FIN 300 FINAL

The cash flow that is available for distribution to a corporations creditors and stockholders is called the

cash flow from assets

Andrew just calculated the present value of a $15,000 bonus he will receive next year. The interest rate he used in his calculation is referred to as the:

discount rate

Dilan owns a bond that will pay him $45 each year in interest plus $1,000 as a principal payment at maturity. The $1,000 is referred to as the:

face value

Cash flow from assets is also known as the firms

free cash flow

a company's pretax cost of debt:

is based on the current yield to maturity of the company's outstanding bonds

Municipal bonds

pay interest that is free from federal taxation.

The distribution point plans to save $2,000 a month for the next 3 years for future emergencies. The interest rate is 4.5% compounded monthly. The first monthly deposit will be made today. What would today's deposit amount have to be if the firm opted for one lump sum deposit that would yield the same amount of savings as the monthly deposits after 3 years?

$67,485.97

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

You just signed a consulting contract that will pay you $27,000, $31,000 and $44,000 at the end of the next 3 years. What is the present value of their contract given a discount rate of 12.7%?

$79,103

AI obtained a mortgage of $195,00 at 5.25% for 15 years. How much of the second monthly payment is applied to interest?

$850

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 interest rate or 6.3% compounded annually.

$90,152.04

Assume you currently earn a salary of $50,000 per year. What will be your annual salary 17 years from now if you receive annual raises of 3.75 percent?

$93,491 FV = $50,000(1.037517)FV = $93,491

Kenny's Boots has current assets of $687,60, total assets of $1,711,000, net working capital of $223,700 and long term debt of 450,000. What is the debt-equity ratio?

1.15

Morgan Corporation has a debt-equity ratio of 48 percent, sales of $829,000, net income of $47,300, and total debt of $206,300. What is the return on equity?

11.01%

Cookie Dough Manufacturing has a target debt-equity ratio of .76. Its cost of equity is 15.3 percent, and its pretax cost of debt is 9 percent. What is the firm's WACC given a tax rate of 21 percent?

11.76%

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

3.14%

There's was flower garden has 650 bonds outstanding that are selling for $1,007 each, 2100 shares of preferred stock with a market price of $68 a share and 42,000 shares of common stock valued $44 a share. What weight should be assigned to the preferred stock when computing the weighted average cost of capital?

5.40%

Hydro systems has bonds outstanding with a face value of $1,000, 13 years to maturity, and a coupon rate of 6.5% paid annually. What is the company's pretax cost of debt if the bonds currently sell for $1,056?

5.87%

Holdup Bank has an issue of preferred stock with a stated dividend of $7 that just sold for $87 per share. What is the bank's cost of preferred?

8.05 percent

An insurance annuity offers to pay you $1,000 per quarter for 20 years. If you want to earn a rate of return of 6.5 percent, what is the most you are willing to pay as a lump sum today to buy this annuity?

$44,591.11

A treasury bond is quoted at a price of 101.4621. What is the market price of this bond if the face value is $5,000?

$5,073.11

A firm has a debt-equity ratio of .62, a total asset turnover of 1.24, and a profit margin of 5.1 percent. The total equity is $489,600. What is the amount of the net income?

$50,159 ROE = .051(1.24)(1.62) ROE = .1024 Net income = .1024($489,600) Net income = $50,159

The risk free rate of return is 3.5%, the inflation rate is 2.9%, and the market risk premium is 7.5%. What is the expected rate of return on a stock with a beta of 1.43?

14.2%

Fashion Wear has bonds outstanding that mature in 11 years, pay interest annually, and have a coupon rate of 6.45 percent. These bonds have a face value of $1,000 and a current market price of $994. What is the company's aftertax cost of debt if its tax rate is 21 percent?

5.16 percent

A proposed project has cash flows of $2,000 $X, $1750 and $1250 at the end of the Years 1 to 4. The discount rate is 7.2% and the present value of the flour cash flows is $6,669.25. What is the value of X, the year 2 cash flow?

$2,800

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

Callender Bikes has sales of $705,000, costs of 156,000, depreciation expense of $22,200 interest expense of $1970 and an average tax rate of 21%. How much operating cash flow did the firm generate?

$438,786 (705,000-156,000-22,200)= 526,800-19720*.21= 110,214(tax) 526,800+22,200-110,214

Aidan can afford $240 a month for five years for a car loan. If the interest rate is 8.5 percent, what is the most he can afford to borrow?

$11,697.88

Running Gear has sales of $316,000, depreciation of 47,200 and interest expense of 41,400 costs of 148,200 and taxes of 16,632. The firm has net capital spending of 36,400 and decrease in net working capital of 14,300. What is the cash flow from assets for the year?

