.7 7 f~(C $72,000 1.5 17.2 f ",r"'-'- ,_-'D $120,000 0.7 10.3 -HCE V $80,000 >">"i13.8 lei.1 '. r


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k p =Ii* Wii

( k ) m nF V n = P V x 1+ m (JCV = -;:-kF V k n = P V x e k x n,

(A ) mk - 1 ( N O M 1EAR- + -m

PV = FV x ( 1 ]n (l+ k)n%!J.EPSDFL=---%LEBlT

PmtPVperpetuity = -k- %I1EBITDOL=---

% 11 SalesEB IT T C A {EB T EElT

r ; : ;/2S.0O=V-K-EPSShare value = -k-

11 \' ( ~ ) ')(J = , 1 1 _ 1~ k i - k - P i

I

MVLEDG= DA- MVA x DL

1 1 kMVE= EDGx-x MVA1+ kP PmtPfd=k

DP o =-ks

Ak s = a + f 3 s . k lv 1


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Fundamentals of Finance BUS 3310 - Fall A.D. 2009 - Prof. GasperExamination November 24,2009

This exam has two parts. Follow the specific instructions for each part. You are expected to useyour calculator on the problems. This is otherwise a "closed book" exam. Laptops, cell phones,and all electronic devices except for your calculator must be turned off and kept off the table.You may leave when you are finished and turn in your answers. Do NOT turn in this copy of thequestions, but keep it for your later reference. The exam period ends promptly at 4:50 p.m.

PART 1 . 48 points. [Each question counts equally.]Instructions: Choose four of the following eight questions and write a brief but completeanswer to every part of each of your chosen questions. Do not answer all eight questions; youwill be penalized if you do. "Bullet" lists or outlines are not acceptable. BE SURE to numbereach answer to correspond to the number of the question you are answering. Although it is notnecessary for you to present your answers in numeric order, it is more convenient for me if youare able to do so.

~ 1.List and defined the four kinds of risk that influence bond yields.~2. A callable bond is selling at a premium. Explain why it is possibly not a good idea for the

issuing company to call the bond.~"~~~~3.dentify the steps in calculating a modifie~internal rate of return.

/ . ".~","""-- J ~ . 4. What is a stock warrant? What is the purpose of conversion options and warrants?.~ 5. Why should the use of retained earnings be regarded as incurring a cost, that is, why do we

assign a required yield to the use of retained earnings?~ 6. Identity the thre.e.categori~~ into.which. we usu~lly classify changes in cash flows :vhen.we are

r' approaching a decision whether to invest in a capital asset. For each of these categones, give anexample of a kind of cash flow that would be included in that category.

f " 7. Why would a common stock share have any market value if ithas never paid a dividend andthe company managers state explicitly and forcefully that they have no plans to pay dividends inthe future?

~ ~18. Identify the three usual methods of evaluating cash flows from capital assets. Briefly discussthe advantages and disadvantages of each method. .

)

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D. The common shares of Epsilon Brothers Piano Company are currently priced at $12.85 pershare. The company recently paid a quarterly dividend of eleven cents ($0.11) per share. For agood many years, the company has exhibited a growth rate of 4.8% annually. Calculate theexpected total yield on an investment in this company's shares. (Report your result to the nearestone-tenth of a percent.)

l/E. There is not very much trading in the stock of Zeta Carpet Mills. The company is expected to, pay, in the coming year, quarterly dividends totaling $1.24. Although its business has been bad inthe last few years, Zeta Carpet Mills has grown at an average compounded rate of about 1.6%annually over the last 20 years. The shares of other carpet manufacturers of about this size arecurrently priced in the market to yield 5.4%. Calculate the indicated price per share of ZetaCarpet Mills common stock. (Report your result in dollars and cents.)

