Finance Final

The EBIT of a firm is $300, the tax rate is 35%, the depreciation is $20, capital expenditures are $60, and the increase in net working capital is $30. What is the free cash flow to the firm?

B. $125

You would like to give your daughter $75,000 towards her college education 17 years from now. How much money must you set aside today for this purpose if you can earn 8 percent on your investments?

B. $20,270.17

Weyerhaeuser Incorporated has a balance sheet that lists $70 million in assets, $45 million in liabilities, and $25 million in common shareholders' equity. It has 1 million common shares outstanding. The replacement cost of its assets is $85 million. Its share price in the market is $49. Its book value per share is _________.

B. $25

You are the recipient of a gift that will pay you $25,000 one year from now and every year thereafter for the following 24 years. The payments will increase in value by 2.5 percent each year. If the appropriate discount rate is 8.5 percent, what is the present value of this gift?

B. $316,172

ART has come out with a new and improved product. As a result, the firm projects an ROE of 25 %, and it will maintain a plowback ratio of .20. Its earnings this year will be $3 per share. Investors expect a 12 % rate of return on the stock. At what price would you expect ART to sell?

B. $34.29

You have just received notification that you have won the $1.25 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday, 76 years from now. The appropriate discount rate is 6.8 percent. What is the present value of your winnings?

B. $8,423.54

Cache Creek Manufacturing Company is expected to pay a dividend of $4.20 in the upcoming year. Dividends are expected to grow at the rate of 8% per year. The risk-free rate of return is 4%, and the expected return on the market portfolio is 14%. Investors use the CAPM to compute the market capitalization rate on the stock and use the constant-growth DDM to determine the intrinsic value of the stock. The stock is trading in the market today at $84. Using the constant-growth DDM and the CAPM, the beta of the stock is _________.

B. .9

What is the quick ratio at the end of the year?

B. 1.24

Todd Mountain Development Corporation is expected to pay a dividend of $2.50 in the upcoming year. Dividends are expected to grow at the rate of 8 % per year. The risk-free rate of return is 5%, and the expected return on the market portfolio is 12%. The stock of Todd Mountain Development Corporation has a beta of .75. Using the CAPM, the return you should require on the stock is _________.

B. 10.25%

Gagliardi Way Corporation has an expected ROE of 15%. If it pays out 30% of its earnings as dividends, its dividend growth rate will be _____.

B. 10.5%

Flo's Flowers has accounts receivable of $4,511, inventory of $1,810, sales of $138,609, and cost of goods sold of $64,003. How many days does it take the firm to sell its inventory and collect the payment on the sale assuming that all sales are on credit?

B. 22.20 days

When Google's share price reached $475 per share, Google had a P/E ratio of about 68 and an estimated market capitalization rate of 11.5%. Google pays no dividends. Approximately what percentage of Google's stock price was represented by PVGO?

B. 87%

You need $25,000 today and have decided to take out a loan at 7 percent for five years. Which one of the following loans would be the least expensive? Assume all loans require monthly payments and that interest is compounded on a monthly basis.

B. Amortized loan with equal principal payments.

You are cautiously bullish on the common stock of the Wildwood Corporation over the next several months. The current price of the stock is $50 per share. You want to establish a bullish money spread to help limit the cost of your option position. You find the following option quotes: To establish a bull money spread with puts, you would _______________.

B. Buy the 45 put and buy the 55 put

A European call option gives the buyer the right to _________.

B. Buy the underlying asset at the exercise price only at the expiration date

If the gross profit is positive and the net profit is negative, you will _________.

B. Not exercise the option

A firm's earnings per share increased from $10 to $12, its dividends increased from $4 to $4.40, and its share price increased from $80 to $100. Given this information, it follows that _________.

B. The company had a decrease in its dividend payout ratio

The writer of a put option _______________.

B. agrees to buy shares at a set price if the option holder desires

What is the future value of $12,000 a year for 40 years at 11.5 percent interest?

B. $8,014,195

Your credit card company charges you 1.65 percent interest per month. What is the annual percentage rate on your account?

B. 19.80 percent

An Asian put option gives its holder the right to

B. buy the underlying asset at a price determined by the average stock price during some specified portion of the option's life

A supplier, who requires payment within 10 days, should be most concerned with which of the following ratios when granting credit?

B. Cash

Which of the following ratios are a measure of a firm's liquidity?

B. II and V only Interval Measure and Quick Ratio

Which one of the following accurately describes the three parts of the DuPont identity?

C Equity Multiplier, Profit Margin, and total assets turnover

You are borrowing money today at 8.48 percent, compounded annually. You will repay the principal plus all the interest in one lump sum of $12,800 two years from today. How much are you borrowing?

