THE FIN 301 CORPORATION PAID A DIVIDEND OF $2 PER SHARE IN 2013. IN 2003, THE FI
ID: 2623705 • Letter: T
Question
THE FIN 301 CORPORATION PAID A DIVIDEND OF $2 PER SHARE IN 2013. IN 2003, THE FIRM'S DIVIDEND WAS $.75 PER SHARE. SUPPOSE YOU BELIEVE DIVIDENDS WILL CONTINUE TO GROW AT THE SAME AVERAGE ANNUAL RATE OBSERVED SINCE 2003. IF THE REQUIRED RETURN ON THE STOCK IS 12%, THEN THE CONSTANT GROWTH MODEL SUGGEST THE PRICE OF THIS STOCK SHOULD BE _______ (HINT: DON'T ROUND OFF YOUR ANSWERS).
$82.37
$122.84
$98.28
$130.19
AN INCREASE IN FIXED ASSETS IS A _______ OF CASH AND AN INCREASE IN NOTES PAYABLE IS A _______ OF CASH.
SOURCE; USE
USE; SOURCE
SOURCE; SOURCE
USE; USE
$485
$585
$575
$315
AS THE NUMBER OF ANNUITY PAYMENTS RISES, THE PRESENT VALUE OF THAT ANNUITY WILL ________ AND THE FUTURE VALUE OF THAT ANNUITY WILL ______.
FALL; RISE
FALL; FALL
RISE; RISE
RISE; FALL
CONSIDER THE INFORMATION FOR MUTUALLY EXCLUSIVE PROJECTS Y AND Z GIVEN IN THE FOLLOWING TABLE. ASSUME A COST OF CAPITAL OF 10%. ACCORDING TO THE INTERNAL RATE OF RETURN CAPITAL BUDGETING METHOD, PROJECT ____ SHOULD NOT BE SELECTED BECAUSE ________.
Y; ITS IRR IS LOWER THAN THE COST OF CAPITAL
Z; ITS IRR IS HIGHER THAN THE COST OF CAPITAL
Z; ITS IRR IS LOWER THAN THE COST OF CAPITAL
Y; ITS IRR IS HIGHER THAN THE CROSS OVER RATE.
THE HIGHER A CAPITAL BUDGETING PROJECT'S NET PRESENT VALUE, THE HIGHER ITS IRR WILL BE.
True
False
$228
$425
$575
$670
WHICH OF THE FOLLOWING ARE SOURCES OF CASH?
I. AN INCREASE IN ACCOUNTS RECEIVABLE
II. AN INCREASE IN ACCOUNTS PAYABLE
III. AN INCREASE IN FIXED ASSETS
IV. AN INCREASE IN ACCRUALS
V. A DECREASE IN INVENTORY
VI. A DECREASE IN LONG-TERM DEBT
III AND V
II, IV AND V
I, III AND V
II AND VI
DREW BARRYMORE DECIDES TO SELL YOU HER HOME IN PALM BEACH, FLORIDA FOR $20,000,000. THE FIRST NATIONAL BANK OF PALM BEACH AGREES TO LEND YOU 80% OF THIS AMOUNT USING A 30-YEAR, FIXED-RATE LOAN HAVING AN INTEREST RATE OF 7%. THE TOTAL AMOUNT OF INTEREST YOU WILL HAVE TO PAY ON THIS LOAN OVER ITS 30-YEAR LIFE WILL BE _______.
$1,400,000
$22,321,423.72
$15,397,205.28
$1,120,000
IF YOU WORK FOR A CORPORATION, YOUR ULTIMATE JOB IS TO _______.
