Which of the following statements is false?
A) The CAPM states that we should use the risk-free interest rate corresponding to the investment horizon of the firm’s investors.
B) To determine the risk premium for a stock using the security market line, we need an estimate of the market risk premium.
C) When surveyed, the vast majority of large firms and financial analysts reported using the yields of Treasury Bills to determine the risk-free rate.
D) The risk-free interest rate is generally determined using the yields of U.S. Treasury securities, which are free from default risk.
A) The CAPM states that we should use the risk-free interest rate corresponding to the investment horizon of the firm’s investors.
B) To determine the risk premium for a stock using the security market line, we need an estimate of the market risk premium.
C) When surveyed, the vast majority of large firms and financial analysts reported using the yields of Treasury Bills to determine the risk-free rate.
D) The risk-free interest rate is generally determined using the yields of U.S. Treasury securities, which are free from default risk.
Answer:
Use the following information to answer the question(s) below.
Google Corporation has no debt on its balance sheet in 2008, but paid $1.6 billion in taxes. Assume that Google’s marginal tax rate is 35% and Google’s borrowing cost is 7%.
Assume that investors in Google pay a 15% tax rate on income from equity and a 35% tax rate on interest income. If Google were to issue sufficient debt to reduce its corporate taxes by $1 billion per year permanently, then the value that would be created is closest to:
A) $6.4 billion
B) $8.6 billion
C) $9.8 billion
D) $14.3 billion
Google Corporation has no debt on its balance sheet in 2008, but paid $1.6 billion in taxes. Assume that Google’s marginal tax rate is 35% and Google’s borrowing cost is 7%.
Assume that investors in Google pay a 15% tax rate on income from equity and a 35% tax rate on interest income. If Google were to issue sufficient debt to reduce its corporate taxes by $1 billion per year permanently, then the value that would be created is closest to:
A) $6.4 billion
B) $8.6 billion
C) $9.8 billion
D) $14.3 billion
Answer:
Taggart Transcontinental currently has a bank loan outstanding that requires it to make three annual payments at the end of the next three years of $1,000,000 each. The bank has offered to allow Taggart Transcontinental to skip making the next two payments in lieu of making one large payment at the end of the loan’s term in three years. If the interest rate on the loan is 6%, then the final payment that the bank will require to make Taggart Transcontinental indifferent between the two forms of payments is closest to:
A) $2,673,000
B) $3,000,000
C) $3,184,000
D) $3,375,000
A) $2,673,000
B) $3,000,000
C) $3,184,000
D) $3,375,000
Answer:
As the seller of an option, you receive the
A) exercise price.
B) strike price.
C) risk premium.
D) option premium.
A) exercise price.
B) strike price.
C) risk premium.
D) option premium.
Answer:
Taggart Transcontinental has issued at par a zero-coupon bond with a ten-year maturity. Investors believe there is a 10% chance that Taggart Transcontinental will default on these bonds. If they do default, investors expect to receive only 50 cents per dollar they are owned. If investors require an 8% return on their investment in these bonds, then the yield to maturity on these bonds will be closest to (assume annual compounding):
A) 6.0%
B) 6.5%
C) 7.0%
D) 8.0%
A) 6.0%
B) 6.5%
C) 7.0%
D) 8.0%
Answer:
Consider a bond that pays $1000 in one year. Suppose that the market interest rate for savings is 8%, but the interest rate for borrowing is 10%. The price range that this bond must trade in a normal market if no arbitrage opportunities exist is closest to:
A) $909 to $917
B) $909 to $926
C) $917 to $926
D) $909 to $1000
A) $909 to $917
B) $909 to $926
C) $917 to $926
D) $909 to $1000
Answer:
Which of the following best describes Galt’s debt using a call option?
A) Long $700 million in the firm’s assets and Short a call option with a $700 strike price
B) Short $700 million in the firm’s assets and Long a call option with a $700 strike price
C) Long $700 million in the firm’s assets and Short a call option with a $200 strike price
D) Short $700 million in the firm’s assets and Long a call option with a $200 strike price
A) Long $700 million in the firm’s assets and Short a call option with a $700 strike price
B) Short $700 million in the firm’s assets and Long a call option with a $700 strike price
C) Long $700 million in the firm’s assets and Short a call option with a $200 strike price
D) Short $700 million in the firm’s assets and Long a call option with a $200 strike price
Answer:
Which of the following statements is false?
