A stakeholder is any person or entity:   other than a stockholder or creditor who potentially has a financial interest in the firm.   that initially started a firm and currently has management control

A stakeholder is any person or entity:

other than a stockholder or creditor who potentially has a financial interest in the firm.

that initially started a firm and currently has management control over that firm.

owning bonds or other long-term debt issued by a corporation.

to whom the firm currently owes money.

owning shares of stock of a corporation.

A proxy fight occurs when:     

a group solicits voting rights to replace the board of directors.

the firm files for bankruptcy.

the board of directors disagree on the members of the management team.

a competitor offers to sell their ownership interest in the firm.

the firm is declared insolvent.

Which one of the following is least apt to help convince managers to work in the best interest of the stockholders?

management compensation tied to the market value of the firm’s stock

pay raises based on length of service

implementation of  a stock option plan

threat of a proxy fight

threat of a takeover of the firm by unsatisfied stockholders

Which one of the following actions by a financial manager creates an agency problem?

refusing to borrow money when doing so will create losses for the firm

increasing current costs in order to increase the market value of the stockholders' equity

agreeing to pay bonuses based on the market value of the company’s stock

agreeing to expand the company at the expense of stockholders' value

refusing to lower selling prices if doing so will reduce the net profits

5.

First City Bank pays 8 percent simple interest on its savings account balances, whereas Second City Bank pays 8 percent interest compounded annually.

If you made a $65,000 deposit in each bank, how much more money would you earn from your Second City Bank account at the end of 8 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer: $ 13,710.46

What is the present value of $13,450 to be received 5 years from today if the discount rate is 5.25 percent?

$10,413.86

$10,309.72

$10,960.59

$10,271.13

$12,809.52

What is the future value of $3,076 invested for 11 years at 4.50 percent compounded annually?

$4,974.04

$4,991.90

$4,692.38

$1,853.63

$5,009.75

A year ago, you purchased 500 shares of New Tech stock at a price of $49.03 per share. The stock pays an annual dividend of $.10 per share. Today, you sold all of your shares for $58.14 per share. What is your total dollar return on this investment?

$4,733

$4,753

$4,755

$4,853

$4,605

One year ago, you purchased 300 shares of IXC at a stock price of $22.05 per share, received $460 in dividends over the year, and today sold all of your shares for $29.32 per share. What was your dividend yield?

5.87%

6.95%

2.48%

192%

5.23%

Net working capital is defined as:

current assets plus stockholders' equity.

fixed assets minus long-term liabilities.

current assets plus fixed assets.

current assets minus current liabilities.

total assets minus total liabilities.

11.

Shelton, Inc., has sales of $398,000, costs of $186,000, depreciation expense of $51,000, interest expense of $32,000, and a tax rate of 40 percent. (Do not round intermediate calculations.)

What is the net income for the firm?

  Net income        $77,400

$  

Suppose the company paid out $41,000 in cash dividends. What is the addition to retained earnings?

  Addition to retained earnings    $36,400

$  

12. Which one of these accounts is classified as a current asset on the balance sheet?

intangible asset

accounts payable

inventory

preferred stock

net plant and equipment

The financial statement summarizing a firm's accounting performance over a period of time is the:

tax reconciliation statement.

statement of cash flows.

statement of equity.

income statement.

balance sheet.

A firm has sales of $1,310, net income of $192, net fixed assets of $502, and current assets of $262. The firm has $94 in inventory. What is the common-size statement value of inventory?

18.7 percent

12.3 percent

35.9 percent

45.5 percent

7.2 percent

Jessica's Boutique has cash of $52, accounts receivable of $52, accounts payable of $200, and inventory of $150. What is the value of the quick ratio?

.75

.26

1.79

.52

1.27

16.

 Galaxy United, Inc.2009 Income Statement($ in millions)  

  Net sales

$8,450     

  Less: Cost of goods sold

7,230     

  Less: Depreciation

    410     

  Earnings before interest and taxes

810     

  Less: Interest paid

      77     

  Taxable Income

733     

  Less: Taxes

    257     

  Net income

$   477     

  Galaxy United, Inc.2008 and 2009 Balance Sheets($ in millions)  

2008

2009

2008

2009

  Cash

$     110     

$   160      

  Accounts payable

 $1,110     

  $1,140    

  Accounts rec.

