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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.;A well designed compensation package.;b.;An efficient managerial labor market.;c.;The Sarbanes-Oxley Act of 2002.;d.;All of the above.;2. Assume;the pre-tax profit of $50,000 has been earned by a business, and the owner/proprietor;wants to withdraw all of the after-tax profit for personal use. Assume the tax rate for a C corporation is 33%;while the rate for a person is 25%. The;after-tax earnings available under the corporate and proprietorship 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 receivables;of $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.;$16,342;b.;$18,334;c.;$12,314;d.;$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% of revenues;and Art?s boutique had interest expenses of$40,000 and depreciation of;60,000. What is the firm?s net income if the tax rate was 34 percent?;a.;b.;c.;d.;The information;below should be used for question 5;2012 and 2013 Balance Sheets for;Nabors, Inc;($ millions);2012;2013;2012;2013;Cash;$;310;$;405;Accounts Payable;$;2,720;$;2,570;Accounts Rec.;2640;3,055;Notes Payable;100;0;Inventory;3275;3,850;Long-Term Debt;7,875;8,100;Net Fixed Assets;10,960;10,670;Common Stock;5,000;5,250;Retained Earnings;1,490;2,060;Total Assets;$;17,185;$ 17,980;Total Liab. & Equity;$;17,185;$;17,980;5. What is the change in net;working capital from 2012 to 2013?;a.;$4,015;b.;-$1,200;c.;$1,335;d.;-$3,405;6. Ship-to-Shore had earnings after tax (EAT) of $320,000 last year.;Its expenses included;depreciation;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.;$395,000;c.;$380,000;b.;$315,000;d.;$475,000;7. Given the following information for Tandoori Grill Restaurant;calculate the total asset turnover and return 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 serve as a safety net for economic downturns. The money will be set aside in a separate;savings account that pays 5.25 percent annual rate, with interest compounded;quarterly. The first deposit will be;made today. If the company wanted to;deposit an equivalent lump sum today, how much would it have to deposit?;a.;$190,454.86;c.;$189,468.05;b.;$174,902.14;d.;$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 starting with $8,000 the first year followed by;four annual payments of $3,000 each. Option;B pays five annual payments of $4,000 each. Which one of the following;statements is correct given these two investment 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.;10. You want to buy a car for $25,650. The finance company will charge you 6.6%;annual rate compounded monthly on a 4-year loan. If you can afford $485 monthly payments, how;much do you need to borrow? How much do;you need for a down payment?;a.;$18,441, $7,209;c.;$22,590, $3,060;b.;$25,650, $0;d.;$20,412, $5,238;11. You are the;manager of an annuity settlement company.;Jim Patton just won the state lottery which promises to pay him $1,000 per;year for 20 years, starting from today, and $2,000 per year for years 21-45, given;a 9% discount rate. Your company wants;to purchase the proceeds from the lottery from Jim. What is the most that your company can offer?;a.;$12,633.85;b.;$13,770.90;c.;$16,940.38;d.;$18,680.95;12. Jean Cleveland currently;has $7,750 in a money market account paying 7.25 percent compounded;semi-annually. She plans to use this;amount and her savings over the next 5 years to make a down payment on a townhouse. She estimates that he will need $20,000 in 5;years. How much should she;invest;in the money market account semi-annually over the next 5 years to achieve this;target?;a.;$ 886.28;b.;$ 757.25;c.;$ 650.97;d.;$ 610.79;13. Fabian has a 6-year, 8% annual coupon bond;with a $1,000 par value. Feaster Enterprises has a 12-year, 8% annual coupon;bond with a $1,000 par value. Both bonds currently have a yield to maturity of;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 coupon payments and 20 years of its;original 25 years left to maturity. Which;of the following;statements;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 the market interest rate.;b.;The bond will sell at a discount of $828 because the;coupon rate is greater than the market interest rate.;c.;The bond will sell at a discount of $817 because the;coupon rate is less than market interest rate.;d.;The bond will sell at a discount of $828 because the coupon;rate is less than the market interest rate.;15. If a stock portfolio is well;diversified, then the portfolio variance;a.;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 the;portfolio.;16. Aquaman stock has exhibited a standard;deviation in returns of 0.7, whereas Green Lantern;stock;has exhibited a standard deviation of 0.8.;The correlation coefficient between the;stock;returns is 0.1. What is the standard;deviation of a portfolio composed of 70%;Aquaman;and 30% Green Lantern?;a.;0.56676;b.;0.32122;c.;0.61743;d.;0.75000;17. The stocks of Microsoft and Apple have a;correlation coefficient of 0.6. The;variance of;Microsoft;stock is 0.4 and the variance of Apple stock is 0.3. What is the covariance;between;the two stocks?;a.;0.72;b.;0.07;c.;0.21;d.;0.36;18. Star Solutions, Inc. paid;a dividend last year of $3.55, which is expected to grow at a constant rate of 3%. Star Solutions has a beta of 1.8 and their;stock is currently selling for $31.47. If;the market rate of return is 9% and the risk-free rate is 4%, would you;purchase Star Solutions? stock?;a.;No, because it is overvalued $5.10;c.;No, because it is overvalued $9.85;b.;Yes, because it is undervalued $5.10;d.;Yes, because it is undervalued $9.85;19.You;are comparing stock A to stock B. Given the following information, which one of;these two;Stocks should you;prefer and why?;Rate of Return if State Occurs;State of the Economy;Probability of State of the Economy;Stock A;Stock B;Boom;60%;9%;15%;Recession;40%;4%;-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.;c.;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 cash flows;from the machine of $950,225, $1,058,436, and $1,491,497 over the next three;years. What is the payback period? If;their acceptance period is 2.5 years, will this project be accepted?;a.;4.17;years, yes;c.;2.36;years, yes;b.;4.17;years, no;d.;3.83;years, no;21. Jekyll and Hyde, Inc. has just purchased the;rights to a movie. The company has the;option of producing the movie on either a large budget of $25 million or a;small budget of $10 million. The cash;flow in year 1 for the large budget movie is $65 million, while the cash flow;in year 1 for the small-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 higher NPV.;b.;If a project?s IRR exceeds the cost of capital, then the;project?s NPV must be positive.;c.;The IRR calculation implicitly assumes that all cash;flows are reinvested at a rate of return 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;Year;Project A;Project B;0;($150,000);($150,000);1;0;50,000;2;0;50,000;3;0;50,000;4;0;50,000;5;250,000;50,000;If 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%.;24. You are considering two;mutually exclusive projects with the following cash flows. Will your choice;between the two projects differ if the required rate of return is 8% rather;than 11%? If so, what should you do?;Year;Project A;Project B;0;($240,000);($198,000);1;0;110,800;2;0;82,500;3;325,000;45,000;a.;Yes, select A at 8% and B at 11%.;b.;Yes, select B at 8% and A at 11%.;c.;No, regardless of the required rate, project A always has;the higher NPV.;d.;No, regardless of the required rate, project B always has;the higher NPV.;25. Capital;budgeting analysis of mutually exclusive projects A and B yields the following;Project A;Project B;IRR;18%;22%;NPV;$270,000;$255,000;Payback Period;2.5 yrs;2.0;yrs;Management 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.

 

Paper#48504 | Written in 18-Jul-2015

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