A) The shareholders as a group elect a board of directors to monitor managers. The directors themselves, however, have the same conflict of interest”monitoring is costly and in many cases directors do not get significantly greater benefits than other shareholders from monitoring the managers closely.
B) In principle, the board of directors hires the executive team, sets its compensation, approves major investments and acquisitions, and dismisses executives if necessary.
C) In the United States, the board of directors has a clear fiduciary duty to protect the interests of both the owners of the firm (the shareholders) and the interests of other stakeholders in the firm (such as the employees).
D) When the ownership of a corporation is widely held, no one shareholder has an incentive to bear the cost of monitoring, because she bears the full cost of monitoring but the benefit is divided among all shareholders.
A) The shareholders as a group elect a board of directors to monitor managers. The directors themselves, however, have the same conflict of interest”monitoring is costly and in many cases directors do not get significantly greater benefits than other shareholders from monitoring the managers closely.
B) In principle, the board of directors hires the executive team, sets its compensation, approves major investments and acquisitions, and dismisses executives if necessary.
C) In the United States, the board of directors has a clear fiduciary duty to protect the interests of both the owners of the firm (the shareholders) and the interests of other stakeholders in the firm (such as the employees).
D) When the ownership of a corporation is widely held, no one shareholder has an incentive to bear the cost of monitoring, because she bears the full cost of monitoring but the benefit is divided among all shareholders.
Answer:
When all investors correctly interpret and use their own information, as well as information that can be inferred from market prices or the trades of others, they are said to have
A) sensation seeking expectations.
B) positive expectations.
C) rational expectations.
D) confident expectations.
A) sensation seeking expectations.
B) positive expectations.
C) rational expectations.
D) confident expectations.
Answer:
If the risk-free rate of interest is 6% and the market risk premium has historically averaged 5%, then the cost of capital for Luxottica is closest to:
A) 10.2%
B) 13.5%
C) 9.1%
D) 14.7%
A) 10.2%
B) 13.5%
C) 9.1%
D) 14.7%
Answer:
Use the table for the question(s) below.
Consider the following returns:
Consider the following returns:
| Year End | Stock X Realized Return | Stock Y Realized Return | Stock Z Realized Return |
| 2004 | 20.1% | -14.6% | 0.2% |
| 2005 | 72.7% | 4.3% | -3.2% |
| 2006 | -25.7% | -58.1% | -27.0% |
| 2007 | 56.9% | 71.1% | 27.9% |
| 2008 | 6.7% | 17.3% | -5.1% |
| 2009 | 17.9% | 0.9% | -11.3% |
The Correlation between Stock X’s and Stock Y’s returns is closest to:
A) 0.58
B) 0.29
C) 0.69
D) 0.10
Answer:
The risk neutral probability of a down state for KD Industries is closest to:
A) 37.5%
B) 62.5%
C) 40.0%
D) 60.0%
A) 37.5%
B) 62.5%
C) 40.0%
D) 60.0%
Answer:
The amount of cash a firm needs to be able to pay its bills is sometimes referred to as a(n)
A) operating balance.
B) compensating balance.
C) transactions balance.
D) precautionary balance.
A) operating balance.
B) compensating balance.
C) transactions balance.
D) precautionary balance.
Answer:
Consider the following equation:
In this equation, the term σ represents
A) the number of days to expiration.
B) the number of years to expiration.
C) the expected return on the stock.
D) the annual volatility of the stock.
In this equation, the term σ represents
A) the number of days to expiration.
B) the number of years to expiration.
C) the expected return on the stock.
D) the annual volatility of the stock.
Answer:
Consider the following two projects:
| Project | Year 0 C/F | Year 1 C/F | Year 2 C/F | Year 3 C/F | Year 4 C/F | Year 5 C/F | Year 6 C/F | Year 7 C/F | Discount Rate |
| Alpha | -79 | 20 | 25 | 30 | 35 | 40 | N/A | N/A | 15% |
| Beta | -80 | 25 | 25 | 25 | 25 | 25 | 25 | 25 | 16% |
The NPV for project alpha is closest to:
A) $20.96
B) $16.92
C) $24.01
D) $14.41
Answer:
Use the following information to answer the question(s) below.
John Galt is a mutual fund manager at Atlas Asset Management. He can generate an alpha of 2% a year up to $500 million of invested capital. After that amount his skills are spread too thin, so he cannot add value and his alpha is zero for all investments over $500 million. Atlas Asset Management charges a fee of 0.80% on the total amount of money under management. Assume that there are always investors looking for positive alpha investments and no investor would invest in a fund with a negative alpha. Assume that the fund is in equilibrium, meaning that no investor either takes out money or wishes to invest new money into the fund.