940     

790      

  Long-term debt

    920     

    1,304    

  Inventory

1,490     

1,530      

  Common stock

$3,180     

$2,980    

  Sub-total

$2,540     

$2,480      

  Retained earnings

    510     

686    

  Net fixed assets

3,180     

3,630      

  Total assets

$5,720     

$6,110      

  Total liab. & equity

$5,720    

$6,110    

What is the days' sales in receivables? (use 2009 values)

81.2

48.0

34.1

38.0

29.5

17. Al's Sport Store has sales of $3,060, costs of goods sold of $2,030, inventory of $549, and accounts receivable of $404. How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit?

113.6

97.4

116.3

65.5

98.7

18.

Galaxy United, Inc.2009 Income Statement($ in thousands)  

  Net sales

$5,710     

  Less: Cost of goods sold

4,050     

  Less: Depreciation

    430     

  Earnings before interest and taxes

1,230     

  Less: Interest paid

      28     

  Taxable Income

1,202     

  Less: Taxes

    421     

  Net income

$   781     

  Galaxy United, Inc.2008 and 2009 Balance Sheets($ in thousands)  

2008

2009

2008

2009

  Cash

$     60     

$   170      

  Accounts payable

 $1,340     

  $1,210    

  Accounts rec.

990     

830      

  Long-term debt

    720     

    530    

  Inventory

1,490     

1,960      

  Common stock

$3,110     

$3,299    

  Total

$2,540     

$2,960      

  Retained earnings

    910     

1,191    

  Net fixed assets

3,540     

3,270      

  Total assets

$6,080     

$6,230      

  Total liab. & equity

$6,080    

$6,230    

What is the debt-equity ratio for 2009?

.23

.46

.27

.39

.48

19. The maximum rate at which a firm can grow while maintaining a constant debt-equity ratio is best defined by its:

sustainable rate of growth.

rate of return on assets.

internal rate of growth.

rate of return on equity.

average historical rate of growth.

20. In the financial planning model, the external financing needed (EFN) as shown on a pro forma balance sheet is equal to the changes in assets:

plus the changes in both liabilities and equity.

minus the change in retained earnings.

minus the changes in both liabilities and equity.

plus the changes in liabilities minus the changes in equity.

minus the changes in liabilities.

Which account is least apt to vary directly with sales?

cost of goods sold

accounts receivable

accounts payable

notes payable

inventory

22.

Assume the following ratios are constant:

  Total asset turnover

3.30

  Profit margin

6.2

%

  Equity multiplier

1.50

  Payout ratio

22

%

What is the sustainable growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  Sustainable growth rate 23.94%

%  

23. If the Hunter Corp. has an ROE of 7 and a payout ratio of 15 percent, what is its sustainable growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  Sustainable growth rate    5.95%

%  

24 The most common means of financing a temporary cash deficit is a:

short-term unsecured bank loan.

long-term unsecured bank loan.

short-term issue of corporate bonds.

long-term secured bank loan.

short-term secured bank loan.

.25. The most common means of financing a temporary cash deficit is a:

short-term unsecured bank loan.

long-term unsecured bank loan.

short-term issue of corporate bonds.

long-term secured bank loan.

short-term secured bank loan.

26.

Consider the following financial statement information for the Rivers Corporation:

  Item

Beginning

Ending

  Inventory

$

10,500  

$

11,500 

  Accounts receivable

5,500  

5,800 

  Accounts payable

7,700  

8,100 

     Net sales

$

85,000

     Cost of goods sold

65,000

Calculate the operating and cash cycles. (Use 365 days a year. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

  Operating cycle 86.03days

days  

  Cash cycle 41.67days

days  

27.

Here are the most recent balance sheets for Country Kettles, Inc. Excluding accumulated depreciation, determine whether each item is a source or a use of cash, and the amount. (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32. Input all amounts as positive values):

COUNTRY KETTLES, INC.Balance SheetDecember 31, 2016

2015

2016

  Assets

  Cash

$

31,800

$

31,030

  Accounts receivable

71,300

74,560

  Inventories

62,200

64,625

  Property, plant, and equipment

161,000

172,600

    Less: Accumulated depreciation

(47,040

)

(51,300

)