MAXIMIZE SHARE PRICE
MAXIMIZE SALES
MINIMIZE EXPENSES
MAXIMIZE PROFITS
CONSIDER THE INFORMATION FOR MUTUALLY EXCLUSIVE PROJECTS Y AND Z GIVEN IN THE FOLLOWING TABLE:
ASSUME A DISCOUNT RATE OF 10%. BASED ON THE INFORMATION IN THE TABLE, THE NET PRESENT VALUE OF PROJECT Y IS _______ AND THE PROFITABILITY INDEX OF PROJECT Y IS _______ AND THE INTERNAL RATE OF RETURN OF PROJECT Y IS _______.
$68,233.04; 1.072; 12.28%
$68,233.04; 1.068; 13.71%
$80,937.28; 1.0809; 14.94%
$90,927.28; 1.0909; %15.73%
WHICH OF THE FOLLOWING WOULD CAUSE FREE CASH FLOW TO RISE?
I. AN INCREASE IN ACCRUALS
II. A DECREASE IN ACCRUALS
III. AN INCREASE IN NOTES PAYABLE
IV. A DECREASE IN NOTES PAYABLE
V. AN INCREASE IN CURRENT ASSETS
VI. A DECREASE IN CURRENT ASSETS
VII. AN INCREASE IN FIXED ASSETS
VIII. A DECREASE IN FIXED ASSETS
IV, V AND VII
II, III AND VII
III AND VII
I, VI AND VIII
$82.37
$122.84
$98.28
$130.19
Explanation / Answer
1. THE FIN 301 CORPORATION PAID A DIVIDEND OF $2 PER SHARE IN 2013. IN 2003, THE FIRM'S DIVIDEND WAS $.75 PER SHARE. SUPPOSE YOU BELIEVE DIVIDENDS WILL CONTINUE TO GROW AT THE SAME AVERAGE ANNUAL RATE OBSERVED SINCE 2003. IF THE REQUIRED RETURN ON THE STOCK IS 12%, THEN THE CONSTANT GROWTH MODEL SUGGEST THE PRICE OF THIS STOCK SHOULD BE _______ (HINT: DON'T ROUND OFF YOUR ANSWERS).
$82.37
$122.84
$98.28
$130.19
1. AN INCREASE IN FIXED ASSETS IS A _______ OF CASH AND AN INCREASE IN NOTES PAYABLE IS A _______ OF CASH.
SOURCE; USE
USE; SOURCE
SOURCE; SOURCE
USE; USE
2.
3.
TIME
CASH FLOWS
0
0
1
0
2
0
3
?
4
?
5
?
6
?
7
?
8
?
4.
CONSIDER THE INFORMATION GIVEN IN THE TABLE SHOWN ABOVE. NOTE THAT ALL THE MISSING ANNUAL CASH FLOWS ARE EQUAL (I.E., CF3 = CF4 = CF5 = CF6 = CF7 = CF8). IF THE INTEREST RATE IS 12%, AND THE FUTURE VALUE OF THE MISSING CASH FLOWS AT TIME 8 IS $3,935.87, THEN THE VALUE OF EACH MISSING CASH FLOW PAYMENT MUST BE _______.
$485
$585
$575
$315
1. AS THE NUMBER OF ANNUITY PAYMENTS RISES, THE PRESENT VALUE OF THAT ANNUITY WILL ________ AND THE FUTURE VALUE OF THAT ANNUITY WILL ______.
FALL; RISE
FALL; FALL
RISE; RISE
RISE; FALL
1. CONSIDER THE INFORMATION FOR MUTUALLY EXCLUSIVE PROJECTS Y AND Z GIVEN IN THE FOLLOWING TABLE. ASSUME A COST OF CAPITAL OF 10%. ACCORDING TO THE INTERNAL RATE OF RETURN CAPITAL BUDGETING METHOD, PROJECT ____ SHOULD NOT BE SELECTED BECAUSE ________.
TIME
CASH FLOWS PROJECT Y
CASH FLOWS PROJECT Z
0
-$1,000,000
-$2,000,000
1
$500,000
$100,000
2
$350,000
$200,000
3
$250,000
$750,000
4
$200,000
$1,000,000
2.