The amount of money that Galt’s fund will have under management is closest to:
A) $500 million
B) $600 million
C) $1,000 million
D) $1,250 million
John Galt is a mutual fund manager at Atlas Asset Management. He can generate an alpha of 2% a year up to $500 million of invested capital. After that amount his skills are spread too thin, so he cannot add value and his alpha is zero for all investments over $500 million. Atlas Asset Management charges a fee of 0.80% on the total amount of money under management. Assume that there are always investors looking for positive alpha investments and no investor would invest in a fund with a negative alpha. Assume that the fund is in equilibrium, meaning that no investor either takes out money or wishes to invest new money into the fund.
The amount of money that Galt’s fund will have under management is closest to:
A) $500 million
B) $600 million
C) $1,000 million
D) $1,250 million
Answer:
Which of the following statements is false?
A) Leasing allows the party best able to bear the risk to hold it. For example, small firms with a low tolerance for risk may prefer to lease rather than purchase assets.
B) When the lessor is the manufacturer, a lease in which the lessor bears the risk of the residual value can improve incentives and lower agency costs.
C) For leases in which the lessor retains a substantial interest in the asset’s residual value, the lessee has more of an incentive to take proper care of an asset that is leased rather than purchased.
D) Whether they appear on the balance sheet or not, lease commitments are a liability for the firm.
A) Leasing allows the party best able to bear the risk to hold it. For example, small firms with a low tolerance for risk may prefer to lease rather than purchase assets.
B) When the lessor is the manufacturer, a lease in which the lessor bears the risk of the residual value can improve incentives and lower agency costs.
C) For leases in which the lessor retains a substantial interest in the asset’s residual value, the lessee has more of an incentive to take proper care of an asset that is leased rather than purchased.
D) Whether they appear on the balance sheet or not, lease commitments are a liability for the firm.
Answer:
Use the following information to answer the question(s) below.
| Firm | Portfolio Weight | Volatility | Correlation w/ Market Portfolio |
| Taggart Transcontinental | 0.25 | 14% | 0.7 |
| Wyatt Oil | 0.35 | 18% | 0.6 |
| Rearden Metal | 0.40 | 15% | 0.5 |
The volatility of the market portfolio is 10%, the expected return on the market is 12%, and the risk-free rate of interest is 4%.
The beta for the portfolio of the three stocks is closest to:
A) 0.92
B) 0.94
C) 1.00
D) 1.02
Answer:
Suppose that Galt Ventures, a venture capital firm, raised $250 million of committed capital. Each year over the 10-year life of the fund, 2% if this committed capital will be used to pay Galt’s management fee. As is typical in the venture capital industry, Galt will only invest $200 million (committed capital less lifetime management fees). At the end of 10 years, the investments made by the fund are worth $800 million. Galt also charges 20% carried interest on the profits of the fund (net of management fees). Assume that Galt collects the $250 if committed capital and invests $200 million of it immediately. Also assume that Galt collects all proceeds from its investments at the end of the ten year life.
The IRR on the investment of a limited partner into Galt Ventures net of all management fees and expenses is closest to:
A) 7.8%
B) 9.9%
C) 12.4%
D) 14.9%
The IRR on the investment of a limited partner into Galt Ventures net of all management fees and expenses is closest to:
A) 7.8%
B) 9.9%
C) 12.4%
D) 14.9%
Answer:
Use the table for the question(s) below.
Consider the following income statement for Kroger Inc. (all figures in $ Millions):
Consider the following income statement for Kroger Inc. (all figures in $ Millions):
| Year | 2006 | 2005 | 2004 |
| Total Sales | 60,553 | 56,434 | 53,791 |
| Cost of goods sold | 45,565 | 42,140 | 39,637 |
| Selling, general & admin expenses | 11,688 | 12,191 | 11,575 |
| Depreciation | 1,265 | 1,256 | 1,209 |
| Operating Income | 2,035 | 847 | 1,370 |
| Other Income | 0 | 0 | 0 |
| EBIT | 2,035 | 847 | 1,370 |
| Interest expense | 510 | 557 | 604 |
| Earnings before tax | 1,525 | 290 | 766 |
| Taxes (35%) | 534 | 102 | 268 |
| Net Income | 991 | 189 | 498 |
The income that would be available to equity holders in 2005 if Kroger was not levered is closest to:
A) $290 million
B) $745 million
C) $847 million
D) $550 million
Answer:
Use the table for the question(s) below.
