FINANCE FINAL - AUBURN - DR. SIRMANS

Dinero Bank offers you a $36,000, 8-year term loan at 8 percent annual interest. What will your annual loan payment be?

$6,264.53

Corporate dividends are:

Taxable as personal income when received by shareholders even though that income was taxed at the corporate level.

Suppose a stock had an initial price of $68 per share, paid a dividend of $2.00 per share during the year, and had an ending share price of $80. What was the capital gains yield yield? Round to the nearest XX.XX%.

17.65

In 1895, the first a sporting event was held. The winner's prize money was $110. In 2007, the winner's check was $1,170,000. Assuming the same annual percentage increase will continue, what will the prize money be in 2040?

$17,974,289

You have just made your first $3,000 contribution to your retirement account. Assuming you earn an 7 percent rate of return and make no additional contributions. What will your account be worth when you retire in 35 years?

$32,030

Which one of the following is a capital budgeting decision?

Deciding whether or not to purchase a new machine for the production line

Crystal Lake, Inc., has a total debt ratio of 0.36. What is its debt-equity ratio? Hint: What you are given is TD / (TD + TE). What you need to find is TD / TE.

0.56

Suppose a stock had an initial price of $60 per share, paid a dividend of $.60 per share during the year, and had an ending share price of $53. What is the dividend yield? Round to the nearest XX.XX%.

1

You own a stock portfolio invested 30 percent in Stock Q, 25 percent in Stock R, 35 percent in Stock S, and 10 percent in Stock T. The betas for these four stocks are .76, 1.14, 1.15, and 1.32, respectively. What is the portfolio beta? Round to the nearest X.XX.

1.05

$3000 in Apple (beta=1.2), $5500 in Microsoft (beta=0.8), $1500 in Amazon (beta=2.0). What is your portfolio beta?

1.1

One More Time Software has 8.8 percent coupon bonds on the market with 15 years to maturity. The bonds make semiannual payments and currently sell for 89.0 percent of par. What is the yield to maturity (YTM)?

10.25%

Seether Co. wants to issue new 19-year bonds for some much-needed expansion projects. The company currently has 8.0 percent coupon bonds on the market that sell for $789.18, make semiannual payments, and mature in 19 years. What coupon rate should the company set on its new bonds if it wants them to sell at par?

10.60%

Company has 15-year bonds, coupon rate 10%, face value of $1000, and selling for $850. What is cost of debt ?

12.23%

A stock has an expected return of 10 percent, its beta is 1.10, and the risk-free rate is 4 percent. What must the expected return on the market be? Round to the nearest XX.XX%

9.45

Which one of the following terms is defined as the mixture of a firm's debt and equity financing?

Capital structure

What is the expected return of a portfolio with two stocks that each have an expected return of 5% ?

5%

Which one of the following best states the primary goal of financial management?

Maximize the current value per

In a healthy firm, net working capital is usually:

Positive

Grohl Co. issued 13-year bonds a year ago at a coupon rate of 8 percent. The bonds make semiannual payments. If the YTM on these bonds is 7 percent, what is the current bond price?

$1,080.29

SDJ, Inc., has net working capital of $1,640, current liabilities of $4,450, and inventory of $1,895. What is the current ratio? Hint: Current ratio is CR = CA / CL.

1.37

You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.20 and the total portfolio is equally as risky as the market, what must the beta be for the other stock in your portfolio? Round to the nearest X.XX.

1.8

The 2018 balance sheet of Saddle Creek, Inc., showed current assets of $1,490 and current liabilities of $980. The 2019 balance sheet showed current assets of $1,700 and current liabilities of $1,080. What was the company's 2019 change in net working capital, or NWC? Hint: Change in NWC = NWCend - NWCbeg

$110

Wakers, Inc., has sales of $43 million, total assets of $24 million, and total debt of $8 million. If the profit margin is 8 percent, what is the net income? For additional practice, try calculating the ROA and ROE.

$3,440,000

If you put up $32,000 today in exchange for a 8.50 percent, 18-year annuity, what will the annual cash flow be?

