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Question;True/False;Indicate;whether the statement is true or falsewith A for true and B for false.;1.;Interest paid by a corporation;is a tax deduction for the paying corporation, but dividends paid are not;deductible. This;treatment, other things held constant, tends to encourage the use of debt;financing by;corporations.;2.;According to the Capital Asset;Pricing Model, investors are primarily concerned with portfolio risk, not the;risks of individual;stocks held in isolation. Thus, the relevant risk of a stock is the stock's;contribution to the;riskiness of a well-diversified;portfolio.;3.;The major advantage of a;regular partnership or a corporation as a form of business organization is;the fact;that both offer;their owners limited liability, whereas proprietorships do not.;4.;Midway;through the life of an amortized loan, the percentage of the payment that;represents interest is equal;to the percentage;that represents principal repayment. This is true regardless of the original;life of the loan.;5.;The inventory;turnover ratio and days sales outstanding (DSO) are two ratios that are used;to assess how;effectively a firm;is managing its assets.;Multiple Choice;Identify the choice;that best completes the statement or answers the question.;6. You recently sold to your brother 200 shares of Disney stock, and the;transfer was made through a broker, and the trade occurred on the NYSE. This is;an example of;a.;A;futures market transaction.;b.;A;primary market transaction.;c.;A;secondary market transaction.;d.;A;money market transaction.;e.;An;over-the-counter market transaction.;7. Ten years ago, Levin Inc. earned $0.50 per share. Its earnings this year;were $2.20. What was the growth rate in Levin's earnings per share (EPS) over;the 10-year period?;a.;15.17%;b.;15.97%;c.;16.77%;d.;17.61%;e.;18.49%;8. Amram Company's current ratio is 1.9. Considered alone, which of the;following actions would reduce the company's current ratio?;a.;Borrow;using short-term notes payable and use the proceeds to reduce accruals.;b.;Borrow;using short-term notes payable and use the proceeds to reduce long-term debt.;c.;Use;cash to reduce accruals.;d.;Use;cash to reduce short-term notes payable.;e.;Use;cash to reduce accounts payable.;9. Northwest Lumber had a profit margin of 5.25%, a total assets turnover of;1.5, and an equity multiplier of 1.8. What was the firm's ROE?;a. 12.79%;b.;13.47%;c.;14.18%;d.;14.88%;e.;15.63%;10. Ripken Iron Works believes the following;probability distribution exists for its stock. What is the coefficient;of variation on the company's;stock?;State of the;Probability of;Stock's;Economy;State;Occurring;Expected;Return;Boom;0.25;25%;Normal;0.50;15%;Recession;0.25;5%;a.;0.4360;b.;0.4714;c.;0.5068;d.;0.5448;e.;0.5856;11. You have the following data on three;stocks;Stock;Standard Deviation;Beta;A;0.15;0.79;B;0.25;0.61;C;0.20;1.29;As a risk minimizer;you would choose Stock ____ if it is to be held in isolation and Stock ____ if;it is to be held as part of a well-diversified portfolio.;a.;A;A.;b.;A;B.;c.;B;C.;d.;C;A.;e.;C;B.;12. Ewert Enterprises' stock currently sells for $30.50 per share. The stock's;dividend is projected to increase at a constant rate of 4.50% per year. The;required rate of return on the stock, rs, is 10.00%. What is;Ewert's expected price 3 years from today?;a.;$31.61;b.;$32.43;c.;$33.26;d.;$34.11;e.;$34.81;13. You were hired as a consultant;to Kroncke Company, whose target capital structure is 40% debt, 10% preferred;and 50% common equity. The after-tax cost of debt is 6.00%, the cost of;preferred is 7.50%, and the cost of retained earnings is 13.25%. The firm will;not be issuing any new stock. What is its WACC?;a.;9.48%;b.;9.78%;c.;10.07%;d.;10.37%;e.;10.68%;14. To help finance a major expansion, Delano Development Company sold a;noncallable bond several years ago that now has 15 years to maturity. This bond;has a 10.25% annual coupon, paid semiannually, it sells at a price of $1,025;and it has a par value of $1,000. If Delano's tax rate is 40%, what component;cost of debt should be used in the WACC calculation?;a.;5.11%;b.;5.37%;c.;5.66%;d.;5.96%;e.;6.25%;15. Thompson Stores is considering a project that has the following cash flow;data. What is the project's IRR, NPV and Payback if the WACC is 10%? Note that;a project's projected IRR can be less than the WACC (and even negative), in;which case it will be rejected.;Year;0;1;2;3;4;5;Cash;flows;$1,000;$300;$295;$290;$285;$270;a.;IRR;- 11.16%, NPV = 96.72, Payback = 3.4 years;b.;IRR=;13.78%, NPV = 125.232, Payback = 3.4 years;c.;IRR=;13.78%, NPV = 96.72, Payback = 3.4 years;d.;IRR;= 12.45%, NPV = 96.72, Payback 4.1 years;e.;IRR;= 12.45%, NPV = 125.232, Payback = 4.1 years

 

Paper#44940 | Written in 18-Jul-2015

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