The Glass Ceiling paid an annual dividend of $2.20 per share last year. Management
just announced that future dividends will increase by 2.8 percent annually. What is the
amount of the expected dividend in year 5?
A. $2.39
B. $2.41
C. $2.46
D. $2.53
E. $2.58
Currently, you owe the bank $9,800 for a car loan. The loan has an interest rate of 7.75
percent and monthly payments of $310. Your financial situation recently changed such
that you can no longer afford these payments. After talking with your banker and
explaining the situation, he has agreed to lower the monthly payments to $225 while
keeping the interest rate at 7.75 percent. How much longer will it take you to repay this
loan than you had originally planned?
A. 12.29 months
B. 14.47 months
C. 15.84 months
D. 17.19 months
E. 19.90 months
Lesters has a market value balance sheet as shown below. The firm currently has 7,500
shares of stock outstanding at a price per share of $40. Net income is $9,500.
The firm has decided to repurchase $20,000 worth of its outstanding stock. What will
the firms PE ratio be after this repurchase, all else held constant?
A. 23.39
B. 28.76
C. 29.47
D. 30.13
E. 32.16
River Rock, Inc. just paid an annual dividend of $2.80. The company has increased its
dividend by 2.5 percent a year for the past 10 years and expects to continue doing so.
What will a share of this stock be worth 6 years from now if the required return is 16
percent?
A. $23.60
B. $24.65
C. $25.08
D. $25.50
E. $26.90
You are considering the following two mutually exclusive projects. The crossover point
is _____ and Project _____ should be accepted at a 12 percent discount rate.
A. 11.07 percent; B
B. 11.38 percent; A
C. 11.38 percent; B
D. 14.02 percent; A
E. 14.02 percent; B
An all-equity firm has a return on assets of 15.3 percent. The firm is considering
converting to a debt-equity ratio of 0.40. The pretax cost of debt is 8.1 percent. Ignoring
taxes, what will the cost of equity be if the firm switches to the levered capital
structure?
A. 15.30 percent
B. 16.28 percent
C. 16.67 percent
D. 17.46 percent
E. 18.18 percent
Which one of the following best defines the term collection policy?
A. Process of determining which customers will be granted credit
B. Process of determining the probability that customers will not pay
C. Set of guidelines used by a firm to determine the cost of offering credit to its
customers
D. Daily process of handling cash inflows and outflows of cash
E. Set of procedures a firm follows in collecting accounts receivable
A portfolio is comprised of 35 securities with varying betas. The lowest beta for an
individual security is 0.74 and the highest of the security betas of 1.51. Given this
information, you know that the portfolio beta:
A. must be 1.0 because of the large number of securities in the portfolio.
B. is the geometric average of the individual security betas.
C. must be less than the market beta.
D. will be between 0 and 1.0.
E. will be greater than or equal to 0.74 but less than or equal to 1.51.
Kline Construction is an all-equity firm that has projected perpetual earnings before
interest and taxes of $879,000. The current cost of equity is 18.3 percent and the tax
rate is 34 percent. The company is in the process of issuing $6.2 million of 8.5 percent
annual coupon bonds at par. What is the levered value of the firm?
A. $5,278,164
B. $5,541,085
C. $6,422,225
D. $6,713,185
E. $7,385,695
Youre trying to save to buy a new $210,000 Ferrari. You have $38,000 today that can be
invested at your bank. The bank pays 4.1 percent annual interest on its accounts. How
long will it be before you have enough to buy the car?
A. 39.13 years
B. 39.29 years
C. 40.67 years
D. 41.08 years
E. 42.54 years
Rick is planning to invest the following amounts at 6 percent interest. How much
money will he have saved at the end of year 3?
A. $2,200.00
B. $2,238.47
C. $2,309.80
D. $2,309.16
E. $2,402.19
Explain what capital structure management is and give three examples of capital
structure decisions.
Assume the federal government decides to permanently eliminate corporate income
taxes as a means of encouraging economic development and job growth. What effect, if
any, would this change have on the evaluation of a proposed project?
Consider an ordinary annuity and the variables that are related to that annuity. For each
of the following sets of variables, identify whether the relationship between the two
variables is direct (D) or inverse (I). Assume all other variables are held constant.
What are some of the key factors an individual should consider before selecting a
first-stage venture capitalist?
Explain how taxes affect the value of a firm based on M&M Proposition I.
Explain what a mortgage-backed security (MBS) is and how it functions. Also, explain
why these securities were such a problem during 2008.