$3,533.77

What is the future value of $1,000 in 20 years assuming an interest rate of 11 percent compounded semiannually?

$8,513.31

Staind, Inc., has 8 percent coupon bonds on the market that have 6 years left to maturity. The bonds make annual payments. If the YTM on these bonds is 10 percent, what is the current bond price?

$912.89

Although appealing to more refined tastes, art as a collectible has not always performed so profitably. During 2003, a sculpture was sold at auction for a price of $10,309,500. Unfortunately for the previous owner, he had purchased it in 1999 at a price of $12,374,500. What was his annual rate of return on this sculpture?

-4.46%

Braam Fire Prevention Corp. has a profit margin of 10.70 percent, total asset turnover of 1.39, and ROE of 18.71 percent. What is its firm's debt-equity ratio? Hint: Refer to the Du Pont Identit

0.26

You are looking at an investment that has an effective annual rate of 6 percent. What is the effective monthly return?

0.49%

Penguin Pucks, Inc., has current assets of $3,400, net fixed assets of $18,500, current liabilities of $2,900, and long-term debt of $7,700. What is the value of the shareholders' equity account for this firm? Hint: Construct a simple balance sheet and remember the two sides must balance.

$11,300

Which one of the following is a capital structure decision?

Determining how much debt should be assumed to fund a project

Assets in the balance sheet are listed in order of:

Liquidity

Is it contrary to market efficiency for a company to report positive earnings yet simultaneously observe a drop in stock price ?

No

A stock has a beta of 1.14, the expected return on the market is 10 percent, and the risk-free rate is 3.5 percent. What must the expected return on this stock be? Round to the nearest XX.XX%

10.91

If the mean return of a stock is 15% and returns are normally distributed, what is the likelihood of realizing a return less than 15% ?

50%

Stock has beta of 1.2, risk-free rate of 3%, and the market return is 8%. What is stock's risk premium?

6%

A stock has future return possibilities of -10%, 5%, and 25%, with equal likelihood. What is the expected return ?

6.67

A project that provides annual cash flows of $2,400 for 10 years costs $13,100 today. If the required return is 9 percent, what is the NPV for this project?

$2,302.38

In the CAPM, beta represents ?

sensitivity to overall market

For the year just ended, Ypsilanti Yak Yogurt shows an increase in its net fixed assets account of $675. The company took $140 in depreciation expense for the year. How much did the company spend on new fixed assets?

$815

As I add more securities to my portfolio, I am left with

Systematic risk

Y3K, Inc., has sales of $4,600, total assets of $3,225, and a debt−equity ratio of 1.60. If its return on equity is 11 percent, what its net income? Hint: This is a complex problem that involves the DuPont Identity. If you can figure out the profit margin, then you can find net income since sales are given.

$136.44

Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with retirement income of $29,000 per month for 25 years, with the first payment received 30 years and 1 month from now. Second, he would like to purchase a cabin in Rivendell in 20 years at an estimated cost of $1,034,000. Third, after he passes on at the end of the 25 years of withdrawals, he would like to leave an inheritance of $750,000 to his nephew Frodo. He can afford to save $1,800 per month for the next 20 years. If he can earn a 10 percent EAR before he retires and a 8 percent EAR after he retires, how much will he have to save each month in years 21 through 30?

$16,447.30

Jetson Spacecraft Corp. shows the following information on its 2019 income statement: sales = $214,000; costs = $91,000; other expenses = $6,100; depreciation expense = $9,100; interest expense = $13,300; taxes = $37,800; dividends = $10,100. In addition, you're told that the firm issued $7,900 in new equity during 2009 and redeemed $9,500 in outstanding long-term debt. What is the 2019 cash flow to stockholders? Hint: CFS = Dividends - Net new equity

$2,200

Jetson Spacecraft Corp. shows the following information on its 2019 income statement: sales = $214,000; costs = $91,000; other expenses = $6,100; depreciation expense = $9,100; interest expense = $13,300; taxes = $37,800; dividends = $10,100. In addition, you're told that the firm issued $7,900 in new equity during 2009 and redeemed $9,500 in outstanding long-term debt. What is the 2019 cash flow to creditors? Hint: CFC = Interest - Net new LTD

$22,800

XXL Roach Exterminators, Inc., has sales of $704,000, costs of $255,000, depreciation expense of $39,000, interest expense of $32,000, and a tax rate of 40 percent. What is the net income for firm? Hint: Construct a simple income statement using the information given.