C. $10,877.04

You borrow $230,000 to buy a house. The mortgage rate is 4.5 percent and the loan period is 25 years. Payments are made monthly. If you pay the mortgage according to the loan agreement, how much total interest will you pay?

C. $153,524

A firm is planning on paying its first dividend of $2 three years from today. After that, dividends are expected to grow at 6% per year indefinitely. The stock's required return is 14%. What is the intrinsic value of a share today?

C. $19.24

Sanders, Inc., paid a $4 dividend per share last year and is expected to continue to pay out 60% of its earnings as dividends for the foreseeable future. If the firm is expected to generate a 13% return on equity in the future, and if you require a 15 % return on the stock, the value of the stock is _________.

C. $42.94

You just acquired a 30-year mortgage in the amount of $179,500 at 4.75 percent interest, compounded monthly. Payments will be equal over the life of the loan with the first payment due one month after the date of the loan. How much of the first payment will be interest?

C. $710.52

Theo needs $40,000 as a down payment for a house six years from now. He earns 2.5 percent on his savings. Theo can either deposit one lump sum today for this purpose or he can wait a year and deposit a lump sum. How much additional money must he deposit if he waits for one year rather than making the deposit today?

C. $862.30

Each listed stock option contract gives the holder the right to buy or sell __________ shares of stock.

C. 100

Phil can afford $240 a month for five years for a car loan. If the interest rate is 8.5 percent, how much can he afford to borrow to purchase a car?

C. 11,697.88

Alex invested $10,500 in an account that pays 6 percent simple interest. How much money will he have at the end of four years?

C. 13,020

What is the return on equity using year end values?

C. 20.05

You expect to receive $5,000 at graduation in 2 years. You plan on investing this money at 9 percent until you have $75,000. How many years from today will it be until this occurs?

C. 33.42

You hope to buy your dream car four years from now. Today, that car costs $54,500. You expect the price to increase by an average of 3.1 percent per year over the next four years. How much will your dream car cost by the time you are ready to buy it?

C. 61,578.79

The process of determining the present value of future cash flows in order to know their worth today is referred to as:

C. Discounted Cash Flow valuation

The common stock of the Avalon Corporation has been trading in a narrow range around $40 per share for months, and you believe it is going to stay in that range for the next 3 months. The price of a 3-month put option with an exercise price of $40 is $3, and a call with the same expiration date and exercise price sells for $4. What would be a simple options strategy using a put and a call to exploit your conviction about the stock price's future movement?

C. Sell a straddle

Ratios that measure a firm's liquidity are known as

C. Short term Solvency ratios

All State moving capital had sales of 899,000 in 2014 and 967,000 in 2015. The firm's current accounts remained constant. Given this information, which of the following statements can be true?

C. The net working capital turnover rate increased

Your father invested a lump sum 33 years ago at 4.25 percent interest. Today, he gave you the proceeds of that investment which totaled $51,480.79. How much did your father originally invest?

C. $13,035.72

Lifecycle Motorcycle Company is expected to pay a dividend in year 1 of $2, a dividend in year 2 of $3, and a dividend in year 3 of $4. After year 3, dividends are expected to grow at the rate of 7 % per year. An appropriate required return for the stock is 12%. Using the multistage DDM, the stock should be worth __________ today.

C. $67.95

Al invested $7,200 in an account that pays 4 percent simple interest. How much money will he have at the end of five years?

C. $8,640

Your credit card company quotes you an interest rate of 21.9 percent based on annual compounding. Interest is billed monthly. What is the actual rate of interest you are paying?

C. 24.24 percent

A stock is trading at $50. You believe there is a 60% chance the price of the stock will increase by 10% over the next 3 months. You believe there is a 30% chance the stock will drop by 5%, and you think there is only a 10% chance of a major drop in price of 20%. At-the-money 3-month puts are available at a cost of $650 per contract. What is the expected dollar profit for a writer of a naked put at the end of 3 months?

C. 475

The DuPont identity can be used to help managers answer which of the following questions related to a firm's operations?

C. I, II and III only How many sales dollars has the firm generated per each dollar of assets, How many dollars of assets has a firm acquired per each dollar in shareholder's equity, How much net profit is a firm generating per dollar of sales

You just received a $5,000 gift from your grandmother. You have decided to save this money so that you can gift it to your grandchildren 50 years from now. How much additional money will you have to gift to your grandchildren if you can earn an average of 7.5 percent instead of just 7 percent on your savings?

E. $38,663.60

Interest earned on both the initial principal and the interest reinvested from prior periods is called

E. Compound Interest

Tobin's Q relates the market value of a firm's assets to which one of the following

E. Today's costs to duplicate those assets

You just purchased an annuity that will pay you $24,000 a year for 25 years, starting today. What was the purchase price if the discount rate is 8.5 percent?