Y; ITS IRR IS LOWER THAN THE COST OF CAPITAL
Z; ITS IRR IS HIGHER THAN THE COST OF CAPITAL
Z; ITS IRR IS LOWER THAN THE COST OF CAPITAL
Y; ITS IRR IS HIGHER THAN THE CROSS OVER RATE.
1. THE HIGHER A CAPITAL BUDGETING PROJECT'S NET PRESENT VALUE, THE HIGHER ITS IRR WILL BE.
True
False
1. CONSIDER THE FOLLOWING CASH FLOWS:
TIME
CASH FLOW
0
0
1
120
2
250
3
430
4
520
5
?
2.
WHEN THE DISCOUNT RATE IS 10%, THE PRESENT VALUE OF ALL THE CASH FLOWS, INCLUDING THE MISSING CASH FLOW IS $1,350.96. THE VALUE OF THE MISSING CASH FLOW MUST BE _______.
$228
$425
$575
$670
1. WHICH OF THE FOLLOWING ARE SOURCES OF CASH?
I. AN INCREASE IN ACCOUNTS RECEIVABLE
II. AN INCREASE IN ACCOUNTS PAYABLE
III. AN INCREASE IN FIXED ASSETS
IV. AN INCREASE IN ACCRUALS
V. A DECREASE IN INVENTORY
VI. A DECREASE IN LONG-TERM DEBT
III AND V
II, IV AND V
I, III AND V
II AND VI
1. DREW BARRYMORE DECIDES TO SELL YOU HER HOME IN PALM BEACH, FLORIDA FOR $20,000,000. THE FIRST NATIONAL BANK OF PALM BEACH AGREES TO LEND YOU 80% OF THIS AMOUNT USING A 30-YEAR, FIXED-RATE LOAN HAVING AN INTEREST RATE OF 7%. THE TOTAL AMOUNT OF INTEREST YOU WILL HAVE TO PAY ON THIS LOAN OVER ITS 30-YEAR LIFE WILL BE _______.
$1,400,000
$22,321,423.72
$15,397,205.28
$1,120,000
1. IF YOU WORK FOR A CORPORATION, YOUR ULTIMATE JOB IS TO _______.
MAXIMIZE SHARE PRICE
MAXIMIZE SALES
MINIMIZE EXPENSES
MAXIMIZE PROFITS
1. CONSIDER THE INFORMATION FOR MUTUALLY EXCLUSIVE PROJECTS Y AND Z GIVEN IN THE FOLLOWING TABLE:
TIME
CASH FLOWS PROJECT Y
CASH FLOWS PROJECT Z
0
-$1,000,000
-$2,000,000
1
$500,000
$100,000
2
$350,000
$200,000
3
$250,000
$750,000
4
$200,000
$1,000,000
2.
ASSUME A DISCOUNT RATE OF 10%. BASED ON THE INFORMATION IN THE TABLE, THE NET PRESENT VALUE OF PROJECT Y IS _______ AND THE PROFITABILITY INDEX OF PROJECT Y IS _______ AND THE INTERNAL RATE OF RETURN OF PROJECT Y IS _______.
$68,233.04; 1.072; 12.28%
$68,233.04; 1.068; 13.71%
$80,937.28; 1.0809; 14.94%
$90,927.28; 1.0909; %15.73%
1. WHICH OF THE FOLLOWING WOULD CAUSE FREE CASH FLOW TO RISE?
I. AN INCREASE IN ACCRUALS
II. A DECREASE IN ACCRUALS
III. AN INCREASE IN NOTES PAYABLE
IV. A DECREASE IN NOTES PAYABLE
V. AN INCREASE IN CURRENT ASSETS
VI. A DECREASE IN CURRENT ASSETS
VII. AN INCREASE IN FIXED ASSETS
VIII. A DECREASE IN FIXED ASSETS
IV, V AND VII
II, III AND VII
III AND VII
I, VI AND VIII
$82.37
$122.84
$98.28
$130.19
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