fin202
d
: Ambassador Corp. sells household cleaners producing a revenue stream that has remained unchanged in the last few years. The firm does not expect any change in its sales or earnings in the next several years. The stock is currently selling at $46.88. If the required rate of return is 16 percent, what is the dividend paid by this company? a. $2.93 b. $4.65 c. $6.89 d. $7.50
c
: Kleine Toymakers is introducing a new line of robotic toys, which it expects to grow their earnings at a much faster rate than normal over the next three years. After paying a dividend of $2.00 last year, it does not expect to pay a dividend for the next three years. After that Kleine plans to pay a dividend of $4.00 in year 4 and then increase the dividend at a rate of 10 percent in years 5 and 6. What is the present value of the dividends to be paid out over the next six years if the required rate of rat of return is 15 percent? a. $13.24 b. $12.00 c. $6.57 d. $10.24
a
: Lincoln, Inc. expects to pay no dividends for the next four years. It has projected a growth rate of 35 percent for the next four years. After four years, the firm will grow at a constant rate of 6 percent. Its first dividend to be paid in year 5 will be worth $4.25. If your required rate of return is 20 percent, what is the stock worth today? a. $14.64 b. $32.18 c. $36.43 d. $21.82
b
: Miles Cyprus Corp. purchased a truck that currently has a book value of $1,000. If the firm sells the truck for $5,000 today, then what is the amount of cash that it will net after taxes if the firm is subject to a 30 percent marginal tax rate? A) $1,200 B) $3,800 C) $4,000 D) $5,000
a
: Stag Corp. will pay dividends of $4.75, $5.25, $5.75, and $7 for the next four years. Thereafter, the company expects its growth rate to be at a constant rate of 7 percent. If the required rate of return is 15 percent, what is the current market price of the stock? a. $69.41 b. $93.63 c. $57.54 d. $80.29
b
: Zephyr Electricals is a company with no growth potential. Its last dividend was $4.50, and it expects no change in future dividends. What is the current price of the company's stock given a discount rate of 9 percent? a. $40.50 b. $50.00 c. $45.00 d. $500.00
a
A communications company pays annual dividends of $8.50 with no possibility of it changing in the next several years. If the firm's stock is currently selling at $60.71, what is the required rate of return? (Round to nearest whole number.) a. 14% b. 16% c. 13% d. 15%
b
A lottery winner was given a perpetual payment of $11, 444. She could invest the cash flows at 7 percent. What is the present value of this perpetuity? (Round to the nearest dollar.) $112,344 $163,486 $191,708 $201,356
c
Babaloo Nightclubs. purchased a disco mirror that currently has a book value of $10,000. If Babaloo sells the disco mirror for $500 today, then what is the amount of cash that it will net after taxes if the firm is subject to a 39 percent marginal tax rate? A) $500 B) $3,705 C) $4,205 D) $9,500
a
Binder Corp. has invested in new machinery at a cost of $1,450,000. This investment is expected to produce cash flows of $640,000, $715,250, $823,330, and $907,125 over the next four years. What is the payback period for this project? 2.12 years 1.88 years 4.00 years 3.00 years.
b
BioSci, Inc., a biotech firm has forecast the following growth rates for the next three years: 30 percent, 25 percent, and 20 percent. The company then expects to grow at a constant rate of 7 percent for the next several years. The company paid a dividend of $2.00 last week. If the required rate of return is 16 percent, what is the market value of this stock? a. $51.03 b. $36.86 c. $56.12 d. $46.37
a
Briar Corp is issuing a 10-year bond with a coupon rate of 7 percent. The interest rate for similar bonds is currently 9 percent. Assuming annual payments, what is the present value of the bond? (Round to the nearest dollar.) $872 $1,066 $990 $945
c
Brittany Willis is looking to invest for retirement, which she hopes will be in 20 years. She is looking to invest $22,500 today in U.S. Treasury bonds that will earn interest at 6.25 percent annually. How much will she have at the end of 20 years? (Round to the nearest dollar.) $68,870 $50,625 $75,642 None of the above
b
Carlos Menendez is planning to invest $3,500 every year for the next six years in an investment paying 12 percent annually. What will be the amount he will have at the end of the six years? (Round to the nearest dollar.) $21,000 $28,403 $24,670 $26,124
a
Cleargen, a detergent manufacturer, has announced this year's net income as $832,500. It expects its net earnings to grow at a rate of 15 percent per year for the next two years, before dropping to 12 percent for each of the following two years. What is the firm's net income after four years? (Round to the nearest dollar.) $1,381,071 $1,266,128 $1,233,099 $1,072,260
c
