Finance Final Review

Gugenheim, Incorporated, has a bond outstanding with a coupon rate of 6.3 percent and annual payments. The yield to maturity is 7.5 percent and the bond matures in 19 years. What is the market price if the bond has a par value of $2,000? A) $1,766.01 B) $1,759.00 C) $1,763.69 D) $1,796.20 E) $1,760.98

$1760.98 PV = $126{[1 − (1/1.07519)]/.075} + $2,000/1.07519 PV = $1,760.98 E

A firm has net working capital of $500, net fixed assets of $2,246, sales of $6,100, and current liabilities of $810. How many dollars worth of sales are generated from every $1 in total assets? A) $2.00 B) $1.72 C) $2.22 D) $2.72 E) $1.62

B Current assets = $500 + 810 = $1,310 Total asset turnover = $6,100/($1,310 + 2,246) = 1.72 Sales generated by $1 in total assets = $1 × 1.72 = $1.72

The risk-free rate is 3.3 percent and the market-expected return is 12 percent. What is the expected return of a stock that has a beta of 1.18? A) 17.46% B) 13.57% C) 18.92% D) 12.06% E) 15.51%

B E( R) = .033 + 1.18(.120 − .033) E( R) = .1357, or 13.57%

The net present value of a project will increase if: A) the required rate of return increases. B) the initial capital requirement increases. C) some of the cash inflows are deferred until a later year. D) the aftertax salvage value of the fixed assets increases. E) the final cash inflow decreases.

D

You have $8,000 and will invest the money at an interest rate of .27 percent per month until the account is worth $13,600. How many years do you have to wait until you reach your target account value? A) 14.35 years B) 16.64 years C) 17.66 years D) 15.31 years E) 16.40 years

E $13,600 = $8,000(1.0027) t t = 196.79 months Years to wait = 196.79/12 = 16.40 years

You have a portfolio that is equally invested in Stock F with a beta of .90, Stock G with a beta of 1.32, and the market. What is the beta of your portfolio? A) 1.23 B) .74 C) 1.07 D) .99 E) 1.11

1.07 βPortfolio = 1/3(.90) + 1/3(1.32) + 1/3(1) βPortfolio = 1.07 C

You just purchased two coins at a price of $1,090 each. Because one of the coins is more collectible, you believe that its value will increase at a rate of 5.8 percent per year, while you believe the second coin will only increase at 5.2 percent per year. If you are correct, how much more will the first coin be worth in 12 years? A) $81.12 B) $124.36 C) $1,073.76 D) $141.45 E) $1,171.12

$141.45 FV = $1,090 × 1.05812 = $2,144.15 FV = $1,090 × 1.05212 = $2,002.70 Difference = $2,144.15 − 2,002.70 = $141.45 D

Carland, Incorporated, has a project available with the following cash flows. If the required return for the project is 7.5 percent, what is the project's NPV? Year Cash Flow 0 −$ 254,000 1 62,500 2 86,400 3 115,800 4 67,300 5 −11,600 A) $10,912.98 B) $30,593.06 C) $22,512.98 D) $9,548.86 E) $14,432.90

$14432.90 NPV = −$254,000 + $62,500/(1 + .075) + $86,400/(1 + .075)2 + $115,800/(1 + .075)3 + $67,300/(1 + .075)4 − $11,600/(1 + .075)5 NPV = $14,432.90

You have a portfolio that is invested 19 percent in Stock A, 42 percent in Stock B, and 39 percent in Stock C. The betas of the stocks are .64, 1.19, and 1.48, respectively. What is the beta of the portfolio? A) 1.10 B) .98 C) 1.20 D) 1.35 E) 1.15

1.20 βPortfolio = .19(.64) + .42(1.19) + .39(1.48) βPortfolio = 1.20 C

You purchased 220 shares of stock at a price of $52.17 per share. Over the last year, you have received total dividend income of $230. What is the dividend yield? A) 9.7% B) 2.0% C) 4.4% D) 4.6% E) 1.0%

2.0% Dividend yield = ($230/220)/$52.17 Dividend yield = .020, or 2.0%

Ivan's, Incorporated, paid $500 in dividends and $595 in interest this past year. Common stock increased by $205 and retained earnings decreased by $131. What is the net income for the year? A) $964 B) $500 C) $369 D) $595 E) $800

369 Net income = Dividends paid + Change in retained earnings Net income = $500 + (- $131) = $369 In this case, the change in retained earnings was a negative value. C

If the risk premium on the stock market was 6.63 percent and the risk -free rate was 2.49 percent, what was the stock market return? A) 6.63% B) 7.30% C) 9.95% D) 9.12% E) 4.14%

9.12% Market return = 6.63% + 2.49% Market return = 9.12% D

Which one of the following involves a working capital management decision? A) What is the maximum level of cash to be kept in the firm's bank account? B) What is the most efficient process for producing a product? C) How many hours of overtime should manufacturing employees be allowed to work? D) When is the appropriate time to replace the delivery fleet? E) Should a newly available parcel of land be acquired?

