finance final
at year end, Tangshan China Company balance sheet showed total assets of $60 million, total liabilities (including preferred stock) of $45 million, and 1,000,000 shares of common stock outstanding. Based on this information, Tangshan's book value per share of common stock is ________
$15
What is the dividend on an 8 percent preferred stock that currently sells for $45 and has a face value of $50 per share?
$4.00
a firm is evaluating an investment proposal which has an initial investment of $5,000 and cash flows presently valued at $4,000. The net present value of the investment is ________.
-$1,000
An investment advisor has recommended a $50,000 portfolio containing assets R, J, and K; $25,000 will be invested in asset R, with an expected annual return of 12 percent; $10,000 will be invested in asset J, with an expected annual return of 18 percent; and $15,000 will be invested in asset K, with an expected annual return of 8 percent. The expected annual return of this portfolio is ________
12.00%
A firm has issued preferred stock at its $125 per share par value. The stock will pay a $15 annual dividend. The cost of issuing and selling the stock was $4 per share. The cost of the preferred stock is ________.
12.4%
Nico bought 500 shares of a stock for $24.00 per share on January 1, 2013. He received a dividend of $2.50 per share at the end of 2013 and $4.00 per share at the end of 2014. At the end of 2015, Nico collected a dividend of $3.00 per share and sold his stock for $20.00 per share. What is Nico's realized total rate of return?
12.5%
A firm has common stock with a market price of $25 per share and an expected dividend of $2 per share at the end of the coming year. The growth rate in dividends has been 5 percent. The cost of the firm's common stock equity is ________
13%
a firm has common stock with a market price of $25 per share and an expected dividend of $2 per share at the end of the coming year. The growth rate in dividends has been 5 percent. The cost of the firm's common stock equity is ________
13%
Asset P has a beta of 0.9. The riskminus−free rate of return is 8 percent, while the return on the market portfolio of assets is 14 percent. The asset's required rate of return is ________.
13.4
what is the IRR for the following project if its initial afterminus−tax cost is $5,000,000 and it is expected to provide afterminus−tax operating cash inflows of $1,800,000 in year 1, $1,900,000 in year 2, $1,700,000 in year 3, and $1,300,000 in year 4?
13.57%
last year, Mike bought 100 shares of Dallas Corporation common stock for $53 per share. During the year he received dividends of $1.45 per share. The stock is currently selling for $60 per share. What rate of return did Mike earn over the year?
15.9%
what is the expected return for Asset X if it has a beta of 1.5, the expected market return is 15 percent, and the expected riskminus−free rate is 5 percent?
20.0%
what is the expected riskminus−free rate of return if Asset X, with a beta of 1.5, has an expected return of 20 percent, and the expected market return is 15 percent?
5.0%
What is the IRR for the following project if its initial afterminus−tax cost is $5,000,000 and it is expected to provide afterminus−tax operating cash flows of ($1,800,000) in year 1, $2,900,000 in year 2, $2,700,000 in year 3, and $2,300,000 in year 4?
5.83%
T or F: assuming that economic conditions remain stable, any management action that would cause current and prospective stockholders to raise their dividend expectations should decrease a firm's value
F
T or F: lower the coefficient of variation, the greater the risk and therefore the higher the expected return
F
T or F: the weighted average cost of capital refers to the cost of capital required for one additional dollar of financing.
F
T or F: Any action taken by a financial manager that increases risk will also increase the required return.
T
T or F: The IRR is the compounded annual rate of return that a firm will earn if it invests in a project and receives the estimated cash inflows.
T
T or F: an internal rate of return greater than the cost of capital guarantees that the firm will earn at least its required return.
T
T or F: higher the coefficient of variation, the greater the risk and therefore the higher the expected return
T
T or F: the common stock book value model ignores a firm's expected earnings potential and generally lacks any true relationship to the firm's value in the marketplace
T
T or F: the cost of preferred stock is the ratio of the preferred stock dividend to a firm's net proceeds from the sale of the preferred stock.