  Total assets

$

279,260

$

291,515

  Liabilities and Equity

  Accounts payable

$

46,300

$

48,530

  Accrued expenses

7,680

6,740

  Long-term debt

27,000

30,100

  Common stock

30,000

35,400

  Accumulated retained earnings

168,280

170,745

  Total liabilities and equity

$

279,260

$

291,515

  Item

Source/Use

Amount

  Cash

(Click to select)UseSource

$

  Accounts receivable

(Click to select)UseSource

$

  Inventories

(Click to select)SourceUse

$

  Property, plant, and equipment

(Click to select)UseSource

$

  Accounts payable

(Click to select)UseSource

$

  Accrued expenses

(Click to select)UseSource

$

  Long-term debt

(Click to select)UseSource

$

  Common stock

(Click to select)UseSource

$

  Accumulated retained earnings

(Click to select)SourceUse

$

28. Ancient Industries just paid a dividend of $1.03 a share. The company announced today that it expects to pay $.90 a share next year and a final liquidating dividend of $18.44 in two years. What is one share of this stock worth today if the required rate of return is 16 percent?

$13.23

$14.48

$13.44

$13.60

$14.94

29. If a bond provides a real rate of return of 2.89 percent at a time when inflation is 3.21 percent, what is the nominal rate of return on the bond?

6.13%

6.10%

6.16%

6.19%

6.22%

30. Rosita's announced that its next annual dividend will be $1.65 a share and all future dividends will increase by 2.5 percent annually. What is the maximum amount you should pay to purchase a share of this stock if you require a 12 percent rate of return?

$16.94

$13.75

$17.80

$17.37

$15.46

The Fisher formula is expressed as _____ where R is the nominal rate, r is the real rate, and h is the inflation rate.

R = r ×h

1 + R = (1 + r) ×(1 + h)

1 + h = (1 + r) / (1 + R)

1 + R = (1 + r) / (1 + h)

r = R × h

32. Peter's Audio has a yield to maturity on its debt of 7.8 percent, a cost of equity of 12.4 percent, and a cost of preferred stock of 8 percent. The firm has 105,000 shares of common stock outstanding at a market price of $22 a share. There are 25,000 shares of preferred stock outstanding at a market price of $45 a share. The bond issue has a total face value of $1.5 million and sells at 98 percent of face value. If the tax rate is 34 percent, what is the weighted average cost of capital?

9.45%

8.54%

9.04%

9.22%

8.69%

33.

Filer Manufacturing has 7.3 million shares of common stock outstanding. The current share price is $43, and the book value per share is $3. The company also has two bond issues outstanding. The first bond issue has a face value of $68 million and a coupon rate of 6 percent and sells for 109.3 percent of par. The second issue has a face value of $58 million and a coupon rate of 6.5 percent and sells for 106.9 percent of par. The first issue matures in 7 years, the second in 28 years.

Suppose the company’s stock has a beta of 1.4. The risk-free rate is 2.1 percent, and the market risk premium is 6 percent. Assume that the overall cost of debt is the weighted average implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 34 percent. What is the company’s WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  WACC

%  

34. A firm’s WACC can be correctly used to discount the expected cash flows of a new project when that project:

will be financed with the same proportions of debt and equity as those currently used by the overall firm.

will be financed solely with new debt and internal equity.

will be financed solely with internal equity.

has the same level of risk as the firm’s current operations.

will be managed by the firm’s current managers.

35. The CAPM has an advantage over DDM because the CAPM:

is more simplistic. 

applies to firms that pay dividends. 

ignores changes in the overall market over time.

specifically considers a firm’s degree of operating leverage.

explicitly adjusts for risk.

36. The weighted average cost of capital for a firm is the:

discount rate which the firm should apply to all of the projects it undertakes.

overall rate which the firm must earn on its existing assets to maintain its value.

maximum rate which the firm should require on any projects it undertakes.

rate of return that the firm's preferred stockholders should expect to earn over the long term.

rate the firm should expect to pay on its next bond issue.

37The present value of an investment's future cash flows divided by the initial cost of the investment is called the:

average accounting return.

net present value.

profile period.

internal rate of return.

profitability index.

38 No matter how many forms of investment analysis you employ:

only the first three years of a project ever affect its final outcome.

a project will never be accepted unless the payback period is met.

the internal rate of return will always produce the most reliable results.

the initial costs will generally vary considerably from the estimated costs.

the actual results from a project may vary significantly from the expected results.

An independent investment is acceptable if the profitability index (PI) of the investment is:

greater than one.

greater than the internal rate of return.

greater than a pre-specified rate of return.

less than one.

less than the internal rate of return.