A

Wine and Roses, Incorporated, offers a bond with a coupon of 8.5 percent with semiannual payments and a yield to maturity of 8.34 percent. The bonds mature in 17 years. What is the market price of a $1,000 face value bond? A) $1,014.40 B) $1,779.49 C) $1,269.90 D) $1,765.09 E) $1,249.32

A

A stock had returns of 18.62 percent, 22.02 percent, −15.26 percent, 9.14 percent, and 28.21 percent for the past five years. What is the standard deviation of the returns? A) 17.01% B) 21.26% C) 28.92% D) 2.89% E) 13.60%

A Average return = (.1862 + .2202 − .1526 + .0914 + .2821)/5 Average return = .1255, or 12.55% Variance = 1/4[(.1862 − .1255)2 + (.2202 − .1255)2 + (−.1526 − .1255)2 + (.0914 − .1255)2 + (.2821 − .1255)2] Variance = .02892 Standard deviation = .028921/2 Standard deviation = .1701, or 17.01%

Filter Corporation has a project available with the following cash flows: Year Cash Flow 0 −$ 15,700 1 5,100 2 6,400 3 5,800 4 4,200 What is the project's IRR? A) 14.32% B) 16.70% C) 15.51% D) 15.91% E) 14.91%

A 0 = −$15,700 + $5,100/(1 + IRR) + $6,400/(1 + IRR)2 + $5,800/(1 + IRR)3 + $4,200/(1 + IRR)4 IRR = .1432, or 14.32%

Your credit card company charges you 1.47 percent per month. What is the APR on your credit card? A) 17.64% B) 18.39% C) 16.76% D) 19.14% E) 20.10%

A APR = 1.47% × 12 = 17.64%

What are the arithmetic and geometric average returns for a stock with annual returns of 11 percent, 9 percent, −5 percent, and 15 percent? A) 7.50%; 7.22% B) 9.94%; 7.22% C) 9.94%; 7.50% D) 7.50%; 9.94% E) 7.22%; 7.50%

A Arithmetic Return = (.11 + .09 − .05 + .15)/4 Arithmetic Return = .0750, or 7.50% Geometric Return = [(1 + .11) × (1 + .09) × (1 − .05) × (1 + .15)] ¼ − 1 Geometric Return = .0722, or 7.22%

Use the following information to answer this question: large chart... What is the cash coverage ratio for 2021? A) 17.17 times B) 2.32 times C) 7.39 times D) 13.38 times E) 3.80 times

A Cash coverage ratio = ($1,325 + 375 )/$99 = 17.17 times

At the beginning of the year, a firm has current assets of $325 and current liabilities of $229. At the end of the year, the current assets are $487 and the current liabilities are $269. What is the change in net working capital? A) $122 B) -$122 C) $162 D) $202 E) $0

A Change in net working capital = ($487 - 269) - ($325 - 229) = $122

An asset has an average return of 10.43 percent and a standard deviation of 22.53 percent. What is the most you should expect to lose in any given year with a probability of 16 percent? A) −12.10% B) −32.96% C) −34.63% D) −23.37% E) −57.16%

A Maximum loss = 10.43% − 22.53% Maximum loss = −12.10%

Bourne Freestyle has cost of goods sold of $92,511, interest expense of $4,608, dividends paid of $3,200, depreciation of $14,568, an increase in retained earnings of $11,920, and a tax rate of 21 percent. What is the operating cash flow? A) $34,296.00 B) $42,122.42 C) $36,462.58 D) $31,543.10 E) $36,741.42

A Net income = $3,200 + 11,920 Net income = $15,120 Taxable income = $15,120/(1 − .21) Taxable income = $19,139.24 EBIT = $19,139.24 + 4,608 EBIT = $23,747.24 Taxes = $19,139.24 − 15,120 Taxes = $4,019.24 OCF = $23,747.24 + 14,568 − 4,019.24 OCF = $34,296.00

New Gadgets, Incorporated, currently pays no dividend but is expected to pay its first annual dividend of $5.20 per share exactly 7 years from today. After that, the dividends a re expected to grow at 4.1 percent forever. If the required return is 11.9 percent, what is the price of the stock today? A) $33.96 B) $39.62 C) $66.67 D) $52.38 E) $30.35

A P6 = $5.20/(.119 − .041) = $66.67 P0 = $66.67/1.1196 P0 = $33.96

A portfolio consists of $14,200 in Stock M and $20,900 invested in Stock N. The expected return on these stocks is 8.40 percent and 12.00 percent, respectively. What is the expected return on the portfolio? A) 10.54% B) 10.20% C) 9.86% D) 9.04% E) 11.27%