Cleveland Millicrum is considering when to harvest its moldy bread supply for antibiotics. It has calculated that the current NPV dollars for harvesting the bread are increasing according to the following schedule. When should the firm harvest the bread? The cost of capital for the firm is 14 percent. NPV increase if harvested next year over that of harvesting now 25% NPV increase if harvested year 2 over that of harvesting year 1 20% NPV increase if harvested year 3 over that of harvesting year 2 17% NPV increase if harvested year 4 over that of harvesting year 3 13% NPV increase if harvested year 5 over that of harvesting year 4 10%
a
Cortez, Inc., is expecting to pay out a dividend of $2.50 next year. After that it expects its dividend to grow at 7 percent for the next four years. What is the present value of dividends over the next five-year period if the required rate of return is 10 percent? a. $10.76 b. $9.80 c. $11.88 d. $11.50
c
Desire Cosmetics borrowed $152,300 from a bank for three years. If the quoted rate (APR) is 11.75 percent, and the compounding is daily, what is the effective annual rate (EAR)? (Round to one decimal place.) 11.75% 14.3% 12.5% 11.6%
b
Discounted payback: Carmen Electronics bought new machinery for $5 million. This is expected to result in additional cash flows of $1.2 million over the next seven years. The firm's cost of capital is 12 percent. What is the discounted payback period for this project? If the firm's acceptance period is five years, will this project be accepted? A) 5.4 years; no B) 6.1 years; no C) 4.6 years; yes D) 4.2 years; yes
c
Each quarter, Transam, Inc., pays a dividend on its perpetual preferred stock. Today, the stock is selling at $83.45. If the required rate of return for such stocks is 10.5 percent, what is the quarterly dividend paid by this firm? a. $8.76 b. $10.50 c. $2.19 d. $2.63 Ans: c
c
Effective annual yield: Suppose an investor earned a semiannual yield of 6.4 percent on a bond paying coupons twice a year. What is the effective annual yield (EAY) on this investment? 12.80% 6.40% 6.50% None of the above
d
FireRock Wheel Corp is evaluating a project in which there is a 40 percent probability of revenues totaling $3 million and a 60 percent probability of revenues totaling $1 million per year. If cash expenses will be $1.0 million while depreciation expense will be $200,000, then what is the expected free cash flow from taking the project if the marginal tax rate for the firm is 30 percent? $200,000 $420,000 $600,000 $620,000
d
Five years ago, Shirley Harper bought a 10-year bond that pays 8 percent semiannually for $981.10. Today, she sold it for $1,067.22. What is the realized yield on her investment? (Round to the nearest percent.) 7% 8% 9% 10%
d
Givens, Inc., is a fast growing technology company that paid a $1.25 dividend last week. The company's expected growth rates over the next four years are as follows: 25 percent, 30 percent 35 percent, and 30 percent. The company then expects to settle down to a constant-growth rate of 8 percent annually. If the required rate of return is 12 percent, what is the present value of the dividends over the fast growth phase? a. $1.25 b. $6.46 c. $8.37 d. $7.23
c
Grant, Inc., is a fast growth stock and expects to grow at a rate of 25 percent for the next four years. It then will settle to a constant-growth rate of 10 percent. The first dividend will be paid out in year 3 and will be equal to $5.00. If the required rate of return is 18 percent, what is the current price of the stock? a. $85.94 b. $97.19 c. $50.59 d. $65.68
a
Interest rate: Your tuition for the coming year is due today. You borrow $8,000 from your uncle and agree to repay in the three years an amount of $9,250. What is the interest rate on this loan? Round to the nearest percent. 5% 6% 7% 8%
b
International Shippers, Inc., have forecast earnings of $1, 233,400, $1,345,900, and $1,455,650 for the next three years. What is the future value of these earnings if the firm's opportunity cost is 13 percent? (Round to the nearest dollar.) $4,214,360 $4,551,446 $3,900,865 $4,875,212
c
Jack Benny is planning to invest in an insurance company product. The product will pay $10,000 at the end of this year. Thereafter, the payments will grow annually at a 3 percent rate forever. Jack will be able to invest his cash flows at a rate of 6.5 percent. What is the present value of this investment cash flow stream? (Round to the nearest dollar.) $326,908 $312,766 $285,714 $258,133
c
Jack Robbins is saving for a new car. He needs to have $ 21,000 for the car in three years. How much will he have to invest today in an account paying 8 percent annually to achieve his target? (Round to nearest dollar.) $22,680 $26,454 $16,670 $19,444
c
Jack Stuart has loaned money to his brother at an interest rate of 5.75 percent. He expects to receive $625, $650, $700, and $800 at the end of the next four years as complete repayment of the loan with interest. How much did he loan out to his brother? (Round to the nearest dollar.) $2,713 $2,250 $2,404 $2,545
a
Jacobs Suppliers has not paid out any dividend in the last three years. It does not expect to pay dividends in the next two years either as it recovers from an economic slowdown. Three years from now it expects to pay a dividend of $2.50 and then $3.00 in the following two years. What is the present value of the dividends to be received over the next five years if the discount rate is 15 percent? a. $4.85 b. $5.37 c. $5.50 d. $6.14