40. Jamestown Ltd. currently produces boat sails and is considering expanding its operations to include awnings. The expansion would require the use of land the firm purchased three years ago at a cost of $142,000 that is currently valued at $137,500. The expansion could use some equipment that is currently sitting idle if $6,700 of modifications were made to it. The equipment originally cost $139,500 six years ago, has a current book value of $24,700, and a current market value of $39,000. Other capital purchases costing $780,000 will also be required. What is the amount of the initial cash flow for this expansion project?

$927,800

$953,400

$963,200

$948,900

$962,300

41. The net present value method of capital budgeting analysis does all of the following except:

incorporate risk into the analysis.

discount all future cash flows.

use all of a project's cash flows.

consider all relevant cash flow information.

provide a specific anticipated rate of return.

42

Flatte Restaurant is considering the purchase of a $10,100 soufflé maker. The soufflé maker has an economic life of four years and will be fully depreciated by the straight-line method. The machine will produce 2,050 soufflés per year, with each costing $2.45 to make and priced at $5.30. Assume that the discount rate is 14 percent and the tax rate is 40 percent.

What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  NPV

$  

$12,121.43  

Should the company make the purchase?

Yes

No

43. A project costing $6,200 initially should produce cash inflows of $2,860 a year for three years. After the three years, the project will be shut down and will be sold at the end of Year 4 for an estimated net cash amount of $3,300. What is the net present value of this project if the required rate of return is 11.3 percent?

$935.56

 $2,903.19

$2,474.76

$3,011.40

$1,980.02

44 What is the net present value of a project that has an initial cash outflow of $7,670 and cash inflows of $1,280 in Year 1, $6,980 in Year 3, and $2,750 in Year 4? The discount rate is 12.5 percent.

$249.65

$68.20

$86.87

$371.02

 $270.16

45. A proposed project costs $300 and has cash flows of $80, $200, $75, and $90 for Years 1 to 4, respectively. Because of its high risk, the project has been assigned a discount rate of 16 percent. In dollars, how much will this project return in today’s dollars for every $1 invested?

$1.03

A stakeholder is any person or entity:

other than a stockholder or creditor who potentially has a financial interest in the firm.

that initially started a firm and currently has management control over that firm.

owning bonds or other long-term debt issued by a corporation.

to whom the firm currently owes money.

owning shares of stock of a corporation.

A proxy fight occurs when:     

a group solicits voting rights to replace the board of directors.

the firm files for bankruptcy.

the board of directors disagree on the members of the management team.

a competitor offers to sell their ownership interest in the firm.

the firm is declared insolvent.

Which one of the following is least apt to help convince managers to work in the best interest of the stockholders?

management compensation tied to the market value of the firm’s stock

pay raises based on length of service

implementation of  a stock option plan

threat of a proxy fight

threat of a takeover of the firm by unsatisfied stockholders

Which one of the following actions by a financial manager creates an agency problem?

refusing to borrow money when doing so will create losses for the firm

increasing current costs in order to increase the market value of the stockholders' equity

agreeing to pay bonuses based on the market value of the company’s stock

agreeing to expand the company at the expense of stockholders' value

refusing to lower selling prices if doing so will reduce the net profits

5.

First City Bank pays 8 percent simple interest on its savings account balances, whereas Second City Bank pays 8 percent interest compounded annually.

If you made a $65,000 deposit in each bank, how much more money would you earn from your Second City Bank account at the end of 8 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer: $ 13,710.46

What is the present value of $13,450 to be received 5 years from today if the discount rate is 5.25 percent?

$10,413.86

$10,309.72

$10,960.59

$10,271.13

$12,809.52

What is the future value of $3,076 invested for 11 years at 4.50 percent compounded annually?

$4,974.04

$4,991.90

$4,692.38

$1,853.63

$5,009.75

A year ago, you purchased 500 shares of New Tech stock at a price of $49.03 per share. The stock pays an annual dividend of $.10 per share. Today, you sold all of your shares for $58.14 per share. What is your total dollar return on this investment?

$4,733

$4,753

$4,755

$4,853

$4,605

One year ago, you purchased 300 shares of IXC at a stock price of $22.05 per share, received $460 in dividends over the year, and today sold all of your shares for $29.32 per share. What was your dividend yield?