A Weight of M = $14,200/($14,200 + 20,900) Weight of M = .4046 Portfolio expected return = .4046(8.4%) + (1 - .4046)(12%) Portfolio expected return = 10.54%

Gnomes R Us just paid a dividend of $1.75 per share. The company has a dividend payout ratio of 40 percent. If the PE ratio is 15.4 times, what is the stock price? A) $67.38 B) $56.15 C) $44.92 D) $10.78 E) $26.95

A EPS = $1.75/.40 = $4.38 P = $4.38(15.40) = $67.38

Activities of a firm that require the spending of cash are known as: A) sources of cash. B) uses of cash. C) cash collections. D) cash receipts. E) cash on hand.

B

The length of time a firm must wait to recoup the money it has invested in a project is called the: A) internal return period. B) payback period. C) profitability period. D) discounted cash period. E) valuation period.

B

When developing a common-size balance sheet to evaluate last year's performance, all accounts are expressed as a percentage of: A) last year's sales. B) last year's total assets. C) the base year's total equity. D) the base year's sales. E) the base year's total assets.

B

Which one of the following is a current liability? A) A loan payable to the bank in 4 years B) An invoice payable to a supplier in 45 days C) An amount due from a customer in 90 days D) A note payable to a lender in 18 months E) An amount due from a customer, which is already past due

B

Which one of the following is a source of cash? A) Repurchase of common stock B) Acquisition of debt C) Purchase of inventory D) Payment to a supplier E) Granting credit to a customer

B

Which one of the following is a working capital management decision? A) What equipment will be required to complete a project? B) Should the firm require immediate payment from customers or offer credit terms? C) What amount of long-term debt is required to complete a project? D) What percentage of the firm's equity should the firm issue to fund an acquisition? E) Which one of several acceptable projects should be implemented?

B

Which one of the following questions involves a capital budgeting decision? A) How many shares of stock should the firm issue? B) Should the firm purchase a new machine for the production line? C) Should the firm borrow money to acquire new equipment? D) How much inventory should the firm keep on hand? E) How much money should be kept in the checking account?

B

Which one of the following statements concerning net working capital is correct? A) Net working capital increases when inventory is purchased with cash. B) Net working capital may be a negative value. C) Total assets must increase if net working capital increases. D) Net working capital excludes inventory. E) Net working capital is the amount of cash a firm currently has available for spending.

B

Sankey Company has earnings per share of $3.65. The benchmark PE is 18.2 times. What stock price would you consider appropriate? A) $21.85 B) $66.43 C) $58.15 D) $49.86 E) $47.87

B P = $3.65(18.2) = $66.43

A stock had returns of 17.95 percent, −7.35 percent, and 23.90 percent for the past three years. What is the standard deviation of the returns? A) 13.13% B) 16.59% C) 9.67% D) 27.53% E) 2.75%

B Average return = (.1795 − .0735 + .2390)/3 Average return = .1150, or 11.50% Variance = 1/2[(.1795 − .1150)2 + (−.0735 − .1150)2 + (.2390 − .1150)2] Variance = .02753 Standard deviation = .027531/2 Standard deviation = .1659, or 16.59%

A stock had returns of 18.33 percent, −5.43 percent, 20.66 percent, and 8.79 percent for the past four years. What is the variance of the returns? A) .11849 B) .01404 C) .01872 D) .01685 E) .00637

B Average return = (.1833 − .0543 + .2066 + .0879)/4 Average return = .1059, or 10.59% Variance = 1/3[(.1833 − .1059)2 + (−.0543 − .1059)2 + (.2066 − .1059)2 + (.0879 − .1059)2] Variance = .01404

Johnston & Chu started the year with $650,000 in the common stock account and $1,318,407 in the additional paid-in surplus account. The end-of-year balance sheet showed $720,000 and $1,299,310 in the same two accounts, respectively. What is the cash flow to stockholders if the firm paid $68,500 in dividends? A) −$17,597 B) $17,597 C) −$1,500 D) $1,500 E) $68,500

B CFS = $68,500 − [($720,000 + 1,299,310) − ($650,000 + 1,318,407)] CFS = $17,597

There is 8 percent probability of recession, 17 percent probability of a poor economy, 47 percent probability of a normal economy, and 28 percent probability of a boom. A stock has returns of −19 percent, 2.6 percent, 10.4 percent, and 26.1 percent in these states of the economy, respectively. What is the stock's expected return? A) 10.19% B) 11.12% C) 5.03% D) 12.64% E) 14.16%

B E( R) = .08(−.190) + .17(.026) + .47(.104) + .28(.261) E( R) = .1112, or 11.12%

