Question;Identify the letter of the choice that best completes the statement or answers the question.______ 1. Which of the following mechanisms helps to align management interests with those of shareholders?a.b.c.d.A well designed compensation package.An efficient managerial labor market.The Sarbanes-Oxley Act of 2002.All of the above.______2. Assume the pre-tax profit of $50,000 has been earned by a business, and the owner/proprietor wantsto withdraw all of the after-tax profit for personal use. Assume the tax rate for a C corporation is33%, while the rate for a person is 25%. The after-tax earnings available under the corporate andproprietorship forms of business are:a. for a corporation, $25,125, for a proprietorship, $37,500.b. for a corporation, $24,090, for a proprietorship, $36,500.c. for either a corporation or a proprietorship, $36,500.d. for either a corporation or a proprietorship, $24,090.______3. Galan Associates prepared its financial statements for 2013 based on the information below.The company had cash of $1,350, inventory of $12,480, and accounts receivablesof $6,589. The company?s net fixed assets are $40,331, and other assets are $1,822.It has accounts payable of $10,604, notes payable of $2,886, common stock of $22,400,and retained earnings of $14,368. How much long-term debt does the firm have?a. $16,342b. $18,334c. $12,314d. $22,342______4. Mike?s Boutique announced that for the period ending December 31, 2013, it had revenues of$640,000. The company?s costs (excluding depreciation and amortization) amounted to 75% ofrevenues, and Art?s boutique had interest expenses of $40,000 and depreciation of 60,000. What isthe firm?s net income if the tax rate was 34 percent?a.b.c.d.The information below should be usedfor question 52012 and 2013 Balance Sheets for Nabors, Inc($ millions)120123102640327510,960CashAccounts Rec.InventoryNet Fixed Assets$Total Assets$ 17,185$20134053,0553,85010,670Accounts PayableNotes PayableLong-Term DebtCommon StockRetained Earnings$ 17,980 Total Liab. &Equity______ 5. What is the change in net working capital from 2012 to 2013?a. $4,015b. -$1,200c. $1,335d. -$3,405______6. Ship-to-Shore had earnings after tax (EAT) of $320,000 last year. Its expenses includeddepreciation of $55,000, interest of $40,000. It purchased new equipment for $20,000.The company also sold stock for $40,000. What is Ship-to-Shore?s net cash flow for last year?a. $395,000c. $380,000b. $315,000d. $475,000______7. Given the following information for Tandoori Grill Restaurant, calculate the total asset turnover andreturn on equity ratios:Net Profit Margin = 8%Return on Assets = 15%Debt Ratio = 30%a. 1.875, 15.34%c. 2.000, 26.67%b. 1.875, 21.43%d. 3.750, 26.67%______8. The Felix Corporation has just decided to save $10,000 each quarter for the next five years to serveas a safety net for economic downturns. The money will be set aside in a separate savings accountthat pays 5.25 percent annual rate, with interest compounded quarterly. The first deposit will bemade today. If the company wanted to deposit an equivalent lump sum today, how much would ithave to deposit?a. $190,454.86c. $189,468.05b. $174,902.14d. $177,197.73______ 9. You are comparing two investment options. The cost to invest in either option is the same today.Both options provide you with $20,000 of income. Option A pays five annual payments startingwith $8,000 the first year followed by four annual payments of $3,000 each. Option B pays fiveannual payments of $4,000 each. Which one of the following statements is correct given these twoinvestment options?a. Both options are of equal value given that they both provide $20,000 of income.b. Option A has a higher present value than option B given any positive rate of return.c. Option B has a higher present value than option A given any positive rate of return.d. Option B has a lower future value at year 5 than option A given a zero rate of return.2____ 10. You want to buy a car for $25,650. The finance company will charge you 6.6% annual ratecompounded monthly on a 4-year loan. If you can afford $485 monthly payments, how much doyou need to borrow? How much do you need for a down payment?a. $18,441, $7,209c. $22,590, $3,060b. $25,650, $0d. $20,412, $5,238_____ 11. You are the manager of an annuity settlement company. Jim Patton just won the state lottery whichpromises to pay him $1,000 per year for 20 years, starting from today, and $2,000 per year for years21-45, given a 9% discount rate. Your company wants to purchase the proceeds from the lotteryfrom Jim. What is the most that your company can offer?a. $12,633.85b. $13,770.90c. $16,940.38d. $18,680.95____ 12. Jean Cleveland currently has $7,750 in a money market account paying 7.25 percent compoundedsemi-annually. She plans to use this amount and her savings over the next 5 years to make a downpayment on a townhouse. She estimates that he will need $20,000 in 5 years. How much should sheinvest in the money market account semi-annually over the next 5 years to achieve this target?a. $ 886.28b. $ 757.25c. $ 650.97d. $ 610.79____ 13. Fabian has a 6-year, 8% annual coupon bond with a $1,000 par value. Feaster Enterprises has a 12year, 8% annual coupon bond with a $1,000 par value. Both bonds currently have a yield to maturityof 6%. Which of the following statements are correct if the market yield increases to 7%?a. Both bonds will decrease in value by 4.61%.b. The Feaster bond will increase in value by $88.25.c. The Fabian bond will increase in value by 4.61%.d. The Feaster bond will decrease in value by 7.56%.____ 14. BioMax Inc. offers an 8 percent coupon bond that has a $1,000 par value, semiannual couponpayments and 20 years of its original 25 years left to maturity. Which of the followingstatements is true if the market return on similar bonds is 10%?a. The bond will sell at a premium of $1,198 because the coupon rate is less than themarket interest rate.b. The bond will sell at a discount of $828 because the coupon rate is greater than themarket interest rate.c. The bond will sell at a discount of $817 because the coupon rate is less than marketinterest rate.3d. The bond will sell at a discount of $828 because the coupon rate is less than themarket interest rate.____ 15. If a stock portfolio is well diversified, then the portfolio variancea. will equal the variance of the most volatile stock in the portfolio.b. may be less than the variance of the least risky stock in the portfolio.c. must be equal to or greater than the variance of the least risky stock in the portfolio.d. will be a weighted average of the variances of the individual securities in theportfolio.____ 16. Aquaman stock has exhibited a standard deviation in returns of 0.7, whereas Green Lanternstock has exhibited a standard deviation of 0.8. The correlation coefficient between thestock returns is 0.1. What is the standard deviation of a portfolio composed of 70%Aquaman and 30% Green Lantern?a. 0.56676b. 0.32122c. 0.61743d. 0.75000_____17. The stocks of Microsoft and Apple have a correlation coefficient of 0.6. The variance ofMicrosoft stock is 0.4 and the variance of Apple stock is 0.3. What is the covariancebetween the two stocks?a. 0.72b. 0.07c. 0.21d. 0.36_____18. Star Solutions, Inc. paid a dividend last year of $3.55, which is expected to grow at a constant rate of3%. Star Solutions has a beta of 1.8 and their stock is currently selling for $31.47. If the market rateof return is 9% and the risk-free rate is 4%, would you purchase Star Solutions? stock?a. No, because it is overvalued $5.10c. No, because it is overvalued $9.85b. Yes, because it is undervalued $5.10d. Yes, because it is undervalued $9.85_____ 19. You are comparing stock A to stock B. Given the following information, which one of these twoStocks should you prefer and why?Rate of Return if State OccursState of theEconomyBoomRecessionProbabilityof State ofthe Economy60%40%Stock A9%4%Stock B15%-6%a. Stock A, because it has a higher expected return and appears to be less risky than stock B.b. Stock A, because it has a lower expected return but appears to be less risky than stock B.4c. Stock B, because it has a higher expected return and appears to be more risky than stock A.d. Stock B, because it has a higher expected return and appears to be less risky than stock A._____20. Carmen Electronics bought a new machine for $2,538,966. The company expects additional cashflows from the machine of $950,225, $1,058,436, and $1,491,497 over the next three years. What isthe payback period? If their acceptance period is 2.5 years, will this project be accepted?a. 4.17 years, yesc. 2.36 years, yesb. 4.17 years, nod. 3.83 years, no_____21. Jekyll and Hyde, Inc. has just purchased the rights to a movie. The company has the option ofproducing the movie on either a large budget of $25 million or a small budget of $10 million. Thecash flow in year 1 for the large budget movie is $65 million, while the cash flow in year 1 for thesmall-budget movie is $40 million. The cost of capital is 25%. Which project should be accepted?a. The large-budget movie because the IRR is higher.b. The small-budget movie because the NPV is lower.c. The large-budget movie because the NPV is higher.d. The small-budget movie because the IRR is lower._____22. Which of the following statements is correct?a. If Project A has a higher IRR than project B, then project A must also have a higherNPV.b. If a project?s IRR exceeds the cost of capital, then the project?s NPV must bepositive.c. The IRR calculation implicitly assumes that all cash flows are reinvested at a rate ofreturn equal to the firm?s cost of capital.d. Statements (a) and (c) are correct.____ 23. The projected cash flows for two mutually exclusive projects are as follows:YearProject AProject B0($150,000)($150,000)1050,0002050,0003050,0004050,0005250,00050,000If the cost of capital is 10%, the decidedly more favorable project is:a. project A with an NPV of $39,539 and an IRR of 10.8%.b. project A with an NPV of $5,230 and an IRR of 10.8%.c. project B with an NPV of $39,539 and an IRR of 19.9%.d. project B with an NPV of $5,230 and an IRR of 19.9%.5____ 24. You are considering two mutually exclusive projects with the following cash flows. Will your choicebetween the two projects differ if the required rate of return is 8% rather than 11%? If so, whatshould you do?YearProject AProject B0($240,000)($198,000)10110,8002082,5003325,00045,000a.b.c.Yes, select A at 8% and B at 11%.Yes, select B at 8% and A at 11%.No, regardless of the required rate, project A always hasthe higher NPV.No, regardless of the required rate, project B always hasthe higher NPV.d._____25. Capital budgeting analysis of mutually exclusive projects A and B yields the following:IRRNPVPayback PeriodProject A18%$270,0002.5 yrsProject B22%$255,0002.0 yrsManagement should choose:a. project A because NPV is the best of the three methods.b. project B because two out of three methods choose it.c. project B because most executives prefer the IRR method.d. either project because the results aren?t consistent.
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