5.87%

6.95%

2.48%

192%

5.23%

Net working capital is defined as:

current assets plus stockholders' equity.

fixed assets minus long-term liabilities.

current assets plus fixed assets.

current assets minus current liabilities.

total assets minus total liabilities.

11.

Shelton, Inc., has sales of $398,000, costs of $186,000, depreciation expense of $51,000, interest expense of $32,000, and a tax rate of 40 percent. (Do not round intermediate calculations.)

What is the net income for the firm?

  Net income        $77,400

$  

Suppose the company paid out $41,000 in cash dividends. What is the addition to retained earnings?

  Addition to retained earnings    $36,400

$  

12. Which one of these accounts is classified as a current asset on the balance sheet?

intangible asset

accounts payable

inventory

preferred stock

net plant and equipment

The financial statement summarizing a firm's accounting performance over a period of time is the:

tax reconciliation statement.

statement of cash flows.

statement of equity.

income statement.

balance sheet.

A firm has sales of $1,310, net income of $192, net fixed assets of $502, and current assets of $262. The firm has $94 in inventory. What is the common-size statement value of inventory?

18.7 percent

12.3 percent

35.9 percent

45.5 percent

7.2 percent

Jessica's Boutique has cash of $52, accounts receivable of $52, accounts payable of $200, and inventory of $150. What is the value of the quick ratio?

.75

.26

1.79

.52

1.27

16.

 Galaxy United, Inc.2009 Income Statement($ in millions)  

  Net sales

$8,450     

  Less: Cost of goods sold

7,230     

  Less: Depreciation

    410     

  Earnings before interest and taxes

810     

  Less: Interest paid

      77     

  Taxable Income

733     

  Less: Taxes

    257     

  Net income

$   477     

  Galaxy United, Inc.2008 and 2009 Balance Sheets($ in millions)  

2008

2009

2008

2009

  Cash

$     110     

$   160      

  Accounts payable

 $1,110     

  $1,140    

  Accounts rec.

940     

790      

  Long-term debt

    920     

    1,304    

  Inventory

1,490     

1,530      

  Common stock

$3,180     

$2,980    

  Sub-total

$2,540     

$2,480      

  Retained earnings

    510     

686    

  Net fixed assets

3,180     

3,630      

  Total assets

$5,720     

$6,110      

  Total liab. & equity

$5,720    

$6,110    

What is the days' sales in receivables? (use 2009 values)

81.2

48.0

34.1

38.0

29.5

17. Al's Sport Store has sales of $3,060, costs of goods sold of $2,030, inventory of $549, and accounts receivable of $404. How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit?

113.6

97.4

116.3

65.5

98.7

18.

Galaxy United, Inc.2009 Income Statement($ in thousands)  

  Net sales

$5,710     

  Less: Cost of goods sold

4,050     

  Less: Depreciation

    430     

  Earnings before interest and taxes

1,230     

  Less: Interest paid

      28     

  Taxable Income

1,202     

  Less: Taxes

    421     

  Net income

$   781     

  Galaxy United, Inc.2008 and 2009 Balance Sheets($ in thousands)  

2008

2009

2008

2009

  Cash

$     60     

$   170      

  Accounts payable

 $1,340     

  $1,210    

  Accounts rec.

990     

830      

  Long-term debt

    720     

    530    

  Inventory

1,490     

1,960      

  Common stock

$3,110     

$3,299    

  Total

$2,540     

$2,960      

  Retained earnings

    910     

1,191    

  Net fixed assets

3,540     

3,270      

  Total assets

$6,080     

$6,230      

  Total liab. & equity

$6,080    

$6,230    

What is the debt-equity ratio for 2009?

.23

.46

.27

.39

.48

19. The maximum rate at which a firm can grow while maintaining a constant debt-equity ratio is best defined by its:

sustainable rate of growth.

rate of return on assets.

internal rate of growth.

rate of return on equity.

average historical rate of growth.

20. In the financial planning model, the external financing needed (EFN) as shown on a pro forma balance sheet is equal to the changes in assets:

plus the changes in both liabilities and equity.

minus the change in retained earnings.

minus the changes in both liabilities and equity.

plus the changes in liabilities minus the changes in equity.

minus the changes in liabilities.

Which account is least apt to vary directly with sales?

cost of goods sold

accounts receivable

accounts payable

notes payable

inventory

22.

