Review 1 BF

Byrd Lumber has 2 million shares of common stock outstanding that sell for $17 a share. If the company has $25 million of common equity on its balance sheet, what is the company's Market Value Added (MVA)? Answer options are provided in whole dollar.

9,000,000

Refer to Exhibit 4.1. What is the firm's return on invested capital?

9.52%

Refer to Exhibit 4.1. What is the firm's ROE? Do not round your intermediate calculations.

15.76%

Prezas Company's balance sheet showed total current assets of $3,500, all of which were required in operations. Its current liabilities consisted of $975 of accounts payable, $600 of 6% short-term notes payable to the bank, and $250 of accrued wages and taxes. What was its net operating working capital?

$2,275

Refer to Exhibit 4.1. What is the firm's market-to-book ratio? Do not round your intermediate calculations.

1.89

What is the present value of the following cash flow stream at a rate of 13.5%?

10,344

You want to buy a new sports car 3 years from now, and you plan to save $6,700 per year, beginning one year from today. You will deposit your savings in an account that pays 5.2% interest. How much will you have just after you make the 3rd deposit, 3 years from now?

11.61

Your Aunt Ruth has $340,000 invested at 6.5%, and she plans to retire. She wants to withdraw $40,000 at the beginning of each year, starting immediately. How many years will it take to exhaust her funds, i.e., run the account down to zero?

11.61

Last year Harrington Inc. had sales of $325,000 and a net income of $19,000, and its year-end assets were $250,000. The firm's total-debt-to-total-capital ratio was 47.5%. The firm finances using only debt and common equity, and its total assets equal total invested capital. Based on the DuPont equation, what was the ROE? Do not round your intermediate calculations.

14.48%

Your uncle will sell you his bicycle shop for $150,000, with "seller financing," at a 6.0% nominal annual rate. The terms of the loan would require you to make 12 equal end-of-month payments per year for 4 years, and then make an additional final (balloon) payment of $50,000 at the end of the last month. What would your equal monthly payments be?

2,598.50

Master Card and other credit card issuers must by law print the Annual Percentage Rate (APR) on their monthly statements. If the APR is stated to be 19.25%, with interest paid monthly, what is the card's EFF%?

21.04%

Ten years ago, Lucas Inc. earned $0.50 per share. Its earnings this year were $3.60. What was the growth rate in earnings per share (EPS) over the 10-year period?

21.82

Shrives Publishing recently reported $11,500 of sales, $5,500 of operating costs other than depreciation, and $1,250 of depreciation. The company had $3,500 of bonds that carry a 6.25% interest rate, and its federal-plus-state income tax rate was 25%. During the year, the firm had expenditures on fixed assets and net operating working capital that totaled $1,550. These expenditures were necessary for it to sustain operations and generate future sales and cash flows. What was its free cash flow? (Round your intermediate and final answers to whole dollar amount.)

3,263

Suppose a State of California bond will pay $1,000 eight years from now. If the going interest rate on these 8-year bonds is 6.6%, how much is the bond worth today?

599.71

Rust Corp's sales last year were $358,814 and its net income was $23,000. What was its profit margin?

6.41%

Which of the following statements is CORRECT?

Debt management ratios show the extent to which a firm's managers are attempting to magnify returns on owners' capital through the use of financial leverage.

For a stock to be in equilibrium as the book defines it, its market price should exceed its intrinsic value

False

You observe that a firm's ROE is below the industry average, but both its profit margin and equity multiplier are above the industry average. Which of the following statements is CORRECT?

Its total assets turnover must be below the industry average.

Last year Besset Company's operations provided a negative cash flow, yet the cash shown on its balance sheet increased. Which of the following statements could explain the increase in cash, assuming the company's financial statements were prepared under generally accepted accounting principles (GAAP)?

The company sold some of its fixed assets

You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would increase the calculated value of the investment?

The discount rate decreases.

Your bank account pays a 6% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT?

The periodic rate of interest is 1.5% and the effective rate of interest is greater than 6%.

Free cash flow (FCF) is, essentially, the cash flow that is available for interest and dividends after the company has made the investments in current and fixed assets that are necessary to sustain ongoing operations.

True

If a stock's intrinsic value is greater than its market price, then the stock is undervalued and should be purchased.

True

​ The term "marginal investor" means an investor who is active in the market and would tend to buy a stock if its price fell and sell it if it rose, barring any new information coming out about the stock. It is the "marginal investor" who determines the actual stock price.

True

The primary operating goal of a publicly-owned firm trying to best serve its stockholders should be to:

Use a well-structured managerial compensation package to reduce conflicts that may exist between stockholders and managers.