$226,800

The Ashwood Company has a long-term debt ratio of 0.50 and a current ratio of 1.60. Current liabilities are $970, sales are $5,175, profit margin is 9.80 percent, and ROE is 17.60 percent. What is the amount of the firm's net fixed assets?

$5,181.07

You want to buy a new sports car from Muscle Motors for $37,000. The contract is in the form of a 60-month annuity due at a 6.50 percent APR. What will your monthly payment be?

$720.05

Your coin collection contains 48 silver dollars from the year 1947. If your grandparents purchased them for their face value when they were new, how much will your collection be worth when you retire in 2048, assuming they appreciate at a 10 percent annual rate? $51,665.64

$727,616.33

Organic Chicken Company has a debt-equity ratio of 0.70. Return on assets is 9.20 percent, and total equity is $504,000. What is the net income? Hint: You'll need the ROE...

$78,826

Jetson Spacecraft Corp. shows the following information on its 2019 income statement: sales = $214,000; costs = $91,000; other expenses = $6,100; depreciation expense = $9,100; interest expense = $13,300; taxes = $37,800; dividends = $10,100. In addition, you're told that the firm issued $7,900 in new equity during 2009 and redeemed $9,500 in outstanding long-term debt. What is the 2019 operating cash flow? Hint: OCF = EBIT + Depreciation - Taxes.

$79,100

Diversification benefits are maximized when assets in your portfolio have correlation of

-1

Suppose the returns on an asset are normally distributed. The historical average annual return for the asset was 5.2 percent and the standard deviation was 10.6 percent. Using this information, you can specify the range of returns (from the lowest to the highest) that you expect this firm to have 95% of the time. What is the LOW end of this range? Round to the nearest XX.XX%.

-16

An investment project has annual cash inflows of $5,200, $6,300, $7,100, and $8,400, and a discount rate of 19 percent. What is the discountedpayback period for these cash flows if the initial cost is $8,000?

1.82 years

Live Forever Life Insurance Co. is selling a perpetuity contract that pays $1,450 monthly. The contract currently sells for $74,000. What is the monthly return on this investment vehicle?

1.96%

One More Time Software has 8.8 percent coupon bonds on the market with 15 years to maturity. The bonds make semiannual payments and currently sell for 89.0 percent of par. What is the effective yield? To answer this, remember the difference between the stated rate and effective rate. In this case, use the YTM you found in the previous problem as the stated rate.

10.51%

Ngata Corp. issued 18-year bonds 2 years ago at a coupon rate of 10.6 percent. The bonds make semiannual payments. If these bonds currently sell for 100 percent of par value, what is the YTM? Correct!

10.60%

Metroplex Corporation will pay a $4.60 per share dividend next year. The company pledges to increase its dividend by 4.60 percent per year indefinitely. If you require an 9.20 percent return on your investment, how much will you pay for the company's stock today?

100.00

Suppose a stock had an initial price of $88 per share, paid a dividend of $2.10 per share during the year, and had an ending share price of $96. Compute the percentage total return. Round to the nearest XX.XX%.

11.48

The next dividend payment by Hot Wings, Inc., will be $4.15 per share. The dividends are anticipated to maintain a 3 percent growth rate forever. If the stock currently sells for $46 per share, what is the required return?

12.02

Red, Inc., Yellow Corp., and Blue Company each will pay a dividend of $1.40 next year. The growth rate in dividends for all three companies is 4 percent. The required return for each company's stock is 9.00 percent, 12.50 percent, and 15.10 percent, respectively. What is the stock price for Blue Co.?

12.61

Barcain Credit Corp. wants to earn an effective annual return on its consumer loans of 14 percent per year. The bank uses daily compounding on its loans. What is the APR of these loans?

