Fin 554 Quiz 2 | Course Paper

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Which two of the following tend to limit the amount of dividends that can be paid by a

leveraged corporation?I. Current tax lawsII. Corporate tax exclusionIII. Bond indenture

covenantIV. State laws pertaining to retained earnings

A. I and II only

B. I and III only

C. II and III only

D. II and IV only

E. III and IV only

Original Auto Parts has the following estimated sales.

Purchases are equal to 70 percent of the following quarters sales. The accounts payable

period is 60 days. Assume there are 30 days in each month. How much will the firm

owe its suppliers at the end of quarter 3?

A. $3,718

B. $3,967

C. $5,502

D. $7,653

E. $8,933

Cross Town Cookies is an all-equity firm with a total market value of $720,000. The

firm has 150,000 shares of stock outstanding. Management is considering issuing

$200,000 of debt at an interest rate of 7 percent and using the proceeds to repurchase

shares. The projected earnings before interest and taxes are $58,600. What are the

anticipated earnings per share if the debt is issued? Ignore taxes.

A. $0.25

B. $0.33

C. $0.38

D. $0.41

E. $0.47

Millers Hardware has 370,000 shares of stock outstanding with a current market value

of $37 a share. You own 48,000 of those shares. Next month, the election will be held to

select four new members to the board of directors. The firm uses a cumulative voting

system. How much additional money do you need to spend to guarantee that you will

be elected to the board assuming that everyone else votes for one of the other

candidates?

A. $0

B. $28,512

C. $34,047

D. $222,777

E. $299,001

How much money does Suzie need to have in her retirement savings account today if

she wishes to withdraw $25,000 a year for 30 years? She expects to earn an average rate

of return of 13 percent.

A. $176,800.16

B. $180,419.81

C. $181,533.33

D. $185,160.98

E. $187,391.34

Martin & Martin, Inc. stock is currently selling for $19 per share. The firm just made an

offer to one of its major shareholders to repurchase all the shares owned by that

shareholder for $25 per share. What type of offer is being made?

A. Rights offer

B. Secondary issue

C. Targeted repurchase

D. Tender offer

E. Private issue

Which one of the following statements concerning sinking funds is correct?

A. Bond issuers must fund a sinking fund at the time the bonds are issued.

B. Sinking funds must include at least one “balloon payment.”

C. Sinking funds must be funded annually, starting on the issue date.

D. Sinking funds may be used to purchase bonds in the open market.

E. Sinking funds can be used only to call bonds.

Which of the following have the potential to increase the net present value of a

proposed investment?I. Ability to immediately shut down a project should the project

become unprofitableII. Ability to wait until the economy improves before making the

investmentIII. Option to place the investment on hold until a more favorable discount

rate becomes availableIV. Option to increase production beyond that initially projected

A. I only

B. I and IV only

C. II and III only

D. I, II, and IV only

E. I, II, III, and IV

You just won $50,000 and deposited your winnings into an account that pays 5.5

percent interest, compounded annually. How long will you have to wait until your

winnings are worth $100,000?

A. 11.24 years

B. 12.00 years

C. 12.29 years

D. 12.67 years

E. 12.95 years

What is the future value of $4,900 invested for 8 years at 7 percent compounded

annually?

A. $8,397.74

B. $8,419.11

C. $8,511.15

D. $8,513.06

E. $8,520.22

A bond has a make-whole call provision. Given this, you know that the:

A. bond will always sell at par.

B. call premium must equal the annual coupon payment.

C. call price is directly related to the market rate of interest.

D. call price is inversely related to the market rate of interest.

E. bond must be a zero coupon bond.