$129,068

Assume your mother invested a lump sum 28 years ago at 4.05 percent interest, compounded annually. Today, she gave you the proceeds of that investment, totaling $48,613.24. How much did your mother originally invest?

$15,994.70 PV=FV/(1+r/100)^n PV=48,613.24/(1.0405)^28

You just invested $49,000 that you received as an insurance settlement. How much more will this account be worth in 40 years if you earn an average return of 7.6 percent rather than just 7.1 percent?

$155,986.70

Which one of the following statements related to annuities and perpetuities is correct?

A perpetuity comprised of $100 monthly payments is worth more than an annuity of $100 monthly payments provided the discount rates are equal.

Which of the following are assumptions of the capital asset pricing model?

ALL EXPECT II- Beta is a reliable estimate of total risk

Which one of the following premiums is compensation for the possibility that a bond issued may not pay a bonds interest or principal payments as expected?

Default risk

Of the options listed below which is the best example of systematic risk?

Investors panic causing security prices around the globe to fall precipitously

of the options listed below, which is the best example of unsystematic risk?

National decrease in consumer spending on entertainment

Project X has cash flows of $8,500, $8,000, $7,500, and $7,000 for Years 1 to 4, respectively. Project Y has cash flows of $7,000, $7,500, $8,000, and $8,500 for Years 1 to 4, respectively. Which one of the following statements is true concerning these two projects given a positive discount rate? (No calculations needed)

Project X has both a higher present and a higher future value than Project Y.

which one of the following is excluded from a firms accounting value but included in its market value?

Recognition of the firm's brand

If a security is fairly priced, it's ____ divided by its beta will equal the slop of the security market line

Risk premium

which of the following statements best describe the principle of diversification?

Spreading an investment across many diverse assets will eliminate some of the total risk.

Based on the capital asset pricing model, which one of the following should earn the highest risk premium?

Stock with beta or 1.24

Which one of the following statements related to WACC is correct for a company that uses debt in its capital structure?

The WACC would most likely decrease if the firm replaced its preferred stock with debt.

the capital structure weights used in computing a company's weighted average cost of capital:

are based on the market values of the outstanding securities

Bonds issued by the U.S. government:

are considered to be free of default risk

Which one of the following is the price at which a dealer will sell a bond?

asked price

Of the options listed below, which is the best measure of systematic risk?

beta

If you sell a bond with a coupon of 6 percent to a dealer when the market rate is 7 percent, which one of the following prices will you receive?

bid price

A company's current cost of capital is based on:

both the returns currently required by its debt holders and stockholders

The interest earned on both the initial principal and the interest reinvested from prior periods is called

compound interest

You are purchasing a 15 year. 0 coupon bond. The yield to maturity is 6.85% and the face value is $1,000. What is the current market price?

$364.11

At the beginning of the year, a firm had current assets of $121,306 and current liabilities of $124,509. At the end of the year, the current assets were $122,418 and the current liabilities were $103,718. What is the change in net working capital?

$21,903

Jonathan invested $6,220 in an account that pays 11 percent simple interest. How much money will he have at the end of 40 years?

$33,588

Thanh invested $12,500 in an account that pays 5.75 percent simple interest. How much more could she have earned over a 13-year period if the interest had compounded annually?

$4,012

The Rodriquez family is determined to purchase a $250,000 home without incurring any debt. The family plans to save $2,500 a quarter for this purpose and expects to earn 6.65% compounded quarterly. How long will it be until the family can purchase a home?

14.85 years

Steele Video has sales of $96,400, costs of $53,800, interest paid of $2,800, and depreciation of $7,100. The tax rate is 21 percent. What is the value of the cash coverage ratio?

15.21

a 3.2% treasury bond is quoted at a price of 99.04. The bond pays interest semi annually. What is the current yield?

3.28%

Try and fowler attorneys has a total assets of 4,900 fixed assets of 3200 long term debt of 2900 and short form debt of 1400. What is the amount of net working capital

300

on your tenth birthday you received $300 which you invested at 4,5%, compounded annually. Your investment is now worth $756. How older are you today?

31

The expected return on Cerrato, Incorp. stock is 16.28% while the expected return market is 11.97%. The stocks beta is 1.63. What is the risk free rate of return?

5.13%

Today, you borrowed $3,200 on a credit card that charges an interest rate of 12.9 percent compounded monthly. How long will it take you to pay off this debt assuming that you do not charge anything else and make regular monthly payments of $60?