F. Bob Eta, the chairman of the capital committee at his company, is considering the purchase ofc/ a vertical turret lathe. The initial investment will require $206,000 in funding. The informationfrom staff is that the machine will have a usefullife of 12 years, and at the end of that time canprobably be sold for about $70,000. The annual change in the company's net free operating cashflows, if this machine is purchased, are expected to be $50,000 in the first three years, $40,000 inthe next three years, and $20,009 annually thereafter. All the figures given are net of depreciationand taxes. Based on these figures, calculate the Internal Rate of Return and the Net Present Valueof this machine, assuming that the company's marginal cost of capital is 9%. (Report your resultto the nearest hundred dollars.) ~


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Fundamentals of Finance BUS 3310 - Spring A.D. 2010 - Prof. GasperFirst examination

This exam has two paris. Follow the specific instructions for each part. You are expected to useyour calculator on the problems. This is otherwise a "closed book" exam. Laptops, cell phones,and all electronic devices except for your calculator must be turned off and kept off the table.You may leave when you are finished and tum in your answers. Do NOT tum in this copy of thequestions, but keep it for your later reference. The exam period ends promptly at 3:20 p.m.

PART I. 48 points. [Each question counts equally.]Instructions: Choose four of the following eight questions and write a brief but completeanswer to every part of each of your chosen questions. Do not answer all eight questions; youwill be penalized if you do. "Bullet" lists or outlines are not acceptable. BE SURE to numbereach answer to correspond to the number of the question you are answering. Although it is notnecessary for you to present your answers in numeric order, it is more convenient for me if youare able to do so.

I~ .(l.~xplain the objective of business finance, and why it is that finance focuses on cash instead of~'profits.2. What kinds cf investment risk are there? How is each of those kinds of risk measured? Fromwhat kinds of events does each kind arise?

('3~ an analysis of a set of financial statement is to be comprehensive and systematic, what areas~nust it focus on? State exactly why each of those areas is of interest and write at least one ratiothat could be used as a measurement in each of those areas.4. The interest rates we see in the market are formed on the basis of a real rate of interest, whichmust over time be the same as the growth rate of the economy. But added to that basis are certainpremiums in respect of certain definite risks. Name all of these risks, and briefly explain anyONE of them, i.e., describe what sort of condition or event gives rise to the risk and give anexample of such a condition or event..5. What is meant by "discount rate"? In working a problem in the time value of money, andsupposing that a discount rate is needed to solve the problem, on what principle should thediscount rate be identified?

(6~~ame the three most important financial statements, and identify the function of each, that is,""wi'iat each of them is meant, ideally, to reveal or measure.~,

(/7. Identify (name and very briefly explain) at least two important differences between accounting\ m e t finance.


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8. Consider the following statement: "Itmakes sense that average prices in the equities and bondmarkets should be inversely related, because they are the principal markets in which portfolioinvestors will trade their securities. When investors on balance move money out of one marketinto the other, the average price in the market from which the money moves should decline andthe average price in the one into which the money moves should increase." If you wanted to findthe probabilities that bond and stock prices in fact will move against each other, would you relyon this reasoning as the basis for your research? Why not?Part 11.51 points. [Each problem counts equally.]Instructions: Five problems are presented, lettered A through E. Select three of the problemsfor solution. Do not solve all the problems. Be sure to letter each solution to correspond to theproblem you are solving.You must show each step of your work. I must be able to reconstruct exactly what you did to getto your solution. Credit will not be given for merely providing the correct answer, and will bereduced to the extent you skip showing steps in your work. Partial credit will be awarded to theextent the work was correct and properly shown.Show data entries, including signs. If you enter a series of data for one variable, it is notnecessary to specify every single entry. You may instead write, for example, "Enter percentagerates of return as X values, percentage probabilities as Y values in the DATA worksheet."Please double underline your final numeric solution. If the question asks whether, for example, acertain stock should be purchased at the given price, be sure to answer the question; don't stopwith a numeric solution that is merely the basis for answering the question.