Based on the following information, what is the standard deviation of returns? State of Economy Probability of State of Economy Rate of Return if State Occurs Recession .33 −.101 Normal .36 .116 Boom .31 .226 A) 23.84% B) 13.37% C) 26.01% D) 17.88% E) 18.61%

B E( R) = .33(−.101) + .36(.116) + .31(.226) E( R) = .0785, or 7.85% σ2 = .33(−.101 − .0785)2 + .36(.116 − .0785)2 + .31(.226 − .0785)2 σ2 = .01788 σ = .017881/2 σ = .1337, or 13.37%

What is the effective annual rate for an APR of 17.50 percent compounded monthly? A) 17.75% B) 18.97% C) 18.83% D) 18.68% E) 19.92%

B EAR = (1 + .1750/12)12 - 1 = .1897, or 18.97%

Disturbed, Incorporated, had the following operating results for the past year: sales = $22,586; depreciation = $1,300; interest expense = $1,048; costs = $16,485. The tax rate for the year was 21 percent. What was the company's operating cash flow? A) $2,965 B) $5,313 C) $7,415 D) $3,753 E) $2,980

B EBIT = $22,586 − 16,485 − 1,300 = $4,801 EBT = $4,801 − 1,048 = $3,753 Taxes = $3,753(.21) = $788 OCF = $4,801 + 1,300 − 788 = $5,313

A stock had returns of 12.4 percent, 16.6 percent, 10.2 percent, 19.0 percent, −15.7 percent, and 6.3 percent over the last six years. Wha t is the geometric average return on the stock for this period? A) 7.90% B) 7.46% C) 8.56% D) 7.76% E) 8.01%

B Geometric average = (1.124)(1.166)(1.102)(1.190)(.843)(1.063)1/6 − 1 Geometric average = .0746, or 7.46%

You are examining a company's balance sheet and find that it has total assets of $21,083, a cash balance of $2,397, inventory of $5,137, current liabilities of $6,277, and accounts receivable of $2,909. What is the company's net working capital? A) $14,806 B) $4,166 C) $6,108 D) $971 E) $1,769

B NWC = Current assets − Current liabilities NWC = ($2,397 + 2,909 + 5,137) − 6,277 NWC = $4,166

Kindzi Company has preferred stock outstanding that is expected to pay an annual dividend of $3.76 every year in perpetuity. If the required return is 3.89 percent, what is the current stock price? A) $90.21 B) $96.66 C) $100.42 D) $86.99 E) $93.04

B P0 = $3.76/.0389 = $96.66

Red Sun Rising just paid a dividend of $2.31 per share. The company said that it will increase the dividend by 15 percent and 10 percent over the next two years, respectively. After that, the company is expected to increase its annual dividend at 4.1 percent. If the required return is 11.1 percent, what is the stock price today? A) $35.21 B) $39.97 C) $10.00 D) $38.78 E) $37.60

B P2 = [$2.31(1.150)]/1.111 + [$2.31(1.150)(1.100)]/1.1112 + {[$2.31(1.150)(1.100)(1.041)]/(.111 − .041)}/1.1112 P0 = $39.97

Kasey Corporation has a bond outstanding with a coupon rate of 5.64 percent and semiannual payments. The bond has a yield to maturity of 6.1 percent, a par value of $2,000, and matures in 15 years. What is the quoted price of the bond? A) 97.43 B) 95.52 C) 2,101.46 D) 95.79 E) 1,910.42

B PV = $56.40{[1 − (1/(1+.0610/2)(15 × 2))]/(.0610}/2) + $2,000/(1+.0610/2)(15 × 2) PV = $1,910.42 Quoted price = $1,910.42/$2,000 × 100 = 95.52

A firm has common stock of $81, paid-in surplus of $170, total liabilities of $365, current assets of $300, and net fixed assets of $510. What is the amount of the shareholders' equity? A) $810 B) $445 C) $495 D) $145 E) $616

B Shareholders' equity = Current assets + Net fixed assets - Total liabilities. Shareholders' equity = $300 + 510 - 365 = $445

You purchased 1,050 shares of stock in Natural Chicken Wings, Incorporated, at a price of $43.40 per share. Since you purchased the stock, you have received dividends of $.97 per share. Today, you sold your stock at a price of $46.65 per share. What was your total percentage return on this investment? A) 11.06% B) 9.72% C) 8.61% D) 10.37% E) 7.49%

B Total return = ($46.65 − 43.40 + .97)/$43.40 Total return = .0972, or 9.72%

Shareholders' equity: A) is referred to as a firm's financial leverage. B) is equal to total assets plus total liabilities. C) represents the residual value of a firm. D) includes patents, preferred stock, and common stock. E) decreases whenever new shares of stock are issued.

