QUESTION 1 Mears Corporation just paid a dividend of $4.45. The company forecast

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QUESTION 1

Mears Corporation just paid a dividend of $4.45. The company forecasts a constant growth rate in dividends of 8 percent. If the appropriate discount rate is 14 percent, what is the current price of this stock (rounded to the nearest dollar)?

$40

$60

$80

$100

3 points   

QUESTION 2

If the supply of loanable funds decreases then all else equal __________.

interest rates will decrease

interest rates will increase, decrease, or remain the same

interest rates will remain unchanged

interest rates will increase

3 points   

QUESTION 3

An investment that pays the same amount at the beginning of each year for a fixed amount of time is called __________.

an ordinary annuity

an excess cash flow

a perpetuity

an annuity due

3 points   

QUESTION 4

Why is the quick ratio considered by some to be a better measure of liquidity than the current ratio?

The quick ratio more accurately reflects a firm's profitability.

The quick ratio omits the least liquid current asset from the numerator of the ratio.

The current ratio does not include accounts receivable.

The quick ratio measures how "quickly" cash flows through the firm.

3 points   

QUESTION 5

Petra, Inc. has $400,000 in current assets, $1.25 million in plant and equipment, and $250,000 in goodwill. In what order should these assets be reported on the balance sheet?

goodwill, plant and equipment, current assets

plant and equipment, currents assets, goodwill

there is no correct ordering of these assets on the balance sheet

current assets, plant and equipment, goodwill

3 points   

QUESTION 6

Use the information in the Table below to calculate the standard deviation for Stock A.

4 points   

QUESTION 7

Provo Corporation had cash revenues of $11,000,000, cash operating expenses of $5,000,000, and depreciation and amortization of $1,000,000 during 2015. The firm purchased $500,000 of equipment during the year while increasing its inventory by $300,000 (with no corresponding increase in current liabilities). The corporate income tax rate for Provo is 40 percent. What is Provo's free cash flow for 2015?

4 points   

QUESTION 8

Which of the following business owners are protected by limited liability?

a sole proprietor

a general partner

a bondholder

a stockholder

3 points   

QUESTION 9

Use the information in the Table below to calculate the expected return for Stock A.

4 points   

QUESTION 10

Which of the following investment classes had the greatest average return and greatest volatility based on historical data from 1926 to the present?

Small US stocks

Large US stocks

Short-term government bonds

Long-term government bonds

3 points   

QUESTION 11

What is the theory that security prices reflect all public information and all historical information, but not all private information?

weak-form market efficiency

strong-form market efficiency

semi-strong-form market efficiency

nominal-form market efficiency

3 points   

QUESTION 12

Last year, Kowalski Bearings Company had total net sales of $12,000,000, inventories of $2,250,000, cash and equivalents of $750,000, and day’s sales outstanding (DSO) of 73 days. What is the company's accounts receivable balance if there are 365 days in a year?

4 points   

QUESTION 13

Samuel Culper purchased a stock for $50 one year ago. That stock is now worth $75. During the year, the stock paid a dividend of $2.50. What was Samuel's total return from holding the stock?

35%

45%

55%

65%

3 points   

QUESTION 14

Junkman's Warehouse and Storage Company has an unusual bond outstanding with exactly 10 years remaining until maturity and a face value of $1,000. The bond is unusual because the annual coupon payments remaining are $50 for the next five years and $100 thereafter until maturity. What is the value of this bond when there are exactly four years remaining until maturity if the yield to maturity at that time is 5 percent?

4 points   

QUESTION 15

Which of the following is true of a firm that has no debt in its capital structure?

Its return on equity (ROE) will be greater than its return on assets (ROA).

Its return on equity (ROE) will be less than its return on assets (ROA).

Its return on equity (ROE) will be equal to its return on assets (ROA).

Its return on equity (ROE) will be equal to its days sales outstanding (DSO).

3 points   

QUESTION 16

Which of the following forms of business is "double taxed", once on their profits and once again on their dividends?

a limited liability company (LLC)

a general partnership

a regular corporation

a sole proprietorship

3 points   

QUESTION 17

Caleb Brewster did an excellent job saving for retirement. He was able to save $1,000,000 in an account that pays 12 percent per year. His plan was to eventually withdraw all his money by paying himself in equal installments every month during his 20 years of retirement, which he did for exactly 10 years. However, poor Mr. Brewster died exactly 10 years after he retired before receiving the remaining monthly payments he was due. How much money was left in Mr. Brewster's account on the day he died?

4 points   

QUESTION 18

If you just purchased one share of Facebook stock on a the NASDAQ stock exchange, you participated in __________.

a futures market transaction

a commodity market transaction

a secondary market transaction

a primary market transaction

3 points   

QUESTION 19

You have invested $5,000 in an investment with an expected return of 8 percent and $15,000 in an investment with an expected return of 16 percent. What is your expected return on this portfolio?

