Question 1
Giraldo's Bass and Pro Shops offer a common stock that pays an annual dividend of $2.00 a share. The company has every intention of maintaining a constant dividend. How much are you willing to pay for one share of this stock if you want to earn 15 percent return on your equity investments?
Answer
A. $10.00
B. $13.33
C. $16.67
D. $18.88
Question 2
Helmke's International Mercenary Boutique offers a 15-year bond that pays a 4 percent coupon. The bond is currently priced at $757.60 and has a par value of $1,000. Coupons are paid quarterly. What is the yield to maturity for these bonds?
Answer
A. 5.00%
B. 6.55%
C. 9.10%
D. 10.39%
Question 3
Markels' Sky's The Limit Ceilings offers a 7 percent coupon bond with semi-annual payments and a yield to maturity of 8.70 percent. The bond matures in 9 years. What is the market price of a $1,000 face value bond?
Answer
A. $895.39
B. $965.18
C. $989.20
D. $1,058.11
Question 4
Prescilia's Multicultural Enterprises offers a 9-year, zero coupon bond. The yield to maturity is 8.8 percent. What is the current market price of this $1,000 face value bond?
Answer
A. $422.66
B. $460.67
C. $835.56
D. $919.12
Question 5
Consider an asset that costs $1,600,000. It is depreciated straight-line to zero over its eight-year tax life. What is the book value at the end of 6 years?
Answer
A. $200,000
B.$400,000
C.$600,000
D.$800,000
Question 6
The asset from the above problem can be sold at the end of six years for $200,000. If the relevant tax rate is 20 percent, the after tax cash salvage from the sale of this asset is:
Answer
$158,875
$180,000
$200,000 (since the ATCS can never exceed the sale price.)
$240,000
Question 7
An investment project provides cash inflows of $1433 per year for 8 years. If the initial cost is $5,000, the project payback period is:
Answer
a. 3.11 years
b. 3.49 years
c. 3.86 years
d. 4.21 years
Question 9
For the cash flows of the above question, what is the Internal Rate of Return (IRR)?
Answer
A. 9.18%
B. 11.00%
C. 22.07%
D. 75.28%
Question 10
For the project data of the above two problems, the Profitability Index is:
Answer
A. 0.93
B. 1.02
C. 1.58
D. 2.41
Question 11
For the project data of the above 3 problems, if there were 100,000 shares of stock outstanding and your company proceeded with this project, what would be the expected increase in stock price?
Answer
A. $0.06
B. $0.36
C. $0.42
D. $0.72
Question 12
Suppose you know a company's stock currently sells for $25 and the required return is 11%. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it is the company's policy to always maintain a constant growth rate in its dividends, what is the current dividend per share?
Answer
A. $1.14
B. $1.22
C. $1.30
D. $1.38
Question 13
The first comic book featuring Gitman was sold in 1962. In 2005, the estimated price for this comic book in good condition was $500. This represented a return of 21.91 percent per year. For this to be true, the comic book must have sold for how much originally?
Answer
A. 0.25 cents
B. A dime
C. 20 cents
D. About a dollar.