13.11%

You own a portfolio that has $3,400 invested in Stock A and $4,400 invested in Stock B. If the expected returns on these stocks are 12 percent and 15 percent, respectively, what is the expected return on the portfolio? Round to the nearest XX.XX%

13.69

You own a portfolio that is 32 percent invested in Stock X, 20 percent in Stock Y, and 48 percent in Stock Z. The expected returns on these three stocks are 10 percent, 20 percent, and 16 percent, respectively. What is the expected return on the portfolio? Round to the nearest XX.XX%

14.88

Organic Chicken Company has a debt-equity ratio of 0.70. Return on assets is 9.20 percent, and total equity is $504,000. What is the return on equity (ROE)? Hint: First find the equity multiplier, EM = 1 + D/E. Then use the EM to convert ROA to ROE.

15.64%

Red, Inc., Yellow Corp., and Blue Company each will pay a dividend of $1.40 next year. The growth rate in dividends for all three companies is 4 percent. The required return for each company's stock is 9.00 percent, 12.50 percent, and 15.10 percent, respectively. What is the stock price for Yellow Corp.?

16.47

If Roten Rooters, Inc., has an equity multiplier of 1.40, total asset turnover of 1.26, and a profit margin of 10.50 percent. What is its ROE? Hint: Refer to the Du Pont Identity.

18.52%

Suppose you paid $20 for a stock at year 0 and sold it at year 1 for $24. During the year, the stock paid $4 in dividends. What was your total return ?

20%

Apocalyptica Corp. pays a constant $28 dividend on its stock. The company will maintain this dividend for the next 10 years and will then cease paying dividends forever. If the required return on this stock is 6 percent, what is the current share price?

206.08

You expect to receive $16,000 at graduation in two years. You plan on investing it at 9 percent until you have $98,000. How long will you wait from now?

23.03 years

What is the IRR of the following set of cash flows? Year . Cash Flow 0 -$9,444 1 5,700 2 4,200 3 4,100

24.26%

Suppose the returns on an asset are normally distributed. The historical average annual return for the asset was 5.2 percent and the standard deviation was 10.6 percent. Using this information, you can specify the range of returns (from the lowest to the highest) that you expect this firm to have 95% of the time. What is the HIGH end of this range? Round to the nearest XX.XX%.

26.4

Red, Inc., Yellow Corp., and Blue Company each will pay a dividend of $1.40 next year. The growth rate in dividends for all three companies is 4 percent. The required return for each company's stock is 9.00 percent, 12.50 percent, and 15.10 percent, respectively. What is the stock price for Red. Inc.?

28.00

The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.36 per share on its stock. The dividends are expected to grow at a constant rate of 5 percent per year indefinitely. If investors require a 10 percent return on The Jackson-Timberlake Wardrobe Co. stock, what is the current price?

28.56

In January 2007, the average price of an asset was $28,858. 8 years earlier, the average price was $21,808. What was the annual increase in selling price?

3.56%

Seaborn Co. has identified an investment project with the following cash flows. If the discount rate is 12 percent, what is the present value of these cash flows? YearCash Flow 1 . $850 2 . 1,040 3 . 1,340 4 . 1,160

3279

Suppose you know a company's stock currently sells for $80 per share and the required return on the stock is 14 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it's the company's policy to always maintain a constant growth rate in its dividends, what is the current dividend per share?

5.23

Suppose you paid $20 for a stock at year 0 and sold it at year 1 for $24. During the year, the stock paid $4 in dividends. What was your total return ?

40%

You're trying to save to buy a new $210,000 Ferrari. You have $50,000 today that can be invested at your bank. The bank pays 3.5 percent annual interest on its accounts. How long will it be before you have enough to buy the car?

41.72 years

Far Side Corporation is expected to pay the following dividends over the next four years: $11, $7, $6, and $3. Afterward, the company pledges to maintain a constant 7 percent growth rate in dividends forever. If the required return on the stock is 15%, what is the current share price?

43.46

Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next 8 years because the firm needs to plow back its earnings to fuel growth. The company will pay a $10 per share dividend in 9 years and will increase the dividend by 5 percent per year thereafter. If the required return on this stock is 13 percent, what is the current share price?