c
Johnson Corporation has just paid a dividend of $4.45. The company has forecasted a growth rate of 8 percent for the next several years. If the appropriate discount rate is 14 percent, what is the current price of this stock? (Round to the nearest dollar.) a. $74 b. $32 c. $80 d. $60
b
LaGrange Corp. has forecasted that over the next four years the average annual after-tax income will be $45,731. The average book value of the manufacturing equipment that is used is $167,095. What is the accounting rate of return? A) 33.3% B) 27.4% C) 29.8% D) 22.3%
c
Maricela Sanchez needs to have $25,000 in five years. If she can earn 8 percent on any investment, what is the amount that she will have to invest every year at the end of each year for the next five years? (Round to the nearest dollar.) $5,000 $4,261 $4,640 $4,445
d
Metasteel Limited Co. has a stable sales track record but does not expect to grow in the next several years. Its last annual dividend was $5.75. If the required rate of return on similar investments is 18 percent, what is the current stock price? a. $103.50 b. $13.50 c. $39.30 d. $31.94
b
Nemo Haulers is considering whether to purchase a new mini tractor for moving furniture within its warehouse. Nemo calculates that its current mini tractor generates $3,100 of cash flow per year. A new mini tractor would cost $3,000 and would provide cash flow of $4,000 per year for five years. What is the equivalent annual cash flow for the new mini tractor (round to the nearest dollar), and should Nemo purchase the new tractor? Assume the cost of capital for Nemo is 10 percent. A) $3,000, do not purchase the new tractor B) $3,209, purchase the new tractor C) $4,000, purchase the new tractor D) $12,163, purchase the new tractor
b
Next year Jenkins Traders will pay a dividend of $3.00. It expects to increase its dividend by $0.25 in each of the following three years. If their required rate of return is 14 percent, what is the present value of their dividends over the next four years? a. $13.50 b. $9.72 c. $12.50 d. $11.63
d
One-Period Model: Assume that you are considering the purchase of a stock which will pay dividends of $4.50 during the next year. Further assume that you will be able to sell the stock for $85.00 one year from today and that your required rate of return is 15 percent. How much would you be willing to pay for the stock today? (Round off to the nearest $0.01) $89.50 $65.37 $94.10 $77.82
c
Peterson Electrical Supplies has generated a net income of $161,424 this year. The firm expects to see an annual growth of 30 percent for the next five years, followed by a growth rate of 15 percent for each of the next three years. What will be the firm's expected net income in eight years? (Round to the nearest dollar.) $319,157 $241,329 $911,546 $689,259
a
Preferred Stock Yield-to-Maturity: Durango Water Works has an outstanding issue of preferred stock that has a par (maturity value) of $75.00. The stock, which pays a quarterly dividend of $1.10, will be retired by the firm in 20 years. If the preferred stock is currently selling for $68.00, what is the preferred stock's yield-to-maturity? (Round off to the nearest 0.01%) 6.72% 5.64% 4.28% 7.73%
a
Quick Sale Real Estate Company is planning to invest in a new development. The cost of the project will be $23 million and is expected to generate cash flows of $14,000,000, $11,750,000, and $6,350,000 over the next three years. The company's cost of capital is 20 percent. What is the internal rate of return on this project? (Round to the nearest percent.) A) 22% B) 20% C) 24% D) 28%
b
Rick Rodriquez plans to invest some money today so that he will receive $7,500 in three years. If the investment he is considering will pay 3.65 percent compounded daily, how much will he have to invest today? $5,276 $6,722 $6,897 $7,140
a
Roswell Energy Company is installing new equipment at a cost of $10 million. Expected cash flows from this project over the next five years will be $1,045,000, $2,550,000, $4,125,000, $6,326,750, and $7,000,000. The company's discount rate for such projects is 14 percent. What is the project's discounted payback period? A) 4.2 years B) 4.4 years C) 4.8 years D) 5.0 years
b
Shana Norris wants to buy five-year zero coupon bonds with a face value if $1,000. Her opportunity cost is 8.5 percent. Assuming annual compounding, what would be the current market price of these bonds? (Round to the nearest dollar.) $1,023 $665 $890 $1,113
d
Shawna Carter wants to invest her recent bonus in a four-year bond that pays a coupon of 11 percent semiannually. The bonds are selling at $962.13 today. If she buys this bond and holds it to maturity, what would be her yield? (Round to the closest answer.) 11.5% 11.8% 12.5% 12.2%
a