6.64 years

Chelsea Fashions is expected to pay an annual dividend of $1.26 a share next year. The market price of the stock is $24.09 and the growth rate is 2.6 percent. What is the cost of equity?

7.83 percent

What is the EAR if a bank charges you an APR of 7.65 percent, compounded quarterly?

7.87%

Halabi's Market has annual sales of $813,200, total debt of $171,000, total equity of $396,000, and a net profit margin of 5.78 percent. What is the return on assets?

8.29%

Al's obtained a discount loan of $68,500 today that requires a repayment of $88,000, 3 years from today. What is the APR?

8.71%

Deeps mines has 43,800 shares of common stock outstanding with a beta of 1.54 and a market price of $51 a share. There are 10,000 shares of 7% preferred stock outstanding with a states value of $100 per share and a market value of $83 a share. The 8% semiannual bonds have a face value of $1,000 and a are sella at 96% of par. There are 5,000 bonds outstanding that mature in 13 years. The market risk premium is 7.5%. The T-bills are yielding 3.6% and the tax rate is 21%. What discount rate should the firm apply to a new projects cash flows if the project has the same risk as the company's typical project?

9.30%

Assume the current market price of a bond exceeds its par value. Which one of these equations applies?

Yield to maturity < Coupon rate

You have some property for sale and have received two offers. The first offer is for $89,500 today in cash. The second offer is the payment of $35,000 today and an additional guaranteed $70,000 two years from today. If the applicable discount rate is 11.5 percent, which offer should you accept and why?

You should accept the second offer because it has the larger net present value.

which one of these will increase a company's after tax cost of debt?

a decrease in company's tax rate

The current yield is defined as the annual interest on a bond divided by which one of the following?

market price

A corporate bond was quoted yesterday at 102.16 while todays quote is 102.19. What is the change in the value of a bond that has a face value of $3,000?

$.90

Buxbaum Corporation is preparing a bond offering with a coupon rate of 6 percent, paid semiannually, and a face value of $1,000. The bonds will mature in 10 years and will be sold at par. Given this, which one of the following statements is correct?

The bonds will sell at a premium if the market rate is 5.5 percent.

Assume you deposited $6,000 into a retirement savings account today. The account will earn 8 percent interest per year, compounded annually. You will not withdraw any principal or interest until you retire in 48 years. Which one of the following statements is correct?

The present value of this investment is equal to $6,000.

Dominic's Custom Draperies has a fixed asset turnover rate of 1.13 and a total asset turnover rate of .94. It's competitor, Window Fashions, has a fixed asset turnover rate of 1.26 and a total asset turnover rate of .91. Both Companies have similar operations. Based on this information, Dominic must be ... than Window Fashions.

Utilizing its total assets more efficiently

Assume a stock experiences an actual return that is above the security market line. An analyst can safely conclude that the stock has:

a higher return than expected for the level of risk assumed.

Textile Mills borrows money at a rate of 8.7%. The interest rate is referred to as the

cost of debt.

A group of individuals got together and purchased all of the outstanding shares of common stock of DL Smith Inc. What is the return that these individuals require on this investment called?

cost of equity

Nirav just opened a savings account paying 2 percent interest, compounded annually. After four years, the savings account will be worth $5,000. Assume there are no additional deposits or withdrawals. Given this information, Nirav:

could have deposited less money today and still had $5,000 in four years if the account paid a higher rate of interest.

Net working capital is defined as:

current assets - current liabilities

Jared invested $100 two years ago at 8 percent interest. The first year, he earned $8 interest on his $100 investment. He reinvested the $8. The second year, he earned $8.64 interest on his $108 investment. The extra $.64 he earned in interest the second year is referred to as:

interest on interest

Assume your goal is to have $2 million in your retirement account on the day you retire. To fund this goal, you will make one lump-sum deposit today. If you plan to retire ______ rather than ______ and you earn a ______ rate of interest, then you can deposit a smaller lump-sum today.

later; sooner; high

According to the capital asset pricing model, the amount of reward an investor receives for bearing the risk of an individual security depends upon the:

market risk premium and the amount of systematic risk inherent in the security

Which one of the following variables is the exponent in the present value formula?

number of time periods

Buchi owns several financial instruments: stocks issued by seven different companies, plus bonds issued by four different companies. Her investments are best described as a(n):

portfolio

Hayley won a lottery and will receive $1,000 each year for the next 30 years. The current value of these winnings is called the:

present value

Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as

profitability ratios

The ____ is the excess return earned by a risky asset over the return earned by a risk free asset.

risk premium

The difference between the price that a dealer is willing to pay and the price at which he or she is willing sell is called the

spread

the cost of preferred stock is computed the same as:

the rate of return on a perpetuity