Suppose the term structure of interest rates is shown below:
Suppose the term structure of interest rates is shown below:
| Term | 1 year | 2 years | 3 years | 5 years | 10 years | 20 years |
| Rate (EAR%) | 5.00% | 4.80% | 4.60% | 4.50% | 4.25% | 4.15% |
Consider an investment that pays $1000 certain at the end of each of the next four years. If the investment costs $3,500 and has an NPV of $74.26, then the four year risk-free interest rate is closest to:
A) 4.5%
B) 4.58%
C) 4.55%
D) 4.53%
Answer:
Anyone who purchases the stock on or after the ________ date will not receive the dividend.
A) distribution
B) record
C) ex-dividend
D) declaration
A) distribution
B) record
C) ex-dividend
D) declaration
Answer:
Which of the following statements is false?
A) The rate of interest paid on government bonds or other securities in a country with a tradition of weak enforcement of property rights is likely not really a risk-free rate. Instead, interest rates in the country will reflect a risk premium for the possibility of default, so relations such as covered interest rate parity will likely not hold exactly.
B) If the return difference in a segmented financial market results from a market friction such as capital controls, corporations can exploit this friction by setting up projects and raising capital in the high-return country/currency.
C) Important macroeconomic reasons for segmented capital markets include capital controls and foreign exchange controls that create barriers to international capital flows and thus segment national markets.
D) A segmented financial market has an important implication for international corporate finance: One country or currency has a higher rate of return than another country or currency, when the two rates are compared in the same currency.
A) The rate of interest paid on government bonds or other securities in a country with a tradition of weak enforcement of property rights is likely not really a risk-free rate. Instead, interest rates in the country will reflect a risk premium for the possibility of default, so relations such as covered interest rate parity will likely not hold exactly.
B) If the return difference in a segmented financial market results from a market friction such as capital controls, corporations can exploit this friction by setting up projects and raising capital in the high-return country/currency.
C) Important macroeconomic reasons for segmented capital markets include capital controls and foreign exchange controls that create barriers to international capital flows and thus segment national markets.
D) A segmented financial market has an important implication for international corporate finance: One country or currency has a higher rate of return than another country or currency, when the two rates are compared in the same currency.
Answer:
Using options to reduce risk is called
A) speculation.
B) a naked position.
C) hedging.
D) a covered position.
A) speculation.
B) a naked position.
C) hedging.
D) a covered position.
Answer:
Suppose that Bondi Inc. is a holding company that owns both Pizza Hut and Kentucky Fried Chicken Franchised Restaurants. If the value of Bondi is $130 million, and the Pizza Hut Franchises are worth $70 million, then what is the value of the Kentucky Fried Chicken Franchises?
A) $60 million
B) $70 million
C) $130 million
D) Unable to determine with the information provided
A) $60 million
B) $70 million
C) $130 million
D) Unable to determine with the information provided
Answer:
Consider the following equation:
The term
is
A) always equal to zero since bB = 0.
B) always positive since B is always positive.
C) could be positive or negative depending on whether the option in question is a put or a call.
D) always negative since B is always negative.
The term
isA) always equal to zero since bB = 0.
B) always positive since B is always positive.
C) could be positive or negative depending on whether the option in question is a put or a call.
D) always negative since B is always negative.
Answer:
Use the following information to answer the question(s) below.
Nielson Motors has a debt-equity ratio of 1.8, an equity beta of 1.6, and a debt beta of 0.20. It is currently evaluating the following projects, none of which would change Nielson’s volatility.
Nielson Motors has a debt-equity ratio of 1.8, an equity beta of 1.6, and a debt beta of 0.20. It is currently evaluating the following projects, none of which would change Nielson’s volatility.
| Project | 1 | 2 | 3 | 4 | 5 |
| Investment | 100 | 75 | 120 | 60 | 80 |
| NPV | 23 | 12 | 18 | 15 | 14 |
(All amounts are in $millions.)
In order for Nielson Motor’s to be willing to invest, project 5 must have an NPV greater than:
A) $10.0 million
B) $12.5 million
C) $18.0 million
D) $22.5 million
Answer:
Which of the following statements is false?
A) Zero-coupon Treasury securities with maturities longer than one year also trade in the bond market.
B) Treasury securities are initially sold to the public through dealers.
C) Municipal bonds (“munis”) are issued by state and local governments.
D) Municipal bonds’ distinguishing characteristic is that the income on municipal bonds is not taxable at the federal level.
