Finance Final

Kelley Couriers just paid its annual dividend of $5.25 per share. The stock has a market price of $58.25 and a beta of 1.2. The return on the U.S. Treasury bill is 1 percent and the market risk premium is 8.5 percent. What is the cost of equity?

11.2%

You are paying an EAR of 16.78 percent on your credit card. The interest is compounded monthly. What is the annual percentage rate on this account?

15.61%

A firm's liquidity is measured with which one of the following ratios?

Current ratio

Shook Fitness pays an annual dividend that increases by 1.8 percent per year, commands a market rate of return of 13.8 percent, and sells for $19.08 per share. What is the expected amount of the next dividend?

$2.29

Assume the average price of a new vehicle in the United States last year was $36,420. The average price five years earlier was $31,208. What was the annual increase in the price over this time period?

3.14%

An investment project costs $10,200 and has annual cash flows of $6,500 for 3 years. If the discount rate is 13 percent, what is the discounted payback period?

1.87 years

The Connection has an equity multiplier of 1.13, a total asset turnover of .56, and a net profit margin of 18.8 percent. What is the return on assets?

10.53%

The common stock of Air Express had annual returns of 11.7 percent, 8.8 percent, 16.7 percent, and −7.9 percent over the last four years, respectively. What is the standard deviation of these returns?

10.66%

Shareholders' equity:

represents the residual value of a firm.

The actual expected stock return indicates the stock is currently overpriced.

risk-free rate.

A newly issued 10-year, $1,000 face value zero coupon bond just sold for $311.05. What is the implicit interest, in dollars, for the first year of the bond's life? Assume semiannual compounding.

$38.53

Twenty years from now, you hope to have $175,000 to buy a parcel of land. How much must you deposit as a lump sum today to achieve this goal at an interest rate of 6.6 percent, compounded annually?

$48,740.95

You just signed a consulting contract that will pay you $27,000, $31,000, and $44,000 at the end of the next three years, respectively. What is the present value of this contract given a discount rate of 12.7 percent?

$79,103

Based on the tax table below, what is the average tax rate for a sole proprietor with taxable income of $155,000? Ignore any standard or itemized deductions.

20.18%

Kiefer Service Company common stock sells for $36.84 per share and has a market rate of return of 15.8 percent. The company just paid an annual dividend of $1.61 per share. What is the dividend growth rate?

10.95%

The Oil Derrick has an overall cost of equity of 12.7 percent and a beta of 1.13. The firm is financed solely with common stock. The risk-free rate of return is 4.8 percent. What is an appropriate cost of capital for a division within the firm that has an estimated beta of 1.16?

12.91%

A preferred stock pays an annual dividend of $7.95 and sells for $48.89 per share. What is the rate of return?

16.26%

Rao Investments has 6.5 percent coupon bonds outstanding with a current market price of $548. The yield to maturity is 13.2 percent and the face value is $1,000. Interest is paid annually. How many years is it until these bonds mature?

17.84 years

A project has cash flows of -$108,000, $52,800, $53,200, and $83,100 for Years 0 to 3, respectively. The required payback period is two years. Based on the payback period of _____ years for this project, you should _____ the project.

2.02; reject

At 5 percent annually compounded interest, how long would it take to triple your money?

22.52 years

Castaneda Accounting has sales of $332,700, cost of goods sold of $221,800, inventory $13,700, accounts receivable of $22,400, and accounts payable of $11,900. How many days of sales are in receivables?

24.57 days

The market has an expected rate of return of 6.50 percent. A long-term government bond is expected to yield 3.4 percent and a U.S. Treasury bill is expected to yield 2.25 percent. The inflation rate is 2.15 percent. What is the market risk premium?

4.25%

A stock had returns of 5 percent, 14 percent, 11 percent, −8 percent, and 6 percent over the past five years. What is the standard deviation of these returns?

8.44%

The stock of Yakir Development has a beta of 1.31. The risk-free rate of return is 1.5 percent and the market rate of return is 8 percent. What is the risk premium on this stock?

8.5%

Assume the total cost of a college education will be $245,000 when your child enters college in 15 years. You presently have $108,000 to invest for this purpose. What annually compounded rate of interest must you earn to cover the cost of your child's college education?