C

Which one of the following is classified as a tangible fixed asset? A) Accounts receivable B) Goodwill C) Computer equipment D) Cash E) Inventory

C

Which one of the following represents the most liquid asset? A) $500 account receivable that is discounted and collected for $480 today B) $500 worth of inventory that is sold today on credit for $515 C) $500 worth of inventory that is sold today for $500 in cash D) $500 worth of inventory that is discounted and sold today for $485 in cash E) $500 of accounts receivable that will be collected in full next week

C

Guerilla Radio Broadcasting has a project available with the following cash flows : Year Cash Flow 0 −$ 17,200 1 7,100 2 8,400 3 3,100 4 2,700 What is the payback period? A) 2.97 years B) 1.45 years C) 2.55 years D) 2.83 years E) 3.00 years

C Amount short after 2 years = $17,200 − 7,100 − 8,400 Amount short after 2 years = $1,700 Amount short after 2 years = $17,200 − 7,100 − 8,400 Amount short after 2 years = $1,700

Cain's has a debt-equity ratio of .94. Return on assets is 8.5 percent, and total equity is $520,000. What is the net income? A) $44,200 B) $88,880 C) $85,748 D) $41,548 E) $74,909

C Equity multiplier = 1 + Debt-equity ratio Equity multiplier = 1.94 ROE = .085(1.94) ROE = .1649 Net income = .1649($520,000) Net income = $85,748

Rossdale Flowers has a new greenhouse project with an initial cost of $339,500 that is expected to generate cash flows of $46,100 for 10 years and a cash flow of $61,500 in Year 11. If the required return is 8.4 percent, what is the project's NPV? A) $8,639.36 B) $91,152.29 C) −$10,344.25 D) −$16,685.84 E) $111,730.53

C NPV = −$339,500 + $46,100(PVIFA8.40%, 10) + $61,500/(1 + .084)11 NPV = −$10,344.25

You own 320 shares of Stock X at a price of $21 per share, 190 shares of Stock Y at a price of $44 per share, and 255 shares of Stock Z at a price of $67 per share. What is the portfolio weight of Stock Y? A) .2089 B) .4553 C) .2599 D) .5312 E) .2924

C Weight of Y = 190($44)/[320($21) + 190($44) + 255($67)] Weight of Y = .2599

If you earn an annual interest rate of 9.2 percent, how many years will it take to quintuple your money? A) 14.63 years B) 16.88 years C) 18.29 years D) 16.00 years E) 16.62 years

C $5 = $1(1.092) t t = 18.29 years

Mountain Frost is considering a new project with an initial cost of $190,000. The equipment will be depreciated on a straight-line basis to a zero book value over the four-year life of the project. The projected net income for each year is $19,700, $20,600, $24,600, and $16,600, respectively. What is the average accounting return? A) 22.98% B) 16.09% C) 21.45% D) 10.72% E) 19.66%

C AAR = [($19,700 + 20,600 + 24,600 + 16,600)/4]/[($190,000 + 0)/2] AAR = .2145, or 21.45%

A company has net working capital of $2,047, current assets of $6,375, equity of $22,035, and long-term debt of $10,475. What is the company's net fixed assets? A) $24,082 B) $26,135 C) $30,463 D) $28,182 E) $38,885

C Current liabilities = $6,375 − 2,047 = $4,328 Total liabilities and equity = Total assets = $22,035 + 10,475 + 4,328 = $36,838 Net fixed assets = $36,838 − 6,375 = $30,463

Jupiter Explorers has $8,600 in sales. The profit margin is 4 percent. There are 4,300 shares of stock outstanding, with a price of $1.90 per share. What is the company's price -earnings ratio? A) 33.68 times B) 15.20 times C) 23.75 times D) 11.88 times E) 12.92 times

C Earnings per share = ($8,600 × .04)/4,300 = $.08000 Price-earnings ratio = $1.90/$.08000 = 23.75 times

Symon's Suppers Company has announced that it will pay a dividend of $4.31 per share one year from today. Additionally, the company expects to increase its dividend by 4.6 percent annually. The required return on the company's stock is 11 percent. What is the current share price? A) $63.98 B) $70.44 C) $67.34 D) $63.40 E) $31.05

C P0 = $4.31/(.110 - .046) = $67.34

You are in talks to settle a potential lawsuit. The defendant has offered to make annual payments of $15,000, $25,000, $40,000, and $60,000 to you each year over the next four years, respectively. All payments will be made at the end of the year. If the appropriate interest rate is 3.7 percent, what is the value of the settlement offer today? A) $130,108.59 B) $140,000.00 C) $125,466.34 D) $132,733.17 E) $111,525.63

C PV = $15,000/1.037 + $25,000/1.0372 + $40,000/1.0373 + $60,000/1.0374 = $125,466.34

Your grandparents would like to establish a trust fund that will pay you and your heirs $165,000 per year forever with the first payment 11 years from today. If the trust fund earns an annual return of 3.2 percent, how much must your grandparents deposit today? A) $5,156,250.00 B) $4,759,615.38 C) $3,763,024.04 D) $3,533,276.28 E) $4,296,875.00

C PV = $165,000/.032 = $5,156,250.00 PV = $5,156,250.00/(1.03210) = $3,763,024.04

An investment had a nominal return of 10.9 percent last year. The inflation rate was 2.8 percent. What was the real return on the investment? A) 14.01% B) 8.75% C) 7.88% D) 7.30% E) 10.65%

C r = [(1 + .109)/(1 + .028)] − 1 = .0788, or 7.88%

Which one of these statements related to discounted payback is correct? A) Payback is a better method of analysis than discounted payback. B) Discounted payback is used more frequently in business than payback. C) Discounted payback does not require a cutoff point. D) Discounted payback is biased towards short-term projects. E) The discounted payback period increases as the discount rate decreases.

D

Last year, you purchased 500 shares of Forever, Incorporated, stock at a price of $45.32 per share. You received $700 in dividends and a total of $24,995 when you sold the stock. What was the capital gains yield on this stock? A) 8.83% B) 3.09% C) 9.51% D) 10.30% E) 9.79%

D Capital gains yield = [($24,995/500) − 45.32]/$45.32 Capital gains yield = .1030, or 10.30%

Maxxie purchased a tract of land for $31,500. Today, the same land is worth $48,600. How many years have passed if the price of the land has increased at an annual rate of 5.3 percent? A) 6.30 years B) 7.46 years C) 7.56 years D) 8.40 years E) 7.20 years

D $48,600 = $31,500(1.053) t t = 8.40 years

Blinding Light Company has a project available with the following cash flows: Year Cash Flow 0 −$ 34,590 1 8,060 2 9,690 3 13,770 4 15,730 5 10,520 What is the project's IRR? A) 19.11% B) 16.51% C) 19.87% D) 18.34% E) 20.38%

D 0 = −$34,590 + $8,060/(1 + IRR) + $9,690/(1 + IRR)2 + $13,770/(1 + IRR)3 + $15,730/(1 + IRR)4 + $10,520/(1 + IRR)5 IRR = .1834, or 18.34%

Your company has a project available with the following cash flows: Year Cash Flow 0 −$ 81,900 1 21,100 2 24,200 3 30,000 4 25,600 5 19,000 If the required return is 13 percent, should the project be accepted based on the IRR? A) No, because the IRR is 14.26 percent. B) Yes, because the IRR is 14.85 percent. C) Yes, because the IRR is 15.44 percent. D) Yes, because the IRR is 14.26 percent. E) No, because the IRR is 15.44 percent.

D 0 = −$81,900 + $21,100/(1 + IRR) + $24,200/(1 + IRR)2 + $30,000/(1 + IRR)3 + $25,600/(1 + IRR)4 + $19,000/(1 + IRR)5 IRR = .1426, or 14.26% Because the IRR is greater than the required return, accept the project.

Peggy Grey's Cookies has net income of $330. The firm pays out 37 percent of the net income to its shareholders as dividends. During the year, the company sold $78 worth of common stock. What is the cash flow to stockholders? A) $93.24 B) $207.90 C) $200.10 D) $44.10 E) $122.10

D CFS = (.37 × $330) - $78 = $44.10

Based on the following information, what is the variance? State of Economy Probability of State of Economy Rate of Return if State Occurs Recession .28 −9.60% Normal .41 11.10% Boom .31 22.10% A) .07678 B) .02277 C) .03036 D) .01518 E) .12320

D E( R) = .28(−.096) + .41(.111) + .31(.221) E( R) = .0871, or 8.71% σ2 = .28(−.096 − .0871)2 + .41(.111 − .0871)2 + .31(.221 − .0871)2 σ2 = .01518

You are going to deposit $2,500 in an account that pays .51 percent interest per quarter. How much will you have in 5 years? A) $2,753.70 B) $2,770.82 C) $2,781.86 D) $2,767.74 E) $2,765.62

D FV = $2,500 × 1.005120 = $2,767.74

Five years from today, you plan to invest $3,250 for 10 additional years at 5.5 percent compounded annually. How much will you have in your account 15 years from today? A) $5,937.92 B) $6,055.15 C) $4,247.62 D) $5,551.47 E) $7,255.55

D FV = $3,250 × 1.05510 = $5,551.47

Stoneheart Group is expected to pay a dividend of $3.11 next year. The company's dividend growth rate is expected to be 4.2 percent indefinitely and investors require a return of 11.4 percent on the company's stock. What is the stock price? A) $38.88 B) $45.01 C) $27.28 D) $43.19 E) $41.03

D P0 = $3.11/(.114 - .042) = $43.19

The value today of the following cash flows is $6,799.23 at an interest rate of 5.5 percent. What is the value of the Year 3 cash flow? Year Cash Flow 1 $ 1,620 2 1,785 3 ? 4 2,430 A) $1,846.38 B) $3,875.18 C) $964.23 D) $1,994.34 E) $1,698.41

D PV = $1,620/1.055 + $1,785/1.0552 + $2,430/1.0554 = $5,100.82 Difference = $6,799.23 − 5,100.82 = $1,698.41 FV = $1,698.41(1.055)3 = $1,994.34 Difference = $6,799.23 − 5,100.82 = $1,698.41

You have gathered the following information on your investments. What is the expected return on the portfolio? Stock Number of Shares Price per Share Expected Return F 180 $ 27 12.80% G 240 $ 13 9.40% H 190 $ 39 10.20% A) 10.80% B) 11.34% C) 11.83% D) 10.86% E) 12.31%

D Portfolio value = 180($27) + 240($13) + 190($39) Portfolio value = $15,390 Weight of F = 180($27)/$15,390 = .3158 Weight of G = 240($13)/$15,390 = .2027 Weight of H = 190($39)/$15,390 = .4815 Portfolio expected return = .3158(12.80%) + .2027(9.40%) + .4815(10.20%) Portfolio expected return = 10.86%

You own a portfolio that has a total value of $210,000 and it is invested in Stock D with a beta of .87 and Stock E with a beta of 1.38. The beta of your portfolio is equal to the market beta. What is the dollar amount of your investment in Stock D? A) $46,838.24 B) $26,765.14 C) $40,147.28 D) $156,470.59 E) $53,529.41

D βPortfolio = 1.0 = .87 wD + (1 − wD)(1.38) wD = .745098 Dollar investment in Stock D = .745098($210,000) Dollar investment in Stock D = $156,470.59

A common-size income statement is an accounting statement that expresses all of a firm's expenses as a percentage of: A) total assets. B) total equity. C) net income. D) taxable income. E) sales.

E

Determining the number of shares of stock to issue is an example of a ______ decision. A) capital rationing B) net working capital C) capital budgeting D) capital allocation E) capital structure

E

Which of the following actions would be most likely to decrease agency costs for the firm? A) Increase employees' salaries to exceed the salaries paid by competitors B) Pay all employees based on the amount of revenue generated by the firm C) Prohibit employees from becoming shareholders of the firm D) Pay bonuses to employees only if profits increase from one year to the next E) Reward high performing employees with shares of stock

E

Which one of the following is a source of cash? A) Increase in accounts receivable B) Decrease in common stock C) Increase in fixed assets D) Decrease in accounts payable E) Decrease in inventory

E

Which one of the following is a use of cash? A) Decrease in fixed assets B) Decrease in inventory C) Increase in long-term debt D) Decrease in accounts receivables E) Decrease in accounts payable

E

Use the following information to answer this question:..... large chart that i can not include... What is the fixed asset turnover for 2021? A) 4.30 times B) 1.85 times C) .31 times D) 2.25 times E) 3.23 times

E Fixed asset turnover = $13,250/$4,100 = 3.23 times

An asset has an average return of 11.57 percent and a standard deviation of 23.10 percent. What is the most you should expect to earn in any given year with a probability of 16 percent? A) 23.08% B) 57.73% C) 11.53% D) 34.63% E) 34.67%

E Maximum gain = 11.57% + 23.10% Maximum gain = 34.67%

Mo will receive a perpetuity of $34,000 per year forever, while Curly will receive the same annual payment for the next 50 years. If the interest rate is 7.8 percent, how much more are Mo's payments worth? A) $9,081.16 B) $9,559.11 C) $9,877.75 D) $10,706.21 E) $10,196.39

E PV = $34,000/.078 = $435,897.44 PV = $34,000[(1 − 1/1.078050)/.0780] = $425,701.05 Difference = $435,897.44 − 425,701.05 = $10,196.39

A project will generate annual cash flows of $237,600 for each of the next three years, and a cash flow of $274,800 during the fourth year. The initial cost of the project is $751,600. What is the internal rate of return of this project? A) 9.68% B) 10.97% C) 10.32% D) 12.58% E) 11.61%

E 0 = −$751,600 + $237,600/(1 + IRR) + $237,600/(1 + IRR)2 + $237,600/(1 + IRR)3 + $274,800/(1 + IRR)4 IRR = .1161, or 11.61%

You own a stock that had returns of 10.10 percent, −15.86 percent, 19.54 percent, 23.76 percent, and 6.44 percent over the past five years. What was the arithmetic average return for this stock? A) 7.84% B) 8.32% C) 9.15% D) 9.53% E) 8.80%

E Arithmetic return = (.1010 − .1586 + .1954 + .2376 + .0644)/5 Arithmetic return = .0880, or 8.80%

