Finance Final
Projects A and B are mutually exclusive and have an initial cost of $78,000 each. Project A has annual cash flows for Years 1 to 3 of $28,300, $31,500, and $22,300, respectively. Project B has annual cash flows for Year 1 of $36,900 and $40,500 for Year 2. What is the crossover rate?
16.99%
Iron Works International is considering a project that will produce annual cash flows of $38,100, $46,800, $57,500, and $23,000 over the next four years, respectively. What is the internal rate of return if the project has an initial cost of $112,900?
17.93%
Nguyen Corporation's common stock has a beta of 1.38. The risk-free rate is 1.78 percent and the expected return on the market is 14.6 percent. What is the cost of equity?
19.47%
What is the return on equity for 2021?
22.44%
The Blue Marlin is owned by a group of five shareholders who all vote independently and who all want personal control over the firm. What is the minimum percentage of the outstanding shares one of these shareholders must own if he or she is to gain personal control over this firm given that the firm uses straight voting?
50 percent plus one vote
Which one of the following statements is correct?
Given a positive rate of inflation, the real rate must be less than the nominal rate.
Which one of the following questions is a working capital management decision?
How much inventory should the company keep on hand?
Which of the following questions are appropriate to address during the financial planning process? I. Should the firm merge with a competitor? II. Should additional shares of stock be sold? III. Should a particular division be sold? IV. Should a new product be introduced?
I, II, III, and IV
Which one of the following methods of analysis provides the best information on the benefits to be received from a project per dollar invested?
Profitability index
A $1,000 par value corporate bond that pays $45 annually in interest was issued last year. Which one of these would apply to this bond today if the current price of the bond is $989.42?
The current yield exceeds the coupon rate.
The annual dividend yield is computed by dividing _____ annual dividend by the current stock price.
next year's
A firm has a return on equity of 18 percent. The total asset turnover is 2.6 and the profit margin is 5 percent. The total equity is $7,800. What is the net income?
$1,404
How many dollars of sales were generated from every dollar of fixed assets during 2021?
$1.68
Anya just completed analyzing a project. Her analysis indicates that the project will have a six-year life and require an initial cash outlay of $98,000. Annual sales are estimated at $64,000 and the tax rate is 21 percent. The net present value is negative $98,000. Based on this analysis, the project is expected to operate at the:
cash break-even point.
The cash flow related to interest payments less any net new borrowing is called the:
cash flow to creditors.
The interest earned on both the initial principal and the interest reinvested from prior periods is called:
compound interest.
A ______ has all the respective rights and privileges of a legal person.
corporation
When evaluating any capital project proposal, the cost of capital:
depends upon how the funds raised for that project are going to be spent.
A discount bond's coupon rate is equal to the annual interest divided by the:
face value.
Cash flow from assets is also known as the firm's:
free cash flow.
The key means of defending against forecasting risk is to:
identify sources of value within a project.
Assume a firm has a debt-equity ratio of .36. The firm's cost of equity:
is affected by both a change in the firm's beta and the firm's projected rate of growth.
Assume the market rate of return is 10.1 percent and the risk-free rate of return is 3.2 percent. Lexant stock has 2 percent less systematic risk than the market and has an actual return of 10.2 percent. This stock:
is underpriced.
Rafia owns stocks of 15 different companies. Together, the stocks have a value of $78,640. Twelve percent of that total value is from one company, Gambrell & Valdez. The twelve percent figure is called a(n):
portfolio weight.
You have a $15,000 portfolio which is invested in Stocks A and B, and a risk-free asset. $6,000 is invested in Stock A. Stock A has a beta of 1.63 and Stock B has a beta of .95. How much needs to be invested in Stock B if you want a portfolio beta of 1.10?
$7,073.68
A project has expected sales of 63,000 units, ±4 percent; variable costs per unit of $84, ±5 percent; fixed costs of $287,000, ±1 percent; and a sales price per unit of $219, ±2 percent. The depreciation expense is $53,000 and the tax rate is 23 percent. What is the contribution margin per unit for a sensitivity analysis using a variable cost per unit of $85?
$134
A gym owner is considering opening a location on the other side of town. The new facility will cost $1.40 million and will be depreciated on a straight-line basis over a 20-year period. The new gym is expected to generate $545,000 in annual sales. Variable costs are 54 percent of sales, the annual fixed costs are $87,700, and the tax rate is 21 percent. What is the operating cash flow?
$143,470
You need to have $33,750 in 11 years. You can earn an annual interest rate of 6 percent for the first 3 years, 6.6 percent for the next 2 years, and 7.3 percent for the final 6 years. How much do you have to deposit today?
$16,339.68
If a firm has a debt-equity ratio of 1.0, then its total debt ratio must be which one of the following?
.5
You own a portfolio that has a total value of $80,000 and a beta of 1.18. You have another $19,000 to invest and you would like the beta of your portfolio to decrease to 1.11. What does the beta of the new investment have to be in order to accomplish this?
.815
Zheng Equipment has total assets with a current book value of $368,900 and a current replacement cost of $486,200. The market value of these assets is $464,800. What is the value of Tobin's Q?
.96
A stock is expected to maintain a constant dividend growth rate of 4.7 percent indefinitely. If the stock has a dividend yield of 6 percent, what is the required return on the stock?
10.7%
Which one of the following is a current liability?
An invoice payable to a supplier in 45 days
A project has an initial cost of $52,700 and a market value of $61,800. What is the difference between these two values called?
Net present value
A(n) ________ loan has regular payments that include both principal and interest but these payments are insufficient to pay off the loan.
balloon
An asset has an average return of 10.49 percent and a standard deviation of 22.56 percent. What is the most you should expect to lose in any given year with a probability of 16 percent?
−12.07%
Timber Company just paid its annual dividend of $3.82 and expects to reduce this payout by 6 percent each year indefinitely. What is the per share value of this stock if you require a return of 14.5 percent?
$17.52
With a sales level of $547,200 and fixed assets of $471,000, Esquivel's is operating at full capacity. The net profit margin is 5.4 percent. If sales are to increase by 4 percent, what is the required addition to fixed assets?
$18,840
A firm has a current EPS of $1.63 and a benchmark PE of 11.7. Earnings are expected to grow 2.6 percent annually. What is the target stock price in one year?
$19.57
A project has base-case earnings before interest and taxes of $36,408, fixed costs of $42,700, a selling price of $24 per unit, and a sales quantity of 22,000 units. All estimates are accurate within ±2 percent. Depreciation is $16,700. What is the base-case variable cost per unit?
$19.65
Rahul is scheduled to receive annual payments of $3,600 for each of the next 12 years. The discount rate is 8 percent. What is the difference in the present value if these payments are paid at the beginning of each year rather than at the end of each year?
$2,170.39
The Paper Mill is operating at full capacity. Assets, costs, and current liabilities vary directly with sales. The dividend payout ratio is constant. The firm has sales of $42,700, net income of $5,500, total assets of $48,900, current liabilities of $3,650, long-term debt of $18,100, owners' equity of $27,150, and dividends of $1,925. What is the external financing need if sales increase by 14 percent?
$2,260
John's Auto Repair just obtained an interest-only loan of $35,000 with annual payments for 10 years and an interest rate of 8 percent. What is the amount of the loan payment in Year 8?
$2,800.00
One year ago, you purchased a stock at a price of $43.20 per share. The stock pays quarterly dividends of $.18 per share. Today, the stock is selling for $45.36 per share. What is your capital gain on this investment?
$2.16
You purchased an investment that will pay you $8,000, in real dollars, per year for the next three years. Each payment will be received at the end of the period with the first payment occurring one year from today. The nominal discount rate is 8.46 percent and the inflation rate is 3.1 percent. What is the present value of these payments in real dollars?
$21,705
Honor Computing just purchased new equipment that cost $213,000. The equipment is classified as MACRS five-year property. The MACRS rates are .2, .32, and .192 for Years 1 to 3, respectively. What is the proper methodology for computing the depreciation expense for Year 2 assuming the firm opts to forego any bonus depreciation?
$213,000(.32)
Thornton, Incorporated, had taxable income of $128,072 for the year. The company's marginal tax rate was 34 percent and its average tax rate was 21 percent. How much did the company have to pay in taxes for the year?
$26,895
Javier and Alex plan on retiring 27 years from today. At that time, they plan to have saved the same amount. Javier is depositing $15,000 today at an annual interest rate of 5.2 percent. How will Alex's deposit amount vary from Javier's if Alex also makes a deposit today, but earns an annual interest rate of 6.2 percent? Alex's deposit will need to be ______ than Javier's. (Assume annual compounding on both accounts.)
$3,381.39 less
The winner of the first annual Tom Morris Golf Invitational won $180 in the competition which was held in 1914. In 2015, the winner received $1,610,000. If the winner's purse continues to increase at the same interest rate, how much will the winner receive in 2048?
$31,472,226.82
Your anticipated wedding is three years from today. You don't know who your spouse will be but you do know that you are saving $10,000 today and $17,000 one year from today for this purpose. You also plan to pay the final $12,000 of anticipated costs on your wedding day. At a discount rate of 5.5 percent, what is the current cost of your upcoming wedding?
