Question 1:
FlavR Co stock has a beta of 2.01, the current risk-free rate is 2.01 percent, and the expected return on the market is 9.01 percent. What is FlavR Co's cost of equity?
11.02%
20.12%
16.08%
13.03%
Question 2:
Rose has preferred stock selling for 98.8 percent of par that pays a 9.2 percent annual coupon. What would be Rose's component cost of preferred stock?
9.20%
9.09%
4.66%
9.31%
Question 3:
Your company has spent $310,000 on research to develop a new computer game. The firm is planning to spend $51,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $6,100. The machine has an expected life of 10 years, a $36,000 estimated resale value, and falls under the MACRS 15-Year class life. Revenue from the new game is expected to be $410,000 per year, with costs of $210,000 per year. The firm has a tax rate of 40 percent, an opportunity cost of capital of 12 percent, and it expects net working capital to increase by $61,000 at the beginning of the project. What will be the net cash flow for year one of this project?
$1.142
$121,142
$-58,242
$120,000
Question 4:
Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown below. The required rate of return on projects of both of their risk class is 11 percent. and that the maximum allowable payback and discounted. payback statistic for the projects are 2 and 3 years. respectively.
|
Time:
|
0
|
1
|
2
|
3
|
|
Project A Cash Flow
|
-38.000
|
28.000
|
48.000
|
19,000
|
|
Project B Cash Flow
|
-48.000
|
28.000
|
38.000
|
68.000
|
Use the discounted payback decision rule to evaluate these projects: which one(s) should it be accepted or rejected?
accept both A and 6
accept neither A nor B
reject A. accept B
accept A, reject B
Question 5:
Rose Resources faces a smooth annual demand for cash of $11.9 million; incurs transaction costs of $420 every time they sell marketable securities, and can earn 5.8 percent on their marketable securities. What will be their optimal cash replenishment level? (Round your answer to 2 decimal places.)
$34,886.08
$29,355.14
$293,551.38
$415,144.35
Question 6:
Suppose a firm has had the historical sales figures shown as follows. What would be the forecast for next year's sales using regression to estimate a trend?
| Year |
2008 |
2009 |
2010 |
2011 |
2012 |
| Sales |
$12,000,000 |
$11,800,000 |
$12,200,000 |
$12,400,000 |
$12,300,000 |
$12,000,000
$12,140,000
$12,300,000
$12,500,000
Question 7:
Suppose a firm has had the historical sales figures shown as follows. What would be the forecast for next year's sales using regression to estimate a trend?
| Year |
2008 |
2009 |
2010 |
2011 |
2012 |
| Sales |
$800,000 |
$810,000 |
$825,000 |
$835,000 |
$850,000 |
$850,000
$860,000
$861,500
$874,000
Question 8:
Your company doesn't face any taxes and has $756 million in assets, currently financed entirely with equity. Equity is worth $50.60 per share, and book value of equity is equal to market value of equity. Also, let's assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below:
| State |
Recession |
Average |
Boom |
| Probability of State |
0.1 |
0.75 |
0.15 |
| Expect EBIT in State |
$106 million |
$181 million |
$241 million |
The firm is considering switching to a 15-percent debt capital structure, and has determined that they would have to pay a 11 percent yield on perpetual debt in either event. What will be the standard deviation in EPS if they switch to the proposed capital structure? (Round your intermediate calculations and final answer to 2 decimal places except calculation of number of shares which should be rounded to nearest whole number.)
2.61
13.39
12.87
6.21
Question 9:
Balloons Inc normally pays a quarterly dividend. The last such dividend paid was $1.25, all future quarterly dividends are expected to grow at 7 percent, and the firm faces a required rate of return on equity of 14 percent. If the firm just announced that the next dividend will be an extraordinary dividend of $2.45 per share that is not expected to affect any other future dividends. what should the stock price be?
$17.15
$20.09
$19.11
$18.77
Question 10:
Cakulating Costs of Issuing Debt Home Improvement, Inc. needs to raise $3.80 million to finance plant expansion. In discussions wrth its investment bank, Home Improvement learns that the bankers recommend a debt issue with a gross proceeds of $1,000 per bond and they will charge an underwriter's spread of 9 percent of the gross proceeds. How many bonds will Home Improvement need to sell in order to receive the $3.80 million they need?
4,142,000
4,176
4.142
4,175,824
Question 11:
Under/Over Valued Stock A manager believes his firm will earn a 11.20 percent return next year. His firm has a beta of 1.38, the expected return on the market is 8.8 percent, and the risk-free rate is 3.8 percent. Compute the return the firm should earn given its level of risk and determine whether the manager is saying the firm is under-valued or over-valued.
10.70%, over-valued
15.944%, under-valued
15.944%, over-valued
10.70%, under-valued
Question 12:
Portfolio Beta You own $1,300 of City Steel stock that has a beta of 1.56. You also own $5,600 of Rent•N•Co (beta =1.86) and $4,600 of Lincoln Corporation (beta = .96). What is the beta of your portfolio (closest to)?
1.47
4.38
1.00
2.79
Question 13:
Average Return The past five monthly returns for K and Company are 5.85 percent, 5.73 percent -.45 percent, 4.85 percent, and 8.85 percent. What is the average monthly return?
5.146%
4.966%
2.144%
2.069%
Question 14:
Value a Constant Growth Stock Financial analysts forecast Best Buy Company (BBY) growth for the future to be 17.00 percent. Their recent dividend was $2.09. What is the value of their stock when the required rate of return is 18.13 percent?
$16.41
82164
$216.40
$184.96
Question 15:
TIPS Capital Return Consider a 2.75% TIPS with an issue CPI reference of 185.30. At the beginning of this year, the CPI was 197.60 and was at 202.70 at the end of the year. What was the capital gain of the TIPS in dollars? (Round your answer to 2 decimal places.)
$27.52
$5.10
$12.30
$17.40
Question 16:
Forecasting Interest Rates On May 23, 20XX. the existing or current (spot) one-year, two-year, three-year. and four-year zero-coupon Treasury security rates were as follows:
1R1 = 5.45%. 1R2 = 5.95%, 1R3 = 6.45%, 1R4 = 6.65%
Using the unbiased expectations theory. whet is the one-year forward rate on zero-coupon Treasury bonds for year four as of May 23. 20XX
22.69%
6.65%
6.125%
7 25%
Question 17:
Present Value of a Perpetuity A perpetuity pays $210 per year and interest rates are 6.6 percent. How much would its value change if interest rates increased to 9.1 percent?
$874.13 increase
$525.00 increase
$874.13 decrease
$525.00 decrease
Question 18:
Interest-on-Interest Consider a $2,000 deposit earning 6 percent interest per year for 5 years. How much total interest is earned on the original deposit (excluding interest earned on interest)?
$76.45
$676.45
$600.00
$60.00
Question 19:
Moving Cash Flows What is the value in year 6 of a $2,700 cash flow made in year 10 when interest rates are 9.9 percent?
$1,532.42
$1.050.48
$1,850.86
$2,432.70
Question 20:
Liquidity and Asset Management Ratios Oasis Products, Inc. has current liabilities = $10.3 million, current ratio =1.80 times, inventory turnover ratio =12.3 times, average collection period = 23 days, and sales = $103 million. What is the value of their cash and marketable securities? (Consider a 365 days a year.)
$3,675,605
$14,998,379
$18,540,000
$8,373,984
Question 21:
Debt Management Ratios Zoe's Dog Toys, Inc. reported a debt to equity ratio of 1.40 times at the end of 2008. If the firm's total assets at year-end were $50.8 million, how much of their assets are financed with equity?
$71.12 m
$29.63 m
$36.29 m
$21.17 m
Question 22:
Free Cash Flow You are considering an investment in Crew Cut, Inc. and want to evaluate the firm's free cash flow. From the income statement, you see that Crew Cut earned an EBIT of $23.18 million, paid taxes of $3.82 million, and its depreciation expense was $7.82 million. Crew Cut's gross fixed assets increased by $10.18 million from 2007 to 2008. The firm's current assets increased by $6.18 million and spontaneous current liabilities increased by $3.82 million. What is Crew Cut's operating cash flow, investment in operating capital and free cash flow for 2008, respectively in millions?
$23.18, $11.64, $11.54
$23.18, $10.18, $13.00
$27.18, $10.18, $17.00
$27.18, $12.54, $14.64
Question 23:
Balance Sheet You are evaluating the balance sheet for Cypress Corporation. From the balance sheet you find the following balances: Cash and marketable securities = $560,000, Accounts receivable = $760,000, Inventory = $460,000, Accrued wages and taxes = $46,000, Accounts payable = $160,000, and Notes payable = $960,000. What is Cypress's net working capital?
$1,166,000
$1,780,000
$2,946,000
$614,000
Question 24:
Which of the following is legal duty between two parties where one party must act in the interest of the other party?
Agency theory
Angel investor
Fiduciary
Investment banker
Question 25:
Which of the following can create ethical dilemmas between corporate managers and stockholders?
Agency relationship
Auditors
Boards of directors
Venture capitalist