A) Zero-coupon Treasury securities with maturities longer than one year also trade in the bond market.
B) Treasury securities are initially sold to the public through dealers.
C) Municipal bonds (“munis”) are issued by state and local governments.
D) Municipal bonds’ distinguishing characteristic is that the income on municipal bonds is not taxable at the federal level.
Answer:
Which of the following statements is false?
A) The most important insight regarding capital structure goes back to Modigliani and Miller: With perfect capital markets, a firm’s security choice alters the risk of the firm’s equity, but it does not change its value or the amount it can raise from outside investors.
B) When agency costs are significant, short-term debt may be the most attractive form of external financing.
C) Too much debt can motivate managers and equity holders to take excessive risks or over-invest in a firm.
D) Of all the different possible imperfections that drive capital structure, the most clear-cut, and possibly the most significant, is taxes.
A) The most important insight regarding capital structure goes back to Modigliani and Miller: With perfect capital markets, a firm’s security choice alters the risk of the firm’s equity, but it does not change its value or the amount it can raise from outside investors.
B) When agency costs are significant, short-term debt may be the most attractive form of external financing.
C) Too much debt can motivate managers and equity holders to take excessive risks or over-invest in a firm.
D) Of all the different possible imperfections that drive capital structure, the most clear-cut, and possibly the most significant, is taxes.
Answer:
Use the following information to answer the question(s) below.
Rearden Metal has earnings per share of $2. It has 10 million shares outstanding and is trading at $20 per share. Rearden Metal is thinking of buying Associated Steel, which has earnings per share of $1.25, 4 million shares outstanding, and a price per share of $15. Rearden Metal will pay for Associated Steel by issuing new shares. There are no expected synergies from the transaction.
If Rearden offers an exchange ratio such that, at current pre-announcement share prices for both firms, the offer represents a 20% premium to buy Associated Steel, then the price per share of the combined corporation after the merger will be closest to:
A) $1.85
B) $1.90
C) $2.00
D) $2.25
Rearden Metal has earnings per share of $2. It has 10 million shares outstanding and is trading at $20 per share. Rearden Metal is thinking of buying Associated Steel, which has earnings per share of $1.25, 4 million shares outstanding, and a price per share of $15. Rearden Metal will pay for Associated Steel by issuing new shares. There are no expected synergies from the transaction.
If Rearden offers an exchange ratio such that, at current pre-announcement share prices for both firms, the offer represents a 20% premium to buy Associated Steel, then the price per share of the combined corporation after the merger will be closest to:
A) $1.85
B) $1.90
C) $2.00
D) $2.25
Answer:
Kampgrounds Inc. is considering purchasing a parcel of wilderness land near a popular historic site. Although this land will cost Kampgrounds $400,000 today, by renting out wilderness campsites on this land, Kampgrounds expects to make $35,000 at the end of every year indefinitely. If the appropriate discount rate is 8%, then the NPV of this new wilderness campsite is closest to:
A) -$50,000
B) -$37,500
C) $37,500
D) $50,000
A) -$50,000
B) -$37,500
C) $37,500
D) $50,000
Answer:
Use the table for the question(s) below.
Luther Industries had sales of $980 million and a cost of goods sold of $560 million in 2006. A simplified balance sheet for the firm appears below:
Luther Industries
Balance Sheet
As of December 31, 2006
(millions of dollars)
Luther Industries had sales of $980 million and a cost of goods sold of $560 million in 2006. A simplified balance sheet for the firm appears below:
Luther Industries
Balance Sheet
As of December 31, 2006
(millions of dollars)
| Assets | Liabilities and Equity | |||
| Cash | 25 | Accounts payable | 60 | |
| Accounts receivable | 85 | Notes payable | 425 | |
| Inventory | 90 | Accruals | 45 | |
| Total current assets | 200 | Total current liabilities | 530 | |
| Net plant, property, and equipment | 6,100 | Long term debt | 2,725 | |
| Total assets | 6,300 | Total liabilities | 3,255 | |
| Common equity | 3,045 | |||
| Total liabilities and equity | 6,300 |
Luther’s Inventory days is closest to:
A) 32 days
B) 59 days
C) 39 days
D) 42 days
Answer:
Consider the following equation:
D=
In this equation, the term D, represents
A) the change in the stock price from the low state to the high state.
B) the number of shares of stock to buy for the replicating portfolio.
C) the position in bonds for the replicating portfolio.
D) the change in the stock price from the high state to the low state.