You find the following financial information about a company: net working capital = $1,152; fixed assets = $7,489; total assets = $11,782; and long-term debt = $4,459. What is the company's total equity? A) $9,744 B) $4,293 C) $6,334 D) $8,755 E) $4,182

E Current assets = $11,782 − 7,489 = $4,293 $1,152 = $4,293 − CL CL = $3,141 Total equity = $11,782 − 4,459 − 3,141 = $4,182

The expected return on HiLo stock is 15.30 percent while the expected return on the market is 12.3 percent. The beta of HiLo is 1.47. What is the risk -free rate of return? A) 2.71% B) 7.39% C) 2.96% D) 3.00% E) 5.92%

E E( R) = .1530 = Rf + 1.47[.123 − Rf] .1530 = Rf + .1808 − 1.47Rf .47Rf = .0278 Rf = .0592, or 5.92%

An asset has an average return of 11.09 percent and a standard deviation of 23.82 percent. What is the most you should expect to earn in any given year with a probability of 2.5 percent? A) 70.64% B) 82.55% C) 46.82% D) 34.91% E) 58.73%

E Maximum gain = 11.09% + (2 × 23.82%) Maximum gain = 58.73%

A project with an initial investment of $458,900 will generate equal annual cash flows over its 10-year life. The project has a required return of 8.3 percent. What is the minimum annual cash flow required to accept the project? A) $79,220.45 B) $74,379.60 C) $64,037.83 D) $66,246.03 E) $69,317.90

E NPV = 0 = −$458,900 + C(PVIFA8.3%, 10) C = $69,317.90

Amount short after 2 years = $17,200 − 7,100 − 8,400 Amount short after 2 years = $1,700 A) $1,224 B) $4,195 C) $532 D) $793 E) $1,824

E Net income = .24 × $7,600 = $1,824

A balance sheet has total assets of $1,892, fixed assets of $1,306, long-term debt of $692, and short-term debt of $233. What is the net working capital? A) $381 B) $1,200 C) $459 D) $586 E) $353

E Net working capital = ($1,892 − 1,306) − $233 = $353

A project that costs $21,000 today will generate cash flows of $7,300 per year for seven years. What is the project's payback period? A) 2.30 years B) .35 years C) 2.40 years D) 3.00 years E) 2.88 years

E Payback period = $21,000/$7,300 Payback period = 2.88 years

Echo Point has sales of $2,800, total assets of $1,900, and a debt-equity ratio of .5. Its return on equity is 15 percent. What is the net income? A) $210 B) $130 C) $240 D) $350 E) $190

E ROE = .15 = (Net income/$2,800)($2,800/$1,900)(1.50) Net income = $190

A stock is expected to maintain a constant dividend growth rate of 4.2 percent indefinitely. If the stock has a dividend yield of 5.5 percent, what is the required return on the stock? A) 9.2% B) 9.1% C) 8.7% D) 8.1% E) 9.7%

E Required return = 4.2% + 5.5% = 9.7%

Silky Smooth has an EPS of $3.38 per share and a profit margin of 7.8 percent. If the PS ratio is 2.01 times, what is the stock price? A) $101.62 B) $94.36 C) $97.99 D) $26.36 E) $87.10

E Sales per share = $3.38/.078 = $43.33 P = $43.33(2.01) = $87.10

A firm has sales of $1,030, net income of $207, net fixed assets of $506, and current assets of $262. The firm has $82 in inventory. What is the common-size balance sheet value of inventory? A) 16.21% B) 39.61% C) 7.96% D) 31.30% E) 10.68%

E Total assets = $506 + 262 = $768 Common-size value of inventory = $82/$768 = .1068, or 10.68%

A portfolio consists of 175 shares of Stock C that sells for $37 and 140 shares of Stock D that sells for $43. What is the portfolio weight of Stock C? A) .5614 B) .5830 C) .4130 D) .4818 E) .5182

E Weight of C = 175($37)/[175($37) + 140($43)] Weight of C = .5182

If the tax rate is 21 percent in 2020. Your firm currently has taxable income of $80,000. How much additional tax will you owe if you increase your taxable income by $21,200? A) $4,062 B) $8,268 C) $4,072 D) $8,268 E) $7,208 F) $4,072 G) $4,452

G Taxes on .21($80,000) = $16,800 New taxable income = $80,000 + 21,200 = $101,200 Taxes on $.21(101,200) = $21,252 Additional tax = $21,252 - 16,800 = $4,452

When evaluating the timing of a project's projected cash flows, a financial manager is analyzing: A) the amount of each expected cash flow. B) only the start-up costs that are expected to require cash resources. C) only the date of the final cash flow related to the project. D) the amount by which cash receipts are expected to exceed cash outflows. E) when each cash flow is expected to occur.

when each cash flow is expected to occur.