5.61%

Suppose the first comic book of a classic series was sold in 1954. In 2020, the estimated price for this comic book was $310,000, which is an annually compounded return of 22 percent. For this to be true, what was the original price of the comic book in 1954?

$.62

You want to buy a new sports car for $55,000. The contract is in the form of a 60-month annuity due at an APR of 5.6 percent compounded monthly. What will be your monthly payment?

$1,048.21

Syed Development issued 20-year bonds one year ago at a coupon rate of 10.2 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM is 8.2 percent, what is the current bond price?

$1,190.93

Naples Corporation has an unfunded pension liability of $327 million that must be paid in 16 years. What is the present value of this liability at a discount rate of 6.24 percent, compounded annually?

$124,147,723.50

Fifteen years ago, you invested $5,000. Today, it is worth $18,250. What annually compounded rate of interest did you earn?

9.01%

Agrawal, Incorporated, has common stock of $6,200, paid-in surplus of $9,100, total liabilities of $8,400, current assets of $5,900, and fixed assets of $21,200. What is the total shareholders' equity that the company should report?

$18,700

Global Logistics just announced it is increasing its annual dividend to $1.68 next year and will increase that dividend by 1.85 percent annually thereafter. How much will one share of this stock be worth ten years from now if the required rate of return is 12.8 percent?

$18.43

A project has cash flows of -$343,200, $56,700, $138,500, and $245,100 for Years 0 to 3, respectively. The required rate of return is 10.5 percent. Based on the internal rate of return of _____ percent for this project, you should _____ the project.

10.93; accept

Grace is retiring today and has $300,000 in her retirement savings. She expects to earn 8.5 percent per year compounded monthly. How much can she withdraw from her retirement savings each month if she plans to spend her last penny 17 years from now?

$2,784.88

One year ago, you purchased 300 shares of Davis & Saha stock at a price of $29.64 per share. The stock pays an annual dividend of $4.40 per share. Today, you sold all of your shares for $34.60 per share. What is your total dollar return on this investment?

$2,808

A relative will support your education by paying you $500 a month for 50 months. If you can earn 7 percent on your money, what is this gift worth to you today?

$21,629.93

Your local toy store just announced its annual dividend will be $4 dividend next year, $3 the following year, and then a final liquidating dividend of $46 per share in Year 3. At a discount rate of 18 percent, what should one share sell for today?

$33.54

Levrier Lighting has 5.75 percent coupon bonds outstanding that mature in 10 years. The bonds pay interest semiannually. What is the market price per bond if the face value is $1,000 and the yield to maturity is 8.32 percent?

$827.81

Werden Drilling offers 5.5 percent coupon bonds with semiannual payments and a yield to maturity of 7 percent. The bonds mature in 10 years. What is the market price per bond if the face value is $1,000?

$893.41

What is the future value of $1,575 deposited at the end of each year for 25 years? Assume an interest rate of 6.3 percent compounded annually.

$90,152.04

What is the present value of $45,000 to be received 50 years from today if the discount rate is 8 percent, compounded annually?

$959.46

A firm has inventory of $29,406, accounts receivable of $46,215, net working capital of $4,507, and current liabilities of $90,549. What is the quick ratio?

.75

A stock has an expected return of 6.5 percent, the risk-free rate is 1.1 percent, and the market risk premium is 5 percent. What is the stock's beta?

1.08

You are comparing Stock A to Stock B. Given the following information, what is the difference in the expected returns of these two securities?

1.75%

It will cost $15,000 to acquire a used food truck that is expected to produce cash inflows of $8,500 per year for five years. After the five years, the truck is expected to be worthless. What is the payback period?

1.8 years

Boyd Leasing is analyzing a project that requires purchasing $210,000 of new fixed assets. When the project ends, those assets are expected to have an aftertax salvage value of $22,000. How is the $22,000 salvage value handled when computing the net present value of the project?

Cash inflow in the final year of the project

Which one of the following statements concerning net working capital is correct?

Net working capital may be a negative value.

The common stock of Alpha Manufacturers has a beta of 1.24 and an actual expected return of 13.25 percent. The risk-free rate of return is 3.7 percent and the market rate of return is 11.78 percent. Which one of the following statements is true given this information?

The actual expected stock return indicates the stock is currently overpriced.