10%

12%

14%

16%

3 points   

QUESTION 20

If you borrow $250,000 to buy a house and the interest rate is 5 percent per year, what is the amount of the MONTHLY payment if it takes you 30 years to pay off the loan?

$1,045

$1,088

$1,342

$1,509

3 points   

QUESTION 21

Zapata Corporation will pay dividends of $5.00, $6.00, and $7.00 in the next three years. Thereafter, the company expects its dividend growth rate to be a constant 10 percent. If the required rate of return is 15 percent, what is the current market price of Zapata stock?

4 points   

QUESTION 22

Which of the following is the goal of the firm?

profit maximization

shareholder wealth maximization

tax payment maximization

revenue maximization

3 points   

QUESTION 23

The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments __________.

equal to zero

greater than the price of the bond

less than the price of the bond

equal to the price of the bond

3 points   

QUESTION 24

If a bond's coupon rate is less than its yield to maturity, the the bond will sell __________.

at a price greater than its face value

at a price equal to the number of payments remaining

at a price equal to its face value

at a price less than its face value

3 points   

QUESTION 25

Which of the following SHOULD be included in a project's free cash flow calculations?

investment in working capital

sunk costs

allocated overhead expenses

noncash revenues of the company's nearest competitor

3 points   

QUESTION 26

Crazee Enterprises Corporation just paid a dividend and it expects that dividend to grow by 10 percent for the next three years. After that, the dividend is expected to grow at a constant rate of 5 percent in perpetuity. If the company's stock is currently selling for $72 per share and the required return is 10 percent, what is the amount of the NEXT dividend, i.e., D1?

4 points   

QUESTION 27

A higher discount rate will __________.

increase the present value of a future cash flow

decrease the present value of a future cash flow

decrease the future value of a future cash flow

not affect the present value of a future cash flow

3 points   

QUESTION 28

Ben Tallmadge invests a one-time payment of $5,000 in a retirement account that will earn 15 percent annually. How much money will Ben have in the account at the end of 30 years if the interest is continuously compounded?

$450,086

$550,068

$912,334

$2,173,726

3 points   

QUESTION 29

Benson Bakeries generated net income of $250,000 on total revenues of $525,000 this year. At year end, the company had accounts receivable of $35,000, accounts payable of $52,500, inventory of $58,000, cash of $50,000, and short-term notes payable of $25,500. What is the net working capital for Benson Bakeries?

4 points   

QUESTION 30

Terry Malloy is trying to decide whether his shipping company should invest in a new boat. The new boat will cost $200,000 and it will be fully-depreciated on a straight-line basis over its 10-year useful life. The new boat will have no salvage value. The new boat is expected to increase EBITDA by $50,000 per year for 10 years. What is the NPV of this investment if the corporate income tax rate is 50 percent and the cost of capital is 10 percent?

$40

$60

$80

$100

Explanation / Answer

Q1.Mears Corporation just paid a dividend of $4.45. The company forecasts a constant growth rate in dividends of 8 percent. If the appropriate discount rate is 14 percent, what is the current price of this stock (rounded to the nearest dollar)?

We can find stock price using Gordon Growth model,

Value of stock = D1/ (k - g)
where:
D1 = next year's expected annual dividend per share
k = Approproate discount rate
g = the expected dividend growth rate

=(4.45*(1+8%))/(14%-8%)

Current Stock price=$80

QUESTION 2

If the supply of loanable funds decreases then all else equal __________.

interest rates will increase

3 points   

QUESTION 3

An investment that pays the same amount at the beginning of each year for a fixed amount of time is called __________.

an annuity due

Why is the quick ratio considered by some to be a better measure of liquidity than the current ratio?

The quick ratio omits the least liquid current asset from the numerator of the ratio.

QUESTION 5

Petra, Inc. has $400,000 in current assets, $1.25 million in plant and equipment, and $250,000 in goodwill. In what order should these assets be reported on the balance sheet?

plant and equipment, currents assets, goodwill

Question 6

Expected Return = Sum of Probability * return

=0.3*60%+0.5*20%+0.2*10%

Expected Return on stock A=30%

QUESTION 8

Which of the following business owners are protected by limited liability?

a stockholder

Q.14 Junkman's Warehouse and Storage Company has an unusual bond outstanding with exactly 10 years remaining until maturity and a face value of $1,000. The bond is unusual because the annual coupon payments remaining are $50 for the next five years and $100 thereafter until maturity. What is the value of this bond when there are exactly four years remaining until maturity if the yield to maturity at that time is 5 percent?

Price of the bond can be calculated using financial calculator,

N=4, FV=1000, PMT=100,I/Y= 5%

Price=PV=$1177.3

interest rates will increase

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