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##### Making decisions to maximize shareholder

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solution

**Question**

If managers are making decisions to maximize shareholder wealth, then they are;Primarily concerned with making decisions that should;a. Positively affect profits.;b. Increase the market value of the firm's common stock.;c. Either increase or have no effect on the value of the firm's;Common stock.;d. Accomplish all of the above.;2A firm has return on equity of 20% and a total asset turnover of 4. Assuming;a debt ratio of 50% and sales of $1,000,000, calculate net income.;a. $25,000;b. $50,000;c. $75,000;d. $100,000;3The trading of negotiable certificates of deposit takes place on the;a. Chicago Board of Trade.;b. New York Stock Exchange.;c. American Stock Exchange.;d. None of the above.;4As the cost of capital is increased, the;a. IRR remains constant.;b. Payback period remains the same.;c. Discounted payback period increases.;d. Both "b" and "c".;e. All of the above;5You have just won a magazine sweepstakes and have a choice of three;alternatives. You can get $100,000 now, or $10,000 per year in perpetuity, or;$50,000 now and $150,000 at the end of 10 years. If the appropriate discount;rate is 12%, which option should you choose?;a. $100,000 now;b. $10,000 perpetuity;c. $50,000 now and $150,000 in 10 years;6The break-even quantity of output results in an EBIT level equal to;a. Fixed costs.;b. Contribution margin.;c. Zero.;d. Variable costs.;7If the NPV of a project is positive, then the project's IRR;the required rate of return.;a. must be less than;b. must be greater than;c. could be greater or less than;d. cannot be determined without actual cash flows;8Given a 360-day year, the effective annual cost of not taking advantage of the;3/10, net 30 terms offered by a supplier is;a. 55.7%.;b. 45.4%.;c. 32.3%.;d. 28.2%.;9A company is technically insolvent when;a. Cash outflows in a given period are greater than cash inflows.;b. Earnings before interest payments are less than the interest;payments.;c. It lacks the necessary liquidity to promptly pay its current;debt obligations.;d. The current ratio is less than 1.0.;10Monopoly Corp. is projecting sales of $12 million next year. All sales will be;on a credit basis. The present average collection period is 45 days. Monopoly;is considering a change in selling terms from net 30 days to 2/10, net 30 in;order to speed up the collections of its receivables. Studies indicate that one;half of the firm's customers will take the discount. If Monopoly offers this;discount, how much will it cost next year? Assume a 365-day year.;a. $87,000;b. $98,000;c. $103,000;d. $112,000;e. $120,000;11Which of the following most likely would cause a lease to be classified as a;capital lease?;a. The lease is for five or more years.;b. The lease is for $1 million or more.;c. The lease permits the lessee to purchase the equipment at the;end of the lease for its fair market value.;d. The present value of the lease payments, calculated at the;lessee's typical rate of interest for a similar purchase;loan, is more than the original purchase price of the;equipment.&&n bsp;12UVP preferred stock pays $5.00 in annual dividends per share. If your;required rate of return is 13%, how much will you be willing to pay for one share?;a. $38.46;b. $26.26;c. $65.46;d. $46.38;13Determine the dollar value of a three year annuity that would produce the;same NPV as the following project if the appropriate discount rate is 15%, and;initial outflow = 0.;Initial Outflow = $1,200;Cash Flow Year 1 = $800;Cash Flow Year 2 = $500;Cash Flow Year 3 = $700;a. $250.38;b. $673.94;c. $146.28;d. $430.82;14Sola Cola Corporation is undertaking a capital budgeting analysis. The;rate on 30-year U.S. Treasury bonds is 6.3%, and the return on the S&P 500;index is 18.5%. If the cost of Sola Cola's retained earnings is 19.7%;calculate its beta.;a. 1.1;b. 1.3;c. 1.5;d. 1.7;15Zybeck Corp. projects operating income of $4 million next year. The firm's;income tax rate is 40%. Zybeck presently has 750,000 shares of common;stock outstanding which have a market value of $10 per share, no preferred;stock, and no debt. The firm is considering two alternatives to finance a new;product: (a) the issuance of $6 million of 10% bonds, or (b) the issuance of;60,000 new shares of common stock. If Zybeck issues common stock this;year, what will projected EPS be next year?;a. $2.10;b. $2.96;c. $2.33;d. $1.67;16In the event that Zoldt Corporation, which has a low P/E ratio, were to;acquire Sky Corporation, which has a higher P/E ratio, an analyst can be;certain that one of the following will occur.;a. Zoldt Corp. will see an immediate decrease in P/E.;b. Zoldt Corp. will see an immediate decrease in EPS.;c. Zoldt Corp. will see an immediate increase in the growth rate;of EPS.;d. Zoldt Corp. will see an immediate increase in EPS.;17Assume that an investor owned 5,000 of Chrysler Corporation common stock;prior to the purchase of Chrysler by Daimler-Benz of Germany. At the time;of the acquisition, the dollar was worth 1.7848 German marks. Further;assume that the purchase price was equal to 107.09 marks per share.;What was the sales price of Chrysler common stock per share in U.S.;dollars?;a. $50;b. $191;c. $107;d. $60;e. None of the above;18If a company's average collection period is higher than the industry average;then the company might be;a. Enforcing credit conditions upon its customers which are too;nbs p;stringent.;b. Allowing its customers too much time to pay their bills.;c. Too tough in collecting its accounts.;d. Too liquid.;19Kiosk Corp. has current assets of $4.5 million and current liabilities of $3.6;million. The current ratio is 1.25, and the quick ratio is 0.75. How much;does Kiosk have invested in inventory (in millions)?;a. $0.8;b. $1.8;c. $2.4;d. $2.9;e. $3.6;20A firm has a total asset turnover of 2, a net profit margin of 5%, and a debt;ratio of 50%. If the firm has a dividend payout ratio of 20%, calculate its;sustainable growth rate.;a. 14%;b. 16%;c. 18%;d. 20%;21If you have $20,000 in an account earning 8% annually, what constant amount;could you withdraw each year and have nothing remaining at the end of five;years?;a. $3,525.62;b. $5,008.76;c. $3,408.88;d. $2,465.78;22A firm has a degree of combined leverage of 1.25. Price per unit is $15 and;variable cost per unit is $5. Interest expense is $10,000 and fixed costs are;$190,000. Calculate the quantity of output produced.;a. 100,000 units;b. 120,500 units;c. 150,000 units;d. 200,000 units;23A stock currently sells for $63 per share, and the required return on the;stock is 10%. Assuming a growth rate of 5%, calculate the stock's last;dividend paid. (Rounded);a. $1;b. $3;c. $5;d. $7;24An optimal capital structure is achieved;a. When a firm's expected profits are maximized.;b. When a firm's expected EPS are maximized.;c. When a firm's expected stock price is maximized.;e. When a firm's break-even point is achieved.;25An investor in the 40% tax bracket owning a tax-exempt bond yielding 6%;realizes an equivalent before-tax yield of;a. 12%;b. 10%;c. 8%;d. 6%

Paper#25921 | Written in 18-Jul-2015

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