Assume the following ratios are constant:

  Total asset turnover

3.30

  Profit margin

6.2

%

  Equity multiplier

1.50

  Payout ratio

22

%

What is the sustainable growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  Sustainable growth rate 23.94%

%  

23. If the Hunter Corp. has an ROE of 7 and a payout ratio of 15 percent, what is its sustainable growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  Sustainable growth rate    5.95%

%  

24 The most common means of financing a temporary cash deficit is a:

short-term unsecured bank loan.

long-term unsecured bank loan.

short-term issue of corporate bonds.

long-term secured bank loan.

short-term secured bank loan.

.25. The most common means of financing a temporary cash deficit is a:

short-term unsecured bank loan.

long-term unsecured bank loan.

short-term issue of corporate bonds.

long-term secured bank loan.

short-term secured bank loan.

26.

Consider the following financial statement information for the Rivers Corporation:

  Item

Beginning

Ending

  Inventory

$

10,500  

$

11,500 

  Accounts receivable

5,500  

5,800 

  Accounts payable

7,700  

8,100 

     Net sales

$

85,000

     Cost of goods sold

65,000

Calculate the operating and cash cycles. (Use 365 days a year. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

  Operating cycle 86.03days

days  

  Cash cycle 41.67days

days  

27.

Here are the most recent balance sheets for Country Kettles, Inc. Excluding accumulated depreciation, determine whether each item is a source or a use of cash, and the amount. (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32. Input all amounts as positive values):

COUNTRY KETTLES, INC.Balance SheetDecember 31, 2016

2015

2016

  Assets

  Cash

$

31,800

$

31,030

  Accounts receivable

71,300

74,560

  Inventories

62,200

64,625

  Property, plant, and equipment

161,000

172,600

    Less: Accumulated depreciation

(47,040

)

(51,300

)

  Total assets

$

279,260

$

291,515

  Liabilities and Equity

  Accounts payable

$

46,300

$

48,530

  Accrued expenses

7,680

6,740

  Long-term debt

27,000

30,100

  Common stock

30,000

35,400

  Accumulated retained earnings

168,280

170,745

  Total liabilities and equity

$

279,260

$

291,515

  Item

Source/Use

Amount

  Cash

(Click to select)UseSource

$

  Accounts receivable

(Click to select)UseSource

$

  Inventories

(Click to select)SourceUse

$

  Property, plant, and equipment

(Click to select)UseSource

$

  Accounts payable

(Click to select)UseSource

$

  Accrued expenses

(Click to select)UseSource

$

  Long-term debt

(Click to select)UseSource

$

  Common stock

(Click to select)UseSource

$

  Accumulated retained earnings

(Click to select)SourceUse

$

28. Ancient Industries just paid a dividend of $1.03 a share. The company announced today that it expects to pay $.90 a share next year and a final liquidating dividend of $18.44 in two years. What is one share of this stock worth today if the required rate of return is 16 percent?

$13.23

$14.48

$13.44

$13.60

$14.94

29. If a bond provides a real rate of return of 2.89 percent at a time when inflation is 3.21 percent, what is the nominal rate of return on the bond?

6.13%

6.10%

6.16%

6.19%

6.22%

30. Rosita's announced that its next annual dividend will be $1.65 a share and all future dividends will increase by 2.5 percent annually. What is the maximum amount you should pay to purchase a share of this stock if you require a 12 percent rate of return?

$16.94

$13.75

$17.80

$17.37

$15.46

The Fisher formula is expressed as _____ where R is the nominal rate, r is the real rate, and h is the inflation rate.

R = r ×h

1 + R = (1 + r) ×(1 + h)

1 + h = (1 + r) / (1 + R)

1 + R = (1 + r) / (1 + h)

r = R × h

32. Peter's Audio has a yield to maturity on its debt of 7.8 percent, a cost of equity of 12.4 percent, and a cost of preferred stock of 8 percent. The firm has 105,000 shares of common stock outstanding at a market price of $22 a share. There are 25,000 shares of preferred stock outstanding at a market price of $45 a share. The bond issue has a total face value of $1.5 million and sells at 98 percent of face value. If the tax rate is 34 percent, what is the weighted average cost of capital?

9.45%

8.54%

9.04%

9.22%

8.69%

33.