$36,333.11
Your grandparents would like to establish a trust fund that will pay you and your heirs $155,000 per year forever with the first payment 9 years from today. If the trust fund earns an annual return of 3 percent, how much must your grandparents deposit today?
$4,078,614.38
At the beginning of the year, Vendors, Incorporated, had owners' equity of $50,045. During the year, net income was $6,325 and the company paid dividends of $4,345. The company also repurchased $8,495 in equity. What was the owners' equity account at the end of the year?
$43,530
Coria Monroy is currently operating at only 86 percent of fixed asset capacity. Fixed assets are $387,000. Current sales are $510,000 and are projected to grow to $664,000. What amount must be spent on new fixed assets to support this growth in sales?
$46,319
A project will produce cash inflows of $5,400 per year for 3 years with a final cash inflow of $2,400 in Year 4. The project's initial cost is $13,400. What is the net present value if the required rate of return is 14.2 percent?
$505.92
For the past year, Momsen Limited had sales of $45,992, interest expense of $3,698, cost of goods sold of $16,309, selling and administrative expense of $11,576, and depreciation of $6,125. If the tax rate was 21 percent, what was the company's net income?
$6,544
A project has an accounting break-even point of 7,264 units. The fixed costs are $164,800 and the projected variable cost per unit is $24.57. The project will require $398,000 for fixed assets which will be depreciated straight-line to zero over the project's four-year life. What is the projected sales price per unit? Multiple Choice
$60.95
The Bruin's Den Outdoor Gear is considering a new 6-year project to produce a new tent line. The equipment necessary would cost $1.27 million and be depreciated using straight-line depreciation to a book value of zero. At the end of the project, the equipment can be sold for 10 percent of its initial cost. The company believes that it can sell 23,000 tents per year at a price of $63 and variable costs of $24 per tent. The fixed costs will be $385,000 per year. The project will require an initial investment in net working capital of $189,000 that will be recovered at the end of the project. The required rate of return is 10.6 percent and the tax rate is 21 percent. What is the NPV?
$620,377
A project with an initial investment of $444,500 will generate equal annual cash flows over its 10-year life. The project has a required return of 8.5 percent. What is the minimum annual cash flow required to accept the project?
$67,745.22
Last year, Bad Tattoo Company had additions to retained earnings of $5,035 on sales of $96,295. The company had costs of $76,215, dividends of $3,160, and interest expense of $2,280. If the tax rate was 21 percent, what the depreciation expense?
$7,427
You are going to deposit $22,500 today. You will earn an annual rate of 4.7 percent for 12 years, and then earn an annual rate of 4.1 percent for 15 years. How much will you have in your account in 27 years?
$71,335.16
Peggy Grey's Cookies has net income of $390. The firm pays out 40 percent of the net income to its shareholders as dividends. During the year, the company sold $84 worth of common stock. What is the cash flow to stockholders?
$72.00
A friend agreed to lend you money today. You must repay your friend by making payments of $30 per month for the next six months. The first payment must be paid today. In addition, you must pay 2 percent interest per month. How much total interest will you end up paying your friend?
$8.60
A company is considering a new 6-year project that will have annual sales of $234,000 and costs of $146,000. The project will require fixed assets of $265,000, which will be depreciated on a 5-year MACRS schedule. The annual depreciation percentages are 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, 11.52 percent, and 5.76 percent, respectively. The company has a tax rate of 21 percent. What is the operating cash flow for Year 2?
$87,328
Shelton Company purchased a parcel of land six years ago for $857,500. At that time, the firm invested $129,000 in grading the site so that it would be usable. Since the firm wasn't ready to use the site itself at that time, it decided to lease the land for $46,000 a year. The company is now considering building a warehouse on the site as the rental lease is expiring. The current value of the land is $909,000. What value should be included in the initial cost of the warehouse project for the use of this land?
$909,000
Vuong Rentals has sales of $546,000, costs of $295,000, depreciation expense of $37,000, interest expense of $15,000, and a tax rate of 21 percent. The firm paid $59,000 in cash dividends. What is the addition to retained earnings?
$98,210
You've observed the following returns on Pryor Farm Produce stock over the past five years: 8 percent, −5 percent, 16 percent, 12 percent, and 8 percent. What is the variance of these returns?
.00622
Based on the following information, what is the variance?
.01153
Further From Center has 11,300 shares of common stock outstanding at a price of $47 per share. It also has 270 shares of preferred stock outstanding at a price of $89 per share. There are 290 bonds outstanding that have a coupon rate of 6.6 percent paid semiannually. The bonds mature in 28 years, have a face value of $2,000, and sell at 107.5 percent of par. What is the capital structure weight of the preferred stock?
.0204
The common stock of Xiang Estates has an expected return of 13.3 percent. The expected return on the market is 10 percent, the inflation rate is 1.4 percent, and the risk-free rate of return is 1.3 percent. What is the beta of this stock?
1.38
Eastside Vintage has a net profit margin of 6.2 percent, a payout ratio of 30 percent, an ROA of 14.2 percent, and an ROE of 18.6 percent. This firm maintains a constant payout ratio and is currently operating at full capacity. What is the maximum rate at which the firm can grow without acquiring any additional external financing?
11.04%
You expect to receive a payout from a trust fund in 3 years. The payout will be for $11,800. You plan to invest the money at an annual rate of 6.8 percent until the account is worth $20,200. How many years do you have to wait from today?
11.17 years
Cabrera Carriers, Incorporated, common stock offers an expected total return of 14.56 percent. The last annual dividend was $2.27 per share. Dividends increase at a constant 2.1 percent per year. What is the dividend yield?
12.46%
Based on the past 13 years, Valdez Interiors common stock has yielded an arithmetic average rate of return of 12.6 percent. The geometric average return for the same period was 11.8 percent. What is the estimated return on this stock for the next three years according to Blume's formula?
12.47%
Matterhorn Mountain Gear is evaluating two projects with the following cash flows: YearProject XProject Y0−$ 316,200−$ 293,4501147,700138,1002165,200155,3003130,300121,050 What interest rate will make the NPV for the projects equal?
12.76%
Based on the following information, what is the standard deviation of returns?
13.68%
You own a 20-year bond that pays $22.50 in interest semiannually. The face value is $1,000 and the current market price is $1,079.24. The bond matures in 5 years. What is the yield to maturity?
2.79%
A project with an initial cost of $24,450 is expected to generate cash flows of $5,800, $7,900, $8,700, $7,600, and $6,600 over each of the next five years, respectively. What is the project's payback period?
3.27 years
Great Lakes Packing has two bond issues outstanding. The first issue has a coupon rate of 3.60 percent, a par value of $2,000 per bond, matures in 7 years, has a total face value of $4.1 million, and is quoted at 104 percent of face value. The second issue has a coupon rate of 6.34 percent, a par value of $1,000 per bond, matures in 26 years, has a total face value of $8.4 million, and is quoted at 92 percent of face value. Both bonds pay interest semiannually. The company's tax rate is 39 percent. What is the firm's weighted average aftertax cost of debt?
3.40%
The average annual return on small-company stocks was about _____ percentage points greater than the average annual return on large-company stocks over the period 1926-2019.
4
Gould Design has $1,000 face value bonds outstanding with 17 years to maturity, a coupon rate of 5 percent, semiannual interest payments, and a current price of $987.78. What is the aftertax cost of debt if the tax rate is 21 percent?
4.04%
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%
Decline, Incorporated, is trying to determine its cost of debt. The firm has a debt issue outstanding with 13 years to maturity that is quoted at 105.2 percent of face value. The issue makes semiannual payments and has an embedded cost of 6 percent annually. What is the aftertax cost of debt if the tax rate is 21 percent?
4.30%
A project has a unit sales price of $13.39, a variable cost per unit of $5.48, fixed costs of $3,000, and depreciation expense of $830. Ignore taxes. What is the accounting break-even quantity?
484 units
A bond with a current yield of 6.64 percent is quoted at 96.171. What is the coupon rate of the bond:?
6.39%
The required return on the stock of Moe's Pizza is 10.6 percent and aftertax required return on the company's debt is 3.34 percent. The company's market value capital structure consists of 67 percent equity. The company is considering a new project that is less risky than current operations and it feels the risk adjustment factor is −1.7 percent. The tax rate is 21 percent. What is the required return for the new project?
6.50%
Campos Restaurant Supply has a return on assets of 9 percent, a return on equity of 11.3 percent, and a payout ratio of 22 percent. What is its internal growth rate?
7.55%
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%
A new sports coupe costs $41,750 and the finance office has quoted you an APR of 7.7 compounded monthly for 36 months. What is the EAR?
7.98%
Countess Corporation is expected to pay an annual dividend of $4.27 on its common stock in one year. The current stock price is $70.99 per share. The company announced that it will increase its dividend by 3.45 percent annually. What is the company's cost of equity?
9.46%
The stock of Big Joe's has a beta of 1.40 and an expected return of 12.10 percent. The risk-free rate of return is 4.6 percent. What is the expected return on the market?
9.96%
Which one of the following statements is accurate?
A portfolio beta is a weighted average of the betas of the individual securities contained in the portfolio.
Which of the following parties are not considered stakeholders of a firm?
Competitors
Which one of the following is a use of cash?
Decrease in accounts payable
Which one of the following is the relationship between the percentage change in operating cash flow and the percentage change in quantity sold?
Degree of operating leverage
A decrease in which of the following will increase the current value of a stock according to the dividend growth model?
Discount rate
Assume all stock prices fairly reflect all of the available information on those stocks. Which one of the following terms best defines the stock market under these conditions?
Efficient capital market
The most common type of medium-term, amortized business loans has which one of these characteristics over its life?
Equal principal payments
Wei Bridal is a profitable firm with a dividend payout ratio of 25 percent. The firm does not want to issue additional equity shares nor increase its long-term debt. Which one of the following defines the maximum rate at which this firm can currently grow?
Internal growth rate
Which of the following statements regarding unsystematic risk is accurate?
It can be effectively eliminated by portfolio diversification.
Which of the following are advantages of the payback method of project analysis?
Liquidity bias; ease of use
Which one of the following is a correct ranking of securities based on the volatility of their annual returns over the period of 1926-2019? Rank from highest to lowest.
Long-term government bonds, long-term corporate bonds, intermediate-term government bonds
Galindo Recovery is considering an expansion project with cash flows of −$287,500, $107,500, $196,100, $104,500, and −$92,700 for Years 0 through 4, respectively. Should the firm proceed with the expansion based on the discounting approach to the modified internal rate of return if the discount rate is 13.4 percent? Why or why not?
No; The MIRR is 9.13 percent.
Which one of the following variables is the exponent in the present value formula?
Number of time periods
A project has a discount rate of 15.5 percent, an initial cost of $109,200, an inflow of $56,400 in Year 1, and an inflow of $75,900 in Year 2. Your boss requires that every project return a minimum of $1.06 for every $1 invested. Based on this information, what is your recommendation on this project?
Reject the project because the PI is .97.
Which one of the following is a primary market transaction?
Sale of a new share of stock from a corporation to an individual investor
Which one of the following will be used in the best-case analysis of a proposed project?
The lowest variable cost per unit that can reasonably be expected
Which one of the following characteristics relates to the cash break-even point for a given project?
The project never pays back.
Which one of the following statements correctly defines a time value of money relationship?
Time and present value are inversely related, all else held constant.
All else constant, an increase in which of the following must increase the return on equity?
Total asset turnover and debt-equity ratio
Which one of the following statements related to loan interest rates is correct?
When comparing loans you should compare the effective annual rates.
When using economic probabilities to compute the expected return on a stock, the result is:
a mathematical expectation based on a weighted average and not a guaranteed outcome.
When calculating a firm's weighted average cost of capital, the capital structure weights:
are based on the market values of the outstanding securities.
Velasquez Manufacturing has two vastly different lines of business: Alpha and Omega. The Alpha line is the riskiest of the two, and accounts for 72 percent of the firm's sales. When deciding which project proposals should be accepted, the managers should:
assign appropriate, but differing, discount rates to each business line and then select the projects with the highest net present values.
Mutually exclusive projects are best defined as competing projects that:
both require the total use of the same limited resource.
Changes in the net working capital requirements:
can affect the cash flows of a project every year of the project's life.
You are considering the purchase of a new machine. Your analysis includes the evaluation of two machines that have differing purchase prices, annual maintenance costs, and life spans. Whichever machine is purchased will be replaced at the end of its useful life. You should select the machine that has the:
lowest equivalent annual cost.
The procedure of allocating a fixed amount of funds for capital spending to each business unit is called:
soft rationing
During the year, the accounts payable of a company rose from $115,200 to $134,300. This change represents a:
source of $19,100 of cash as an operating activity.
Foytlin Accessories has sales of $19,700, net income of $3,517, fixed assets of $18,282, current liabilities of $2,940, current assets of $3,018, long-term debt of $7,600, and equity of $10,760. Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant 50 percent dividend payout ratio. Next year's sales are projected to increase by 7 percent. What is the amount of external financing needed if the firm is currently operating at full capacity?
−$596
Nielsen Paint had interest expense of $38,400, depreciation of $28,100, and taxes of $19,600 for the year. At the start of the year, the firm had total assets of $879,400 and current assets of $289,600. By year's end total assets had increased to $911,900 while current assets decreased to $279,300. What is the amount of the cash flow from investment activity for the year?
−$70,900