Which of the following is correct?
A.Beginning equity + Net income – Dividends – Stock = Ending equity
B.Beginning equity + Net income – Dividends + Stock = Ending equity
C.Net income – Dividends – Stock = Ending equity
D.Beginning equity – Net income – Dividends + Stock = Ending equity
Elephant Company common stock has a beta of 1.2. The risk-free rate is 6 percent and
the expected market rate of return is 12 percent. Determine the required rate of return
on the security.
A.7.2%
B.14.4%
C.19.2%
D.13.2%
A share of stock is currently selling for $20.80. If the dividend just paid is $2.00 and
investors are seeking a 14% return, what is the anticipated rate of constant growth?
A.1%
B.4%
C.0%
D.None of the above
Future cash flows associated with a bond are:
A.always different.
B.not very predictable.
C.very predictable.
D.adjustable.
Assuming a stock does not pay dividends, what is the capital gains yield on the stock
over one year?
A.
B.
C.
D.
Which of the following is not a cash flow consideration in evaluating capital budgeting
projects?
A.Income taxes on incremental earnings
B.Identifiable incremental overhead
C.Incremental accounting profit (net income)
D.Depreciation
The initial outlay calculation for an ____ project normally includes ____.
A.asset expansion; pretax proceeds from the sale of the old asset
B.asset replacement; pretax proceeds from the sale of the old asset
C.asset expansion; after-tax proceeds from the sale of the old asset
D.asset replacement; after-tax proceeds from the sale of the old asset
The two forms of equity infusion are:
A.long term debt and common stock.
B.direct investment in the company’s stock and the retention of earnings.
C.net working capital and accumulated depreciation.
D.preferred stock and long-term debt.
E.dividends and retained earnings.
The target capital structure for Petersen, Inc. is 30% debt, 20% preferred stock and 50%
equity. The after-tax cost of debt is 6%; the cost of preferred stock is 10% and the cost
of equity is 14%. (Floatation costs are already included in the costs of preferred stock
and equity.) What is Petersen’s WACC based on the target capital structure?
A.9.4%
B.10.0%
C.10.8%
D.11.2%
E.12.0%
J&J Manufacturing issued a bond with a $1,000 par value. The bond has a coupon rate
of 7% and makes payments semiannually. If the bond has 30 years remaining and the
annual market interest rate is 9.4%, what will the bond sell for today?
A.$760.91
B.$861.29
C.$937.42
D.$1,000.00
E.$1,025.32
A project has the following cash flows:
The project’s payback period is:
A.four years.
B.three and one-half years.
C.three and one-quarter years.
D.None of the above
The payback period of a project is defined as:
A.the number of years required for cumulative profits from a project to equal the initial
outlay.
B.the number of years required for the cumulative cash flows from a project to equal
the initial outlay.
C.the number of years required for the cumulative cash flows from a project to equal
the
average investment in the project.
D.a period of time sufficient to earn a rate of return equal to the firm’s cost of capital.
Fifteen years remain on a 25-year, 8% coupon bond payable semiannually with a face
value of $1,000. The return on comparable bonds is 10%. The formula for determining
the market price of the bond today is:
A.PB= $40[FVFA10,25] + $1,000[FVF10,25]
B.PB= $40[PVFA4,30] + $1,000[PVF4,30]
C.PB= $80[PVFA4,15] + $1,000[PVF4,15]
D.PB= $40[PVFA5,30] + $1,000[PVF5,30]
The firm’s capital structure is 20% debt, 30% preferred stock and 50% equity. Debt of
$2.5 million is expected to be available at a relatively low cost. Debt beyond that
amount will cost substantially more. Where will the MCC break because of an increase
in the cost of debt?
A.$2.5 million
B.$5.0 million
C.$10.0 million
D.$12.5 million
E.$15.0 million
Short of expropriation foreign governments may act to diminish the value of direct
investments within their country by:
A.requiring part ownership at bargain prices by their own citizens.
B.arbitrarily imposing taxes on the business.
C.limiting the amount of profit that can be taken out of the country.
D.All of the above
Which of the following activities will impact the operating section of the statement of
cash flows?
A.Sale of stock
B.Payment of dividends
C.Purchase of fixed assets
D.Payment to a vendor
A company purchased land ten years ago for $250,000.00, but never built the factory
that was originally intended for the property. The property currently has a value of
$750,000.00. Assuming a 35% tax rate, what is the opportunity cost of using the
property?
A.$750,000.00
B.$487,500.00
C.$325,000.00
D.$262,500.00