47.02

Compute the portfolio weights for a portfolio that has 132 shares of Stock A that sell for $42 per share and 112 shares of Stock B that sell for $32 per share. What is the percentage portfolio weight for Stock A? Round to the nearest XX.XX%.

60.74

Ackerman Co. has 6 percent coupon bonds on the market with thirteen years left to maturity. The bonds make annual payments. If the bond currently sells for $907.03, what is its YTM? Assume a par value of $1,000.

7.12%

A stock has exhibited returns of 8%, 2%, 16%, and -4% over the past 4 years. What is the standard deviation?

8.5%

A stock will generate a 25% return with 0.10 prob, 10% with 0.75 prob, and -10% with 0.15 prob. What is the expected return ?

8.5%

A stock has had returns of 11 percent, 29 percent, 16 percent, −17 percent, 29 percent, and −7 percent over the last six years. What is the geometric return for the stock? Round to the nearest XX.XX%.

8.75

Kiss the Sky Enterprises has bonds on the market making annual payments, with 13 years to maturity, and selling for $930. At this price, the bonds yield 10.0 percent. What must the coupon rate be on the bonds?

9.01%

Ashes Divide Corporation has bonds on the market with 15 years to maturity, a YTM of 6.4 percent, and a current price of $1,286.50. The bonds make semiannual payments. What must the coupon rate be on these bonds?

9.40%

One More Time Software has 9.6 percent coupon bonds on the market with 9 years to maturity. The bonds make semiannual payments and currently sell for 100.4 percent of par. What is the current yield on the bonds?

9.56%

Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers?

Agency problem

Which one of the following is a means by which shareholders can replace company management?

Proxy fight

For the following set of cash flows, what is the NPV at a discount rate of 22 percent? Year . Cash Flow 0 . -$9,900 1 . 4,900 2 . 3,700 3 5,100

$-589.11

Imprudential, Inc., has an unfunded pension liability of $850 million that must be paid in 16 years. To assess the value of the firm's stock, financial analysts want to discount this liability back to the present. If the relevant discount rate is 6.5 percent, what is the present value of this liability?

$310,331,029

You have just received notification that you have won the $4.5 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday (assuming you're around to collect), 72 years from now. What is the present value of your windfall if the appropriate discount rate is 10 percent?

$4,709.11

Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $6 million. The machinery can be sold to the Romulans today for $4.85 million. Klingon's current balance sheet shows net fixed assets of $3 million, current liabilities of $1.6 million, and net working capital of $510,000. If all the current assets were liquidated today, the company would receive $1.8 million cash. What is the book value of Klingon's assets today? Hint: CA = NWC + CL.

$5,110,000

Penguin Pucks, Inc., has current assets of $3,400, net fixed assets of $18,500, current liabilities of $2,900, and long-term debt of $7,700. How much is net working capital? Hint: NWC = CA − CL.

$500

You deposit $1,300 at the end of each year into an account paying 11.1 percent interest. How much money will you have in the account in 16 years?

$51,390.61

You are scheduled to receive $33,000 in two years. When you receive it, you will invest it for 6 more years at 8.0 percent per year. How much will you have in 8 years?

$52,366.85

An investment project provides cash inflows of $650 per year for 9 years. What is the project payback period if the initial cost is 3,640?

5.6 years

A stock has an expected return of 11 percent, its beta is 1.60, and the expected return on the market is 9 percent. What must the risk-free rate be? Round to the nearest XX.XX%

5.67

A stakeholder is...

Any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of a firm

Which one of the following terms is defined as the management of a firm's long-term investments?

Capital budgeting

The ideal stock is one with a return and standard deviation of returns

High, low

Which one of the following actions by a financial manager is most apt to create an agency problem?

Increasing current profits when doing so lowers the value of the firm's equity.

What is the risk of a portfolio with two stocks that each have a standard deviation of 15% ?

Not enough information

Which group likely exhibits the greatest decline during the financial market downturns ?

Small stocks

Stock A has a standard deviation of 15% and a beta of 1.2. Stock B has a standard deviation of 12% and a beta of 1.5. Which has more systematic risk?

Stock B