;--- ---...._

( A. ftefer to the following table showing annual rates of return to investments in the common~k shares of two different companies in several different years, and the corresponding returns

in each year to investment in the broad equities market (that is, in the average common stock):Year KA KB KM2 0 0 9 8 . 4 % 5 . 5 % 5 . 1 %2 0 0 8 - 6 . 4 8 . 7 0 . 52 0 0 7 1 . 4 9 . 8 - 6 . 12 0 0 6 0 . 8 9 . 2 7 . 52 0 0 5 5 . 2 1 6 . 4 7 . 3

I 2 0 0 4 I 7 . 4 I 6 . 0 I 8 . 5Calculate to the nearest one-tenth of a percent the mean return and the (sample) standarddeviation for each of these series, and calculate to the nearest one-tenth the betas for stocks Aand B. Explain which stock you think should be the preferred investment for most investors,based only on the calculations you have done.


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(JLong-term U. S. Treasury bonds are currently yielding 4.8%. A certain stock which has a betaof 1.25 is currently priced to yield] 2.2%. What is indicated as the required rate of return on themarket? (Answer to the nearest tenth of a percent.)C. Jeremy Scully is trying to figure out what has been happening at Keal Corporation. In 2008,the Return on Equity (ROE) was 12.2%. He watched as the company in 2009 took on more debtand also increased its efficiency. These two things are' reflected in a decrease in the ratio of equityto total assets from 2.5 to 2.0, and an increase in total asset turnover from 3.0 to 3.1. He thoughtthese were good things, as greater efficiency is always good and using more fixed debt in a lowinterest rate market should boost the return on equity. But to his shock, he discovered that theROE has fallen to only 9.3%. Show else has happened at Keal, which explains and reconcilesthese ratios, and calculate by how much that factor changed.D . ~ friend of yours has been carrying a portfolio of stocks for a few years and it now has anag~tegate value of $2,285,000. The beta of the portfolio is 1.4, but there are three stocks in theportfolio, which altogether are worth $800,000, that have betas above 2.0. She is uncomfortablewith those high betas and is thinking of selling those three stocks and investing the money instocks that have an average beta equal to the rest of her portfolio. Calculate the beta of that otherpart of the portfolio.E. A married couple have decided to start saving for retirement (they have nothing in theirinvestment account now).,~~ill invest in equi~ies that will ~ield annually, on~age overany relevant span ofyear$z_1:5.7%jThey want to retire at the relatively early age of 55, 1\lothofthem being 30 this year. Basedon the longevity of their grandparents and others ~ secondgeneration before them, they believe that they have to save and invest enough so that they willhave income for 30 years after retirement, that is, to age 85. The amount of annual income thatthey project needing for reasonable comfort in retirement is(~Q~tJrhis amount will besupplemented by Social Security Old Age benefits. All the~guresare net of taxes and theeffects of inflation, which we will not consider here.) To provide that retirement income, theyplan at the time they retire to invest.their accumulated investment in annuities which will bear aneffective annual rate of interest of Qj%)rhey are calculating things on the basis of exhaustingtheir investment income at age 85; they are not planning on leaving any of it in their estates.Calculate the amount they must save each year during their working lives in order to reach theirplanned retirement income goals.


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(k 1 m x n

F V n = P V x 1 + m )F V k = P V x e k x n,nk E A R = ( 1 + kN~Mr -1PV = F V x ( 1 11 1 (1 + k ) 1 1

PmtPVperpetuilY = -k-

. .i = Ii* P i

iPmtPfY d = -k-DP --o - k s

Aks = a+ f 3 s . k MaCV = = z:k

k p =Ii*Wi1

NI Sales TAROE = x x-Sales TA Eq

%I1EBITDOL=---% 11 Sales%l1EPSDFL = %l1EBIT

-~Q-~~EPSSharevalue = -k-

T C ME E l T E B l T

E B T

MVLEDG = DA - -- x DLMVA1 1 kMVE= EDGx -x MVA1 + k

360( C D % J NetP- CDP1 + - 1100- C D %

~ ( CF , ( 1 + \ ) ' x tJ~ ( CF , ( 1 + \ ) ' J


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Fundamentals of Finance BUS 3310 - Spring A.D. 2010 - Prof. GasperSecond examination

This exam has two parts and the second part has two groups. Follow the specific instructions foreach part and each group. You are expected to use your calculator on the problems. This isotherwise a "closed book" exam. Laptops, cell phones, and all electronic devices except for yourcalculator must be turned off and kept off the table. You may leave when you are finished andtum in your answers. Do NOT tum in this copy of the questions, but keep it for your laterreference. The exam period ends promptly at 3:20 p.m.

