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Question;Question;1;A stock is expected to pay a;year-end dividend of $2.00, i.e., D1 = $2.00. The dividend is expected to;decline at a rate of 5% a year forever (g =?5%). If the company is in;equilibrium and its expected and required rate of return is 15%, which of;the following statements is CORRECT?;The constant growth model cannot;be used because the growth rate is negative.;The company's dividend yield 5;years from now is expected to be 10%.;The company's expected stock price;at the beginning of next year is $9.50.;The company's expected capital;gains yield is 5%.;The company's current stock price;is $20.;1 points;Question;2;Which is the best measure of;risk for a single asset held in isolation, and which is the best measure;for an asset held in a diversified portfolio?;Beta, beta.;Variance, correlation coefficient.;Beta, variance.;Coefficient of variation, beta.;Standard deviation, correlation;coefficient.;1 points;Question;3;Assume a project has normal;cash flows. All else equal, which of the following statements is CORRECT?;A project's NPV increases as the;WACC declines.;A project's discounted payback;increases as the WACC declines.;A project's MIRR is unaffected by;changes in the WACC.;A project's IRR increases as the;WACC declines.;A project's regular payback;increases as the WACC declines.;1 points;Question;4;Which of the following risk;types can be diversified by adding stocks to a portfolio?;Systematic Risk.;Default risk.;Non diversifiable risks.;Unique risks.;Market Risk.;1 points;Question;5;Firms that make investment;decisions based upon the payback rule may be biased towards rejecting;projects;with early cash inflows.;With short lives.;With long lives.;Those with negative NPVs.;None of above.;1 points;Question;6;When a project's internal rate;of return equals its opportunity cost of capital, then;The net present value will be;negative.;The net present value is a linear combination;of MIRR and IRR.;The net present value will be;positive.;The project has no cash inflows.;The net present value will be;zero.;1 points;Question;7;When hard rationing exists;projects may be evaluated by the use of?;Payback period.;borrowing rather than lending;projects.;Modified payback period.;A profitability index.;MIRR.;1 points;Question;8;Because of its age, your car;costs $3000 annually in maintenence expense. You could replace it with a;newer vehicle costing $6000. Both vehicles would be expected to last 4;more years. If your opportunity cost is 10% what should be the maximum;annual maintenance expense be on the newer vehicle to justify the purchase;? (Hint: EAC on the new vehicle should not exceed $3000);$1250.34.;$1107.18.;$1893.88.;$3000.00.;$1415.51.;1 points;Question;9;Taggart Inc.'s stock has a 50%;chance of producing a 39% return, a 30% chance of producing a 10% return, and;a 20% chance of producing a -28% return. What is the firm's expected rate;of return?;16.90%;15.55%;16.22%;16.06%;18.42%;1 points;Question;10;Tom O'Brien has a 2-stock;portfolio with a total value of $100,000. $55,000 is invested in Stock A;with a beta of 0.75 and the remainder is invested in Stock B with a beta;of 1.42. What is his portfolio's beta?;1.18;0.79;1.05;1.31;0.99;1 points;Question;11;Assume that you hold a;well-diversified portfolio that has an expected return of 11.0% and a beta;of 1.20. You are in the process of buying 1,000 shares of Alpha Corp at;$10 a share and adding it to your portfolio. Alpha has an expected return;of 22.5% and a beta of 1.80. The total value of your current portfolio is $90,000.;What will the expected return and beta on the portfolio be after the;purchase of the Alpha stock?;14.82% and 1.25;12.15% and 1.26;13.49% and 1.11;11.18% and 1.06;10.69% and 1.03;1 points;Question;12;Cooley Company's stock has a;beta of 1.60, the risk-free rate is 2.25%, and the market risk premium is;5.50%. What is the firm's required rate of return?;9.83%;10.39%;11.05%;9.28%;13.81%;1 points;Question;13;Roenfeld Corp believes the;following probability distribution exists for its stock. What is the;coefficient of variation on the company's stock?;State of the Economy;Probability of State Occurring;Stock's Expected Return;Boom;0.11;25%;Normal;0.50;15%;Recession;0.39;5%;0.6121;0.3992;0.6653;0.5322;0.6387;1 points;Question;14;You hold a diversified $100,000;portfolio consisting of 20 stocks with $5,000 invested in each. The;portfolio's beta is 1.12. You plan to sell a stock with b = 0.90 and use;the proceeds to buy a new stock with b = 1.25. What will the portfolio's;new beta be?;0.978;1.160;1.172;1.138;1.194;1 points;Question;15;Returns for the Dayton Company;over the last 3 years are shown below. What's the standard deviation of;the firm's returns? (Hint: This is a sample, not a complete population, so;the sample standard deviation formula should be used.);Year;Return;2011;21.00%;2010;-12.50%;2009;15.00%;14.47%;15.54%;17.15%;20.36%;17.86%;1 