Starskeep, Inc., is a fast growing technology company. The firm projects a rapid growth of 40 percent for the next two years and then a growth rate of 20 percent for the following two years. After that, the firm expects a constant-growth rate of 8 percent. The firm expects to pay its first dividend of $1.25 a year from now. If your required rate of return on such stocks is 20 percent, what is the current price of the stock? a. $15.63 b. $4.70 c. $30.30 d. $22.68
c
Supernormal growth: Suppose a firm's expected dividends for the next three years are as follows: D1 = $1.10, D2 = $1.20, and D3 = $1.30. After three years, the firm's dividends are expected to grow at 5.00 percent per year. What is should the current price of the firm's stock (P0) be today if investors require a rate of return of 12.00 percent on the stock? (Round off to the nearest $0.01) $61.30 $10.10 $16.74 $24.12
d
The Columbia Consumer Products Co. has issued perpetual preferred stock with a $100 par value. The firm pays a quarterly dividend of $2.60 on this stock. What is the current price of this preferred stock given a required rate of return of 12.5 percent? a. $47.25 b. $80.00 c. $20.80 d. $83.20
b
The Cyclone Golf Resorts is redoing its golf course at a cost of $2,744,320. It expects to generate cash flows of $1, 223,445, $2,007,812, and $3,147,890 over the next three years. If the appropriate discount rate for the firm is 13 percent, what is the NPV of this project? $7,581,072 $2,092,432 $4,836,752 $3,112,459
b
The National Bank of Columbia has issued perpetual preferred stock with a $100 par value. The bank pays a quarterly dividend of $1.40 on this stock. What is the current price of this preferred stock given a required rate of return of 8.5 percent? a. $23.06 b. $65.88 c. $37.57 d. $43.25
a
The cost of using an existing asset: Small Appliances, Inc., is considering starting a new line of business with the excess capacity it currently has on its rivet machine. The current machine is expected to last four years at the current rate of production. However, if a new line of business is taken on, then the machine will have to be replaced in three years instead of four. A new machine that will last four years would cost $50,000. What is the cost of taking on the new line of business? Round to the nearest dollar and assume a 9 percent cost of capital. A) $11,917 B) $12,500 C) $15,433 D) $50,000
c
The preferred stock of Acme International is selling currently at $110.35. If your required rate of return is 9.75 percent, what is the dividend paid by this stock? a. $9.75 b. $11.32 c. $10.76 d. $8.53
c
What is Champagne's cash flow from operations for 2008? $2,050,000 $2,500,000 $3,250,000 $4,000,000
c
What is Provo's cash flow from operations for 2008? A) $2,400,000 B) $2,600,000 C) $3,400,000 D) $4,000,000
a
What is the MIRR on this project? (Round to the nearest percent.) A) 36% B) 37% C) 38% D) 39%
c
Xinhua Manufacturing Company has been generating stable revenues but sees no growth in it for the foreseeable future. The company's last dividend was $3.25, and it is unlikely to change the amount paid out. If the required rate of return is 12 percent, what is the stock worth today? a. $39.00 b. $3.69 c. $27.08 d. $21.23
b
You are interested in investing in a company that expects to grow steadily at an annual rate of 6 percent for the foreseeable future. The firm paid a dividend of $2.30 last year. If your required rate of return is 10 percent, what is the most you would be willing to pay for this stock? (Round to the nearest dollar.) a. $58 b. $61 c. $23 d. $24
d
You plan to save $1,400 for the next four years, beginning now, to pay for a vacation. If you can invest it at 6 percent, how much will you have at the end of four years? Round to the nearest dollar. $6,124 $5,618 $4,019 $6,492
b
Your brother has asked you to help him with choosing an investment. He has $5,000 to invest today for a period of two years. You identify a bank CD that pays an interest rate of 4.25 percent with the interest being paid quarterly. What will be the value of the investment in two years? $5,434 $5,441 $5,107 $5,216
c
Your father is 60 years old and wants to set up a cash flow stream that would be forever. He would like to receive $20,000 every year, beginning at the end of this year. If he could invest in account earning 9 percent, how much would he have to invest today to receive his perpetual cash flow? (Round to the nearest dollar.) $222,222 $200,000 $189,000 $235,200
c
Your firm is deciding whether to purchase a durable delivery vehicle or a short-term vehicle. The durable vehicle costs $25,000 and should last five years. The short-term vehicle costs $10,000 and should last two years. If the cost of capital for the firm is 15 percent, then what is the equivalent annual cost for the best choice for the firm? (Round to the nearest dollar.) A) $5,000, either vehicle B) $5,000, short-term vehicle C) $6,151, short-term vehicle D) $7,458, long-term vehicle
a
Your uncle is looking to double his investment of $10,000. He claims he can get earn 14 percent on his investment. How long will it be before he can double his investment? Use the Rule of 72 and round to the nearest year. 5 years 14 years 10 years None of the above