PART I. 50 points. [Each question counts equally.]Instructions: Choose FIVE of the following seven questions and write a brief but completeanswer to every part of each of your chosen questions. Do not answer all seven questions; youwill be penalized if you do. "Bullet" lists or outlines are not acceptable. BE SURE to numbereach answer to correspond to the number of the question you are answering. Although it is notnecessary for you to present your answers in numeric order, it is more convenient for me if youare able to do so.

JQExPlain what a stock warrant is, and why a company might use warrants.~~~rite out the Security Market Line equation and state what each symbol stands for, and in"f'Wrticular define beta.\ ~Explain what are the shortcomings of the Internal Rate of Return that are overcome by thev~odified Internal Rate of Return.@efine exactly Net Present Value and the Internal Rate of Return.5. If a company is considering investing in a product line (purchasing equipment and supplies forproduction, distribution, and marketing), what particular piece of information (or datum), besidesthe cash flows themselves, must they have in order to evaluate the projected cash flows? Howwould the company be likely to modify this information or datum if it considered that the productline carried significantly greater risks than what the company is already doing?

What function does a bond trustee fulfill?7. The total yield on investment in a capital asset always has two parts. Name those parts andstate how each would be calculated in the case of the total yield on investment in a share ofcommon stock.

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Part II. Problems for calculation. 50 pointsFollow the specific directions in each group. Do not solve all the problems. Be sure to letter

each solution to correspond to the problem you are solving.You must show each step of your work. I must be able to reconstruct exactly what you did to

get to your solution. Credit will not be given for merely providing the correct answer, and will bereduced to the extent you skip showing steps in your work. Partial credit will be awarded to theextent the work was correct and properly shown.Show data entries, including signs. If you enter a series of data for one variable, it is not

necessary to specify every single entry. You may instead write, for example, "Enter percentagerates of return as X values, percentage probabilities as Y values in the DATA worksheet."Please double underline your final numeric solution. If the question asks whether, for example,

a certain stock should be purchased at the given price, be sure to answer the question as well asshowing the calculation on which you base your answer to the question.

Group A. Answer any THREE of the four problems in this group. [Each answer counts for6% points.]8. The following table shows the annual dividend record of the General Electric Company for thelast ten years. From these data, calculate the compounded annual rate of growth in the company'sdividends over these years.

Year Annualdividend2 0 0 9 $ 0 . 4 02 0 0 8 1 . 2 42 0 0 7 1 . 1 22 0 0 6 1 . 0 02 0 0 5 0 . 8 82 0 0 4 0 . 8 02 0 0 3 0 . 7 62 0 0 2 0 . 7 2

() ()42 0 0 0

~.6 I

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Use thefollowing data to answer either or both of problems 7 . and 8.The Danfield Distillery and Aluminum Siding Company issued some bonds two yearsago. They had a coupon of9.5% and a maturity of20 years. The bonds are callable, with~~um of 1.5%, and a lock-out period of five years. They are presently selling fort~~er $1,000 par value. - ','

~'alculate the yield to maturity and the yield to call on the bonds. (Answer to the nearest~Oth of a percent)f;o~ppose that three years from now yields have fallen to ,9.0%. If the investment banker fees~ould have to be paid to call the bonds and make a new issue totaled 2% of the issueproceeds, or $20 per $1,000 par value ofthe present bonds, would it make sense for the companyto call these bonds? (Hint: find what will be the value to the company in three years of thecoupon interest and redemption amount it will not have to pay ifit calls these bonds at that time.)

7)u are considering the purchase of stock shares. You are offered a choice between twol!:lrent stocks. From the following Information about the shares, calculate which is the betterinvestment.

/' "'\ I/ \ Linvern Industriestock Terzo GUlf Sights

I ICurrent market price $15.80 \ $? " l . 04i iMost recent quarterly dividend $0.10 i $0.054I IIi (4.2%xpected future constant growth rate \ 5.7%Number of shares outstanding \ 914,000 / \ 200

~vGroup B. Answer any TWO of the three problems in this group. [Each answer counts for 15points]12. Darrison and Fells, Inc. has one outstanding bond issue. It was issued exactly 12 years ago asa 30-year bond carrying an 11% coupon. It is presently priced at $982.70. The company'scommon stock shares are currently priced at $22.67. The company paid a dividend of 88 centslast year, and is expected to continue growing at a rate of about 12% annually into the indefinitefuture. The company's marginal tax rate is 35%. What is the spread (difference) between themarket yields on the company's debt and on its common stock shares?

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13. A logging company is considering the purchase of a feller buncher, a piece of tracked orwheeled equipment that grasps a tree by its trunk, saws it through close to the ground, and thenpiles it on a stack for removal by truck. The invoice price will be $225,000, and there will bedelivery charges totaling $4,000. At the end of its expected 4 years of economic life, it will havea salvage value estimated at $45,000. The machine will fell enough lumber each year to bringaddition annual revenues of $200,000. There will also be additional payroll costs, however-$70,000 - and repair and maintenance - $23,000 - annually. The company has a combinedmarginal tax rate of 40% and its marginal cost of capital is 9%. Calculate the net operating cashflow for this machine for the first year of operation.

Q,aemon Mills, Inc. is considering the purchase of a new power loom. The delivered and~led price will be $550,000. It is expected to yield an additional return of $180,000 in its.firstyear of operation, $150,00 in the next two years, and $120,000 annually for the remainder of itsuseful life. Although that useful life is expected to be eight years, the COO of the company saysthat the company should plan to sell the loom at th~~s, when it is estimated it willhave a salvage value of.$l.50,OQO.All of these figures are net of depreciation and taxes.Assuming that the company's marginal cost of capital is 9%, calculate the Net Present Value andInternal Rate of Return for this loom.

End of examinationP T F A SF K EEP TH!.5:COpy OF THE QUESTIONS F O R YOUR FUTURE USE

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Calculator TVM proficiency testNAME: ~C\=-l_Oc0n C~ , -- > _ :: t_ ;_ ; ,


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2. Jimmy is unhappy with the answer to the preceding problem. He wants to have the loan paidoffin 10 years so that he can begin realizing something from his ownership, not just a salary.Again assuming that the loan carries an interest rate of 5% and that the amount of the loan is$2,000,000 dollars, how much would the payment have to be each year to payoff the loan in 10years? (Answer to the nearest one thousand dollars.)

3. Jimmy is not happy with the answer to problem 2, either, because he feels sure the shop won'tclear that much each year. An alternative is for Jimmy to liquidate some of the stocks his motherleft to him when she died some years ago and invest that in the shop, thus reducing the amounthe must borrow from his uncle. If the rate of interest on the loan will still be 5% and the annualrepayment on the loan will be $190,000, how much must Jimmy invest of his own funds in orderto have the loan from his uncle paid off in 10 years? (Answer to the nearest one thousanddollars.)

I, \.J

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4. Again Jimmy is frustrated, because he finds that he has only $250,000 in stocks which hewould care to liquidate, so he can only reduce the loan from his uncle to $1,750,000. He wondersif perhaps he could make the whole thing work if his uncle would agree to take a lower interestrate on the loan. If the loan is thus reduced to $1,750,000 and the payment Jimmy can make tohis uncle on the loan is $190,000 a year, what interest rate would Jimmy's uncle have to accept inorder for the loan to be paid off in exactly ten years? (Answer to the nearest one-tenth of apercent.)

5. Again Jimmy has to cast about for another solution, because there is no chance that his unclewill accept an interest rate as low as the one you calculated as the answer to problem 4. In fact,when he broached the subject to his uncle, Jimmy found that his uncle is pretty well set on 5%_asthjpt~E~_~!La.teon any loan, that being, after all, appro\1i~11atelywhat the U.S. Treasury has topay for long-term money. So if the interes~{p.te must be 5%, and Jimmy can contribute enough ofhis own equity to get the loan down to $1,750,000, and with the payments assumed to be~


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Fundamentals of Finance - Tests

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