points;Question;16;A stock is expected to pay a;dividend of $0.75 at the end of the year. The required rate of return is r;= 10.5%, and the expected constant growth rate is g = 2.8%. What is the;stock's current price?;$11.20;$11.88;$11.10;$12.08;$9.74;1 points;Question;17;If D = $2.25, g (which is;constant) = 3.5%, and P = $40, what is the stock's expected dividend yield;for the coming year?;6.81%;5.82%;5.53%;5.47%;5.59%;1 points;Question;18;Bay Manufacturing is expected;to pay a dividend of $1.25 per share at the end of the year (D = $1.25).;The stock sells for $34.50 per share, and its required rate of return is;10.5%. The dividend is expected to grow at some constant rate, g, forever.;What is the equilibrium expected growth rate?;5.78%;8.39%;7.08%;6.88%;8.46%;1 points;Question;19;Molen Inc. has an outstanding;issue of perpetual preferred stock with an annual dividend of $8.00 per;share. If the required return on this preferred stock is 6.5%, at what;price should the stock sell?;$123.08;$99.69;$121.85;$148.92;$100.92;1 points;Question;20;The Francis Company is expected;to pay a dividend of D = $1.25 per share at the end of the year, and that;dividend is expected to grow at a constant rate of 6.00% per year in the;future. The company's beta is 1.35, the market risk premium is 5.50%, and;the risk-free rate is 4.00%. What is the company's current stock price?;$18.20;$28.80;$19.82;$20.97;$23.04;1 points;Question;21;Nachman Industries just paid a;dividend of D0 = $2.75. Analysts expect the company's dividend to grow by;30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3;and thereafter. The required return on this low-risk stock is 9.00%. What;is the best estimate of the stock's current market value?;$93.47;$78.52;$108.43;$111.23;$97.21;1 points;Question;22;A company's perpetual preferred;stock currently sells for $125.00 per share, and it pays an $8.00 annual;dividend. If the company were to sell a new preferred issue, it would;incur a flotation cost of 5.00% of the issue price. What is the firm's;cost of preferred stock?;5.12%;5.46%;7.28%;6.74%;7.61%;1 points;Question;23;You were hired as a consultant;to Giambono Company, whose target capital structure is 40% debt, 15%;preferred, and 45% 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 16.50%.;The firm will not be issuing any new stock. What is its WACC?;8.87%;12.15%;13.25%;8.32%;10.95%;1 points;Question;24;Anderson Systems is considering;a project that has the following cash flow and WACC data. What is the;project's NPV? Note that if a project's projected NPV is negative, it;should be rejected.;WACC;11.75%;Year;0;1;2;3;Cash flows;-$1,000;$500;$500;$500;$206.09;$216.40;$179.30;$199.91;$204.03;1 points;Question;25;Daves Inc. recently hired you;as a consultant to estimate the company's WACC. You have obtained the;following information. (1) The firm's noncallable bonds mature in 20;years, have an 8.00% annual coupon, a par value of $1,000, and a market;price of $1,125.00. (2) The company's tax rate is 40%. (3) The risk-free;rate is 4.50%, the market risk premium is 5.50%, and the stock's beta is;1.20. (4) The target capital structure consists of 35% debt and the;balance is common equity. The firm uses the CAPM to estimate the cost of;equity, and it does not expect to issue any new common stock. What is its;WACC?;9.60%;10.21%;7.35%;8.65%;8.30%;1 points;Question;26;Warr Company is considering a;project that has the following cash flow data. What is the project's IRR?;Note that a project's projected IRR can be less than the WACC or negative;in both cases it will be rejected.;Year;0;1;2;3;4;Cash flows;-$825;$400;$400;$400;$400;35.95%;32.98%;39.91%;24.74%;28.69%;1 points;Question;27;Taggart Inc. is considering a;project that has the following cash flow data. What is the project's;payback?;Year;0;1;2;3;Cash flows;-$1,300;$500;$500;$500;2.60 years;1.98 years;2.76 years;3.09 years;2.73years;1 points;Question;28;Ehrmann Data Systems is;considering a project that has the following cash flow and WACC data. What;is the project's MIRR? Note that a project's projected MIRR can be less;than the WACC (and even negative), in which case it will be rejected.;WACC;13.50%;Year;0;1;2;3;Cash flows;-$1,000;$450;$450;$450;15.65%;12.08%;17.35%;16.89%;15.49%;1 points;Question;29;Fernando Designs is considering;a project that has the following cash flow and WACC data. What is the;project's discounted payback?;WACC;10.00%;Year;0;1;2;3;Cash flows;-$625;$500;$500;$500;1.30years;1.41 years;1.58years;1.09years;1.07years;1 points;Question;30;Francis Inc.'s stock has a;required rate of return of 10.25%, and it sells for $70.00 per share. The;dividend is expected to grow at a constant rate of 6.00% per year. What is;the expected year-end dividend, D?;$3.12;$2.98;$2.23;$3.42;$2.83


Paper#50932 | Written in 18-Jul-2015

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