Filer Manufacturing has 7.3 million shares of common stock outstanding. The current share price is $43, and the book value per share is $3. The company also has two bond issues outstanding. The first bond issue has a face value of $68 million and a coupon rate of 6 percent and sells for 109.3 percent of par. The second issue has a face value of $58 million and a coupon rate of 6.5 percent and sells for 106.9 percent of par. The first issue matures in 7 years, the second in 28 years.

Suppose the company’s stock has a beta of 1.4. The risk-free rate is 2.1 percent, and the market risk premium is 6 percent. Assume that the overall cost of debt is the weighted average implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 34 percent. What is the company’s WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  WACC

%  

34. A firm’s WACC can be correctly used to discount the expected cash flows of a new project when that project:

will be financed with the same proportions of debt and equity as those currently used by the overall firm.

will be financed solely with new debt and internal equity.

will be financed solely with internal equity.

has the same level of risk as the firm’s current operations.

will be managed by the firm’s current managers.

35. The CAPM has an advantage over DDM because the CAPM:

is more simplistic. 

applies to firms that pay dividends. 

ignores changes in the overall market over time.

specifically considers a firm’s degree of operating leverage.

explicitly adjusts for risk.

36. The weighted average cost of capital for a firm is the:

discount rate which the firm should apply to all of the projects it undertakes.

overall rate which the firm must earn on its existing assets to maintain its value.

maximum rate which the firm should require on any projects it undertakes.

rate of return that the firm's preferred stockholders should expect to earn over the long term.

rate the firm should expect to pay on its next bond issue.

37The present value of an investment's future cash flows divided by the initial cost of the investment is called the:

average accounting return.

net present value.

profile period.

internal rate of return.

profitability index.

38 No matter how many forms of investment analysis you employ:

only the first three years of a project ever affect its final outcome.

a project will never be accepted unless the payback period is met.

the internal rate of return will always produce the most reliable results.

the initial costs will generally vary considerably from the estimated costs.

the actual results from a project may vary significantly from the expected results.

An independent investment is acceptable if the profitability index (PI) of the investment is:

greater than one.

greater than the internal rate of return.

greater than a pre-specified rate of return.

less than one.

less than the internal rate of return.

40. Jamestown Ltd. currently produces boat sails and is considering expanding its operations to include awnings. The expansion would require the use of land the firm purchased three years ago at a cost of $142,000 that is currently valued at $137,500. The expansion could use some equipment that is currently sitting idle if $6,700 of modifications were made to it. The equipment originally cost $139,500 six years ago, has a current book value of $24,700, and a current market value of $39,000. Other capital purchases costing $780,000 will also be required. What is the amount of the initial cash flow for this expansion project?

$927,800

$953,400

$963,200

$948,900

$962,300

41. The net present value method of capital budgeting analysis does all of the following except:

incorporate risk into the analysis.

discount all future cash flows.

use all of a project's cash flows.

consider all relevant cash flow information.

provide a specific anticipated rate of return.

42

Flatte Restaurant is considering the purchase of a $10,100 soufflé maker. The soufflé maker has an economic life of four years and will be fully depreciated by the straight-line method. The machine will produce 2,050 soufflés per year, with each costing $2.45 to make and priced at $5.30. Assume that the discount rate is 14 percent and the tax rate is 40 percent.

What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  NPV

$  

$12,121.43  

Should the company make the purchase?

Yes

No

43. A project costing $6,200 initially should produce cash inflows of $2,860 a year for three years. After the three years, the project will be shut down and will be sold at the end of Year 4 for an estimated net cash amount of $3,300. What is the net present value of this project if the required rate of return is 11.3 percent?

$935.56

 $2,903.19

$2,474.76

$3,011.40

$1,980.02

44 What is the net present value of a project that has an initial cash outflow of $7,670 and cash inflows of $1,280 in Year 1, $6,980 in Year 3, and $2,750 in Year 4? The discount rate is 12.5 percent.

$249.65

$68.20

$86.87

$371.02

 $270.16

45. A proposed project costs $300 and has cash flows of $80, $200, $75, and $90 for Years 1 to 4, respectively. Because of its high risk, the project has been assigned a discount rate of 16 percent. In dollars, how much will this project return in today’s dollars for every $1 invested?

$1.03

$1.05

$.99

$1.01

$.97

I wish you all the best Chancellor358! I hope you get 45 out of 45. Thank you so much and all the best in your studies.

$1.05

$.99

$1.01

$.97

I wish you all the best Chancellor358! I hope you get 45 out of 45. Thank you so much and all the best in your studies.