E. $266,498

What is the future value of $11,600 invested for 17 years at 7.25 percent compounded annually?

E. $38,125.20

John's Auto Repair just took out a $52,000, 10- year, 8 percent, interest-only loan from the bank. Payments are made annually. What is the amount of the loan payment in year 10?

E. $56,160

You want to buy a new sports coupe for $41,750 and the finance office at the dealership has quoted you an APR of 7.6, compounded monthly for 48 months. What is the effective interest rate on this loan?

E. 7.87 percent

As the beneficiary of a life insurance policy, you have two options for receiving the insurance proceeds. You can receive a lump sum of $200,000 today or receive payments of $1,400 a month for 20 years. If you can earn 6 percent on your money, which option should you take and why?

E. You should accept the $200,000 because the payments are only worth $195,413 to you today

Ratios that measure how efficiently a firm manages its assets and operations to generarte net income are referred to as

Profitability ratios

A stock is priced at $45 per share. The stock has earnings per share of $3 and a market capitalization rate of 14%. What is the stock's PVGO?

A. $23.57

Today, you earn a salary of $28,000. What will be your annual salary 12 years from now if you earn annual raises of 2.6 percent?

A. $38,100.12

Dandelion Fields has a Tobin's Q of .96. The replacement cost of the firm's assets is $225,000 and the market value of the firm's debt is $101,000. The firm has 20,000 shares of stock outstanding and a book value per share of $2.09. What is the market to book ratio?

A. 2.75 times

Estimates of a stock's intrinsic value calculated with the free cash flow methodology depend most critically on ___________.

A. the terminal value used

The maximum loss a buyer of a stock call option can suffer is the ________

A. call premium

Barlow's Feed had the following current account values. What affect did the change in net working capital have on a firm's cash flows for the year?

D Net source of cash of $101

Suppose the first comic book of a classic series was sold in 1954. In 2015 , the estimated price for this comic book in good condition was about $310,000. This represented a return of 22 percent per year. For this to be true, what was the original price of the comic book in 1954?

D. $1.67

The May 17, 2015, price quotation for a Boring call option with a strike price of $50 due to expire in November is $20.80, while the stock price of Boring is $69.80. The premium on one Boring November 50 call contract is _________.

D. $20.80

Uptown Men's Wear has accounts payable of $2,214, inventory of $7,950, cash of $1,263, fixed assets of $8,400, accounts receivable of $3,907, and long-term debt of $4,200. What is the value of the net working capital to total assets ratio?

D. .51

What is the debt-equity ratio at year-end

D. .84

Lassiter Industries has annual sales of $328,000 with 8,000 shares of stock outstanding. The firm has a profit margin of 4.5 percent and a price-sales ratio of 1.20. What is the firm's price-earnings ratio?

D. 26.7

Todd Mountain Development Corporation is expected to pay a dividend of $3 in the upcoming year. Dividends are expected to grow at the rate of 8 % per year. The risk-free rate of return is 5 %, and the expected return on the market portfolio is 17%. The stock of Todd Mountain Development Corporation has a beta of .75. Using the constant-growth DDM, the intrinsic value of the stock is _________.

D. 50

A firm has a stock price of $55 per share and a P/E ratio of 75. If you buy the stock at this P/E and earnings fail to grow at all, how long should you expect it to take to just recover the cost of your investment?

D. 75 years

40. The banks in your area offer the following rates of interest on their savings accounts. If you want to open one of these accounts, which bank should you select?

D. Bank D: .87 percent APR with quarterly compounding.

What is the relationship between present value and future value interest factors?

D. The factors are reciprocals of each other.

The potential loss for a writer of a naked call option on a stock is _________.

D. Unlimited

You buy a call option on Merritt Corp. with an exercise price of $50 and an expiration date in July, and you write a call option on Merritt Corp. with an exercise price of $55 and an expiration date in July. This is called a ________.

D. moneyspread

You need a 30-year, fixed-rate mortgage to buy a new home for $225,000. Your bank will lend you the money at an APR of 5.5 percent with monthly compounding. You can only afford monthly payments of $1,000 for principal and interest, so you offer to pay off any remaining loan balance at the end of the loan term in the form of a single balloon payment. What will be the amount of the balloon payment?

D. $253,550

You own $75,000 worth of stock, and you are worried the price may fall by year-end in 6 months. You are considering using either puts or calls to hedge this position. Given this, which of the following statements is (are) correct?

D. I, II, and III I. One way to hedge your position would be to buy puts. II. One way to hedge your position would be to write calls. III .If major stock price declines are likely, hedging with puts is probably better than hedging with short calls.