D=
In this equation, the term D, represents
A) the change in the stock price from the low state to the high state.
B) the number of shares of stock to buy for the replicating portfolio.
C) the position in bonds for the replicating portfolio.
D) the change in the stock price from the high state to the low state.
Answer:
Use the tables for the question(s) below.
Pro Forma Income Statement for Ideko, 2005-2010
Pro Forma Income Statement for Ideko, 2005-2010
| Year | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | |
| Income Statement ($ 000) | |||||||
| 1 Sales | 75,000 | 88,358 | 103,234 | 119,777 | 138,149 | 158,526 | |
| 2 Cost of Goods Sold | |||||||
| 3 Raw Materials | (16,000) | (18,665) | (21,593) | (24,808) | (28,333) | (32,193) | |
| 4 Direct Labor Costs | (18,000) | (21,622) | (25,757) | (30,471) | (35,834) | (41,925) | |
| 5 Gross Profit | 41,000 | 48,071 | 55,883 | 64,498 | 73,982 | 84,407 | |
| 6 Sales and Marketing | (11,250) | (14,579) | (18,582) | (23,356) | (27,630) | (31,705) | |
| 7 Administrative | (13,500) | (13,254) | (15,485) | (16,769) | (17,959) | (20,608) | |
| 8 EBITDA | 16,250 | 20,238 | 21,816 | 24,373 | 28,393 | 32,094 | |
| 9 Depreciation | (5,500) | (5,450) | (5,405) | (6,865) | (7,678) | (7,710) | |
| 10 EBIT | 10,750 | 14,788 | 16,411 | 17,508 | 20,715 | 24,383 | |
| 11 Interest Expense (net) | (75) | (6,800) | (6,800) | (6,800) | (7,820) | (8,160) | |
| 12 Pre-tax Income | 10,675 | 7,988 | 9,611 | 10,708 | 12,895 | 16,223 | |
| 13 Income Tax | (3,736) | (2,796) | (3,364) | (3,748) | (4,513) | (5,678) | |
| 14 Net Income | 6,939 | 5,193 | 6,247 | 6,960 | 8,382 | 10,545 |
Pro Forma Balance Sheet for Ideko, 2005-2010
| Year | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | |
| Balance Sheet ($ 000) | |||||||
| Assets | |||||||
| 1 Cash and Cash Equivalents | 6,164 | 7,262 | 8,485 | 9,845 | 11,355 | 13,030 | |
| 2 Accounts Receivable | 18,493 | 14,525 | 16,970 | 19,689 | 22,709 | 26,059 | |
| 3 Inventories | 6,165 | 6,501 | 7,613 | 8,854 | 10,240 | 11,784 | |
| 4 Total Current Assets | 30,822 | 28,288 | 33,067 | 38,388 | 44,304 | 50,872 | |
| 5 Property, Plant, and Equipment | 49,500 | 49,050 | 48,645 | 61,781 | 69,102 | 69,392 | |
| 6 Goodwill | 72,332 | 72,332 | 72,332 | 72,332 | 72,332 | 72,332 | |
| 7 Total Assets | 152,654 | 149,670 | 154,044 | 172,501 | 185,738 | 192,597 | |
| Liabilities | |||||||
| 8 Accounts Payable | 4,654 | 5,532 | 6,648 | 7,879 | 9,110 | 10,448 | |
| 9 Debt | 100,000 | 100,000 | 100,000 | 115,000 | 120,000 | 120,000 | |
| 10 Total Liabilities | 104,654 | 105,532 | 106,648 | 122,879 | 129,110 | 130,448 | |
| Stockholder’s Equity | |||||||
| 11 Starting Stockholder’s Equity | 48,000 | 44,138 | 47,396 | 49,621 | 56,628 | ||
| 12 Net Income | 5,193 | 6,247 | 6,960 | 8,382 | 10,545 | ||
| 13 Dividends | (2,000) | (9,055) | (2,989) | (4,735) | (1,375) | (5,024) | |
| 14 Capital Contributions | 50,000 | — | — | — | — | — | |
| 15 Stockholder’s Equity | 48,000 | 44,138 | 47,396 | 49,621 | 56,628 | 62,149 | |
| 16 Total Liabilities and Equity | 152,654 | 149,670 | 154,044 | 172,501 | 185,738 | 192,597 |
Assuming that Ideko has a EBITDA multiple of 8.5, then the continuation unlevered P/E ratio of Ideko in 2010 is closest to:
A) 17.6
B) 16.4
C) 14.5
D) 19.0
Answer: