Question 1(10 Points) Since diversification is desired by all investors, firms should try to diversify the products and services they produce and provide.False. True. Question 2(10 points) The return on equity can never be greater than the return on assets of a firm.False. True. Question 3(15 points) Your boss has requested that you analyze two projects for him and pick the one you would recommend for investment. Both projects have the same risk because they are in the same business, and their cash flows are: Project A (Year 0: -$100,000; Year 1: $30,000; Year 2: $40,000; Year 3: $50,000; Year 4: $100,410); Project B (Year 0: -$100,000; Year 1: $0; Year 2: $10,000; Year 3: $10,000; Year 4 $225,500). Which project would you recommend?Project B. Either one. Project A. Do not have enough information to make a decision. Question 4(15 points) Vivian has just graduated from the University of Michigan with a BBA and must decide whether to start working now or to get an MBA. In either case, she intends to retire 20 years from today. An MBA requires an expenditure/tuition of $60,000 per year for each of the next two years, and Vivian will start working immediately after getting her MBA. Her discount rate for valuing cash flows is 7% per year. Assume that cash inflows occur at the end of the year, while the cash outflows (tuition payments) occur at the beginning of the year. If she goes to work now, she can expect a salary of $50,000 per year for each of the next 20 years. If she gets an MBA, her salary will be a constant $100,000 per year. What is the net present value (NPV) of her decision if Vivian decides to do an MBA? [Ignore taxes.] 232824 529700 762525 Question 5(15 points) You have been living in the house you bought 10 years ago for $500,000. At that time, you took out a loan for 80% of the house at a fixed rate 30-year loan at an annual stated rate of 6%. You have just paid off the 120th monthly payment. Interest rates have...
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