T
T or F: the more certain the return from an asset, the less variability and therefore the less risk
T
T or F: the required return can be affected by changes in the risk free rate, even if the risk premium remains constant
T
generally, an increase in risk will result in ______
a higher required rate of return or interest rate
the specific cost of each source of longminus−term financing is based on ________ and ________ costs
after-tax; current
risk aversion is the behavior exhibited by managers who require ________
an increase in return, for a given increase in risk
a debenture is ____
an unsecured bond that only creditworthy firms can issue
a bond will sell _____ when the stated rate of interest exceeds the required rate of return, _____ when the stated rate of interest is less than the required return, and _____ when the stated rate of interest is equal to the required return
at a premium; at a discount; equal to the par value
which of the following is a difference between common stock and bonds?
bondholders have a senior claim on assets and income relative to stockholders
________ is the process of evaluating and selecting longminus−term investments that are consistent with a firm's goal of maximizing owners' wealth.
capital budgeting
the return expected from an asset is fully defined by its ____
cash flow and timing
to compensate for the uncertainty of future interest rates and the fact that the longer the term of loan the higher the probability that the borrowing will default, the lender typically _____
charges a higher interest rate on long-term loans
regarding the tax treatment of payments to securities holders, it is true that ________.
common stock dividends and preferred stock dividends are not tax deductible, while interest is tax deductible
which of the following is typically a feature of common stock?
common stocks may or may not pay dividends.
the ________ is the rate of return that a firm must earn on its investments in order to maintain the market value of its stock.
cost of capital
Dividends in arrears that must be paid to the preferred stockholders before payment of dividends to common stockholders are
cumulative
Combining two assets having perfectly negatively correlated returns will result in the creation of a portfolio with an overall risk that ________
decreases to a level below that of either asset
in the basic valuation model, risk is generally incorporated into the _____
discount rate
strikes, lawsuits, regulatory actions, or the loss of a key account are all examples of ________
diversifiable risk
According to the efficient market hypothesis, prices of actively traded stocks ________
do not differ from their true values in an efficient market
the purpose of the debt covenant that requires maintaining a minimum level of net working capital is to _____
ensure a cash shortage does not cause an inability to meet current obligations
the constant−growth valuation model is based on the premise that the value of a share of common stock is ________
equal to the present value of all expected future dividends
The cost of new common stock financing is higher than the cost of retained earnings due to ________
flotation costs and underpricing
lower (less positive and more negative) the correlation between asset returns, ________
greater the potential diversification of risk
less certain cash flow, the ______ the risk, and _____ the present value of the cash flow
higher; lower
as the need for capital increases beyond the optimum capital structure, the cost of debt financing will ________ the firm's weighted average cost of capital.
increase; raising
a legal contract setting forth the terms and provisions of a corporate bond is an _____
indenture
_______ projects do not compete with each other; the acceptance of one ________ the others from consideration.
independent; does not eliminate
the value of a bond is the present value of the _____
interest payments and maturity values
a downward - sloping yield curve that indicates generally cheaper long term borrowing costs than short term borrowing costs is called ______
inverted yield curve
a beta coefficient of 0 represents an asset that ________
is unrelated to the market portfolio
which of the following is true of NPV profile?
it charts the net present value of a project as a function of the cost of capital.
which of the following is a disadvantage of payback period approach?
it does not explicitly consider the time value of money
which of the following is true of a capital expenditure?
it is commonly used to expand the level of operations.
Which of the following is an advantage of NPV?
it takes into account the time value of investors' money
combining two assets having perfectly positively correlated returns will result in the creation of a portfolio with an overall risk that ________
lies between the asset with the higher risk and the asset with the lower risk
A tax adjustment must be made in determining the cost of ________
long-term debt
Generally, the order of cost, from the least expensive to the most expensive, for long−term capital of a corporation is ________.
long−term debt, preferred stock, retained earnings, new common stock
When discussing weighing schemes for calculating the weighted average cost of capital, ________
market value weights are preferred over book value weights and target weights are preferred over historical weights
comparing net present value and internal rate of return ________.