Total income taxes divided by total taxable income equals the ______ tax rate.

average

A ______ has all the respective rights and privileges of a legal person.

corporation

According to the statement of cash flows, an increase in interest expense will ______ the cash flow from ______ activities.

decrease; operating

Hulsey Outdoor had a return on assets of 15 percent and a return on equity of 15 percent. Given this information, the firm:

has an equity multiplier of 1.0.

For a firm that must pay income taxes, depreciation expense:

increases expenses and lowers taxes.

Which one of the following statements is generally correct?

Auction markets match buy and sell orders.

Public offerings of debt and equity must be registered with the:

Securities and Exchange Commission.

Which one of the following statements concerning corporate income taxes is correct?

The federal income tax is applied at a flat rate across all levels of taxable income.

Stephanie is going to contribute $160 on the first of each month, starting today, to her retirement account. Her employer will provide a match of 50 percent. In other words, her employer will add $80 to the amount Stephanie saves. If both Stephanie and her employer continue to do this and she can earn a monthly interest rate of .45 percent, how much will she have in her retirement account 35 years from now?

$299,547.97

You want to start a business that you believe can produce cash flows of $44,000, $61,000, and $80,000 at the end of each of the next three years, respectively. At the end of three years you think you can sell the business for $200,000. At a discount rate of 9.7 percent, what is this business worth today?

$302,897

The Market Outlet is an all-equity financed firm with a beta of 1.08 and a cost of equity of 12.58 percent. The risk-free rate of return is 3.6 percent. What discount rate should the firm assign to a new project that has a beta of 1.22?

13.74%

A stock experienced returns of 5 percent, −17 percent, and 15 percent during the last three years. What is the standard deviation of the stock's returns for the three-year period?

16.37%

A project has an initial cost of $18,400 and expected cash inflows of $7,200, $8,900, and $7,500 over Years 1 to 3, respectively. What is the discounted payback period if the required rate of return is 11.2 percent?

2.87 years

You own a portfolio with the following expected returns given the various states of the economy. What is the overall portfolio expected return?

3.33%

The 30-year, 5.5 percent bonds issued by Modern Kitchens pay interest semiannually, mature in four years, and have a $1,000 face value. Currently, the bonds sell for $1,020.66. What is the yield to maturity?

4.92%

Roessler Fine Dining has total assets of $310,100 and net fixed assets of $168,500. The average daily operating costs are $2,980. What is the value of the interval measure?

47.52 days

A stock has annual returns of 5 percent, 21 percent, −12 percent, 7 percent, and 6 percent for the past five years. The arithmetic average of these returns is _____ percent while the geometric average return for the period is _____ percent.

5.40; 4.86

Suppose the common stock of McLaughlin Corporation has a beta of 1.35 and an expected return of 11.05 percent. The risk-free rate of return is 3.25 percent while the inflation rate is 2.8 percent. What is the expected market risk premium?

5.78%

The common stock of Shepard Auto sells for $47.92 per share. The stock is expected to pay $2.28 per share next year when the annual dividend is distributed. The company increases its dividends by 1.65 percent annually. What is the market rate of return on this stock?

6.41%

A venture will provide a net cash inflow of $57,000 in Year 1. The annual cash flows are projected to grow at a rate of 7 percent per year forever. The project requires an initial investment of $739,000 and has a required return of 15.6 percent. The company is somewhat unsure about the growth rate assumption. At what constant rate of growth would the company just break even?

7.89%

Stoessel, Incorporated, issued 20-year bonds 3 years ago at a coupon rate of 8.5 percent. The bonds make semiannual payments. If these bonds currently sell for 91.4 percent of par value, what is the YTM?

9.53%

Twelve years ago, your parents set aside $8,000 to help fund your college education. Today, that fund is valued at $23,902. What annually compounded rate of interest is being earned on this account?

9.55%

Which one of the following is a disadvantage of the corporate form of business?

Distributed profits may experience double taxation.

Distributed profits may experience double taxation.

Increasing managers' base salaries

Mockingbird Resources is expected to pay a dividend of $2.71 per share in one year. Thereafter, dividends will grow two percent per year forever. The current stock price is $19.60. If you require a return of 15 percent per year, should you buy the stock today? Why or why not?

Yes; The stock has a present value of $20.85 per share.

A general partner:

is personally responsible for 100 percent of the debts of the partnership.