may give different accept-reject decisions
the goal of an efficient portfolio is to ________
minimize risk for a given level of return
________ projects have the same function; the acceptance of one ________ the others from consideration.
mutually exclusive; eliminates
Consider the following projects, X and Y where the firm can only choose one. Project X costs $600 and has cash flows of $400 in each of the next 2 years. Project Y also costs $600, and generates cash flows of $500 and $275 for the next 2 years, respectively. Which investment should the firm choose if the cost of capital is 25 percent?
neither, since both the projects have negative NPV
the ________ from the sale of a security are the funds actually received from the sale after ________
net proceeds; reducing the flotation costs
which pattern of cash flow stream is the most difficult to use when evaluating projects?
nonconventional flow
in the capital asset pricing model, the beta coefficient is a measure of ________
nondiversifiable risk
shares of stock currently owned by a firm's shareholders are called ________
outstanding shares
Tangshan China's stock is currently selling for $160.00 per share and the firm's dividends are expected to grow at 5 percent indefinitely. In addition, Tangshan China's most recent dividend was $5.50. If the expected risk free rate of return is 3 percent, the expected market return is 8 percent, and Tangshan has a beta of 1.2, Tangshan's stock would be ________
overvalued because the market price is higher than the resulting share value
a $1,000, 8% bond sells for 980, $1,000 is called the ___
par value
the riskiness of publicly traded bond issues is rated by independent agencies. according to Moody's rating system, an Aaa bond and a Caa bond are ______ and _____ respectively
prime quality; speculative
when evaluating projects using NPV approach, ________.
projects having higher early−year cash flows tend to be preferred at higher discount rates
Consider the following projects, X and Y, where the firm can only choose one. Project X costs $600 and has cash flows of $400 in each of the next 2 years. Project Y also costs $600, and generates cash flows of $500 and $275 for the next 2 years, respectively. Which investment should the firm choose if the cost of capital is 10 percent?
project X, since it has a higher NPV than Project Y
________ is the extent of an asset's risk. It is found by subtracting the pessimistic outcome from the optimistic outcome.
range
____ rate of interest creates equilibrium between the supply of savings and the demand for investment funds
real
the purpose of adding an asset with a negative or low positive beta is to ________
reduce risk
which of the following is true of risk?
risk is a measure of the uncertainty surrounding the return that an investment will earn
if a manager requires greater return when risk increases, then he is said to be ________
risk-averse
If bankruptcy were to occur, ________ would have the first claim on assets
secured creditors
a ________ measures the dispersion around the expected value
standard deviation
the ________ is the firm's desired optimal mix of debt and equity financing.
target capital structure
The preferred capital structure weights to be used in the weighted average cost of capital are ________
target weights
the current yield on a bond is measured by ____
the annual interest payment divided by the current price
which of the following is true of common stocks?
the common stock of a corporation can be either privately or publicly owned.
a firm can accept a project with a net present value of zero because ________
the project would maintain the wealth of the firm's owners
nominal rate of interest is equal to ____
the risk-free rate plus a risk premium
equity capital can be raised through ________
the stock market
in order to recognize the interrelationship between financing and investments, a firm should use ________ when evaluating an investment.
the weighted average cost of all financing sources
which of the following is a disadvantage of issuing preferred stock from the common stockholders' perspective?
there is a seniority of preferred stockholder's claim over common stockholders
which of the following is true of a common stock?
there is no fixed dividend payment obligation for the company
rational buyers and sellers use their assessment of an asset's risk and return to determine its value. Relative to this concept, which of the following is true?
to a buyer the asset's value represents the maximum price that he or she would pay to acquire it.
a ____ is a paid individual, corporation, or a commercial bank trust department that acts as a third party to a bond indenture
trustee
A group formed by an investment banker to share the financial risk associated with underwriting new securities is called an ___
underwriting syndicate
which of the following typically applies to common stock but not to preferred stock?
voting rights
What is the NPV for a project if its cost of capital is 12 percent and its initial afterminus−tax cost is $5,000,000 and it is expected to provide afterminus−tax operating cash flows of $1,800,000 in year 1, $1,900,000 in year 2, $1,700,000 in year 3, and ($1,300,000) in year 4?
−$1,494,336
