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Fin500 midterm exam




Question;1. JBCO.;reported $12,500 of sales and $7,025 of operating costs (including;depreciation). The company had $18,750 of investor-supplied operating assets;(or capital), the weighted average cost of that capital (the WACC) was 9.5%;and the federal-plus-state income tax rate was 40%. What was HHH's Economic;Value Added (EVA), i.e., how much value did management add to stockholders;wealth during the year?;Answer;a.;$1,357.13;b.;$1,428.56;c.;$1,503.75;d.;$1,578.94;e.;$1,657.88;2.;YNP Inc. recently;reported net income of $4,750 and depreciation of $885. How much was;its net cash flow, assuming it had no amortization expense and sold none of;its fixed assets.;a.;$4,831.31;b.;$5,085.59;c.;$5,353.25;d.;$5,635.00;e.;$5,916.75;3.;Commerce Bank offers;to lend you $100,000 at an 8.5% annual interest rate to start your new;business. The terms require you to amortize the loan with 10 equal end-of-year;payments. How much interest would you be paying in Year 2?;a.;$7,531;b.;$7,927;c.;$8,323;d.;$8,740;e.;$9,177;4. Jim Angel holds a $200,000 portfolio consisting of the;following stocks;Stock Investment Beta;A;$ 50,000;0.95;B;50,000;0.80;C;50,000;1.00;D;50,000;1.20;Total $200,000;What is the;portfolio's beta?;a.;0.938;b.;0.988;c.;1.037;d.;1.089;e.;1.143;5.;Lindley Corp.'s stock;price at the end of last year was $33.50, and its book value per share was;$25.00. What was its market/book ratio?;a.;1.34;b.;1.41;c.;1.48;d.;1.55;e.;1.63;6.;Garvin Enterprises?;bonds currently sell for $1,150. They have a 6-year maturity, an annual coupon of;$85, and a par value of $1,000. What is their current yield?;a.;7.39%;b.;7.76%;c.;8.15%;d.;8.56%;e.;8.98%;7.;The Morrissey;Company's bonds mature in 7 years, have a par value of $1,000, and make an;annual coupon payment of $70. The market interest rate for the bonds is 8.5%.;What is the bond's price?;a.;$923.22;b.;$946.30;c.;$969.96;d.;$994.21;e.;$1019.06;8.;Qualcomm`s 5-year;bonds yield 7.00%, and 5-year T-bonds yield 5.15%. The real risk-free rate is;r* = 3.0%, the inflation premium for 5-year bonds is IP = 1.75%, the liquidity;premium for Keys' bonds is LP = 0.75% versus zero for T-bonds, and the maturity;risk premium for all bonds is found with the formula MRP = (t ? 1) x 0.1%;where t = number of years to maturity. What is the default risk premium (DRP);on Keys' bonds?;a.;0.99%;b.;1.10%;c.;1.21%;d.;1.33%;e.;1.46%;9.;Ten years ago;Spielberg Inc. earned $0.50 per share. Its earnings this year were $2.20. What;was the growth rate in earnings per share (EPS) over the 10-year period?;a.;15.17%;b.;15.97%;c.;16.77%;d.;17.61%;e.;18.49%;10. Calculate the required rate of return for Climax Inc., assuming;that (1) investors expect a 4.0% rate of inflation in the future, (2) the real risk-free;rate is 3.0%, (3) the market risk premium is 5.0%, (4) the firm has a beta of;1.00, and (5) its realized rate of return has averaged 15.0% over the last 5;years.;a.;10.29%;b.;10.83%;c.;11.40%;d.;12.00%;e.;12.60%;11.;Staple Supplies;recently reported $12,500 of sales, $7,250 of operating costs other than;depreciation, and $1,250 of depreciation. The company had no;amortization charges and no non-operating income. It had $8,000 of;bonds outstanding that carry a 7.5% interest rate, and its federal-plus-state;income tax rate was 40%. How much was the firm's taxable income, or;earnings before taxes (EBT)?;a.;$3,230.00;b.;$3,400.00;c.;$3,570.00;d.;$3,748.50;e.;$3,935.93;a.;$3,230.00;b.;$3,400.00;c.;$3,570.00;d.;$3,748.50;e.;$3,935.93;12. Noblerse;Enterprises has a beta of 1.10, the real risk-free rate is 2.00%, investors;expect a 3.00% future inflation rate, and the market risk premium is 4.70%.;What is Scheuer's required rate of return?;a.;9.43%;b.;9.67%;c.;9.92%;d.;10.17%;e.;10.42%;13 What?s the present value of a 4-year ordinary annuity of;$2,250 per year plus an additional $3,000 at the end of Year 4 if the interest;rate is 5%?;a.;$8,509;b. $8,957;c. $9,428;d. $9,924;e. $10,446;a.;$8,509;b.;$8,957;c.;$9,428;d.;$9,924;e.;$10,446.;14.;What is the PV of an annuity due with 5 payments of $2,500 at an interest rate;of 5.5%?;a.;$11,262.88;b.;$11,826.02;c.;$12,417.32;d.;$13,038.19;e.;$13,690.10;15.;Suppose you borrowed;$12,000 at a rate of 9.0% and must repay it in 4 equal installments at the end;of each of the next 4 years. How large would your payments be?;a.;$3704.02;b.;$3.889;c.;$4083.69;d.;$4,287.87;e.;$4,502.26;16. A 25-year, $1,000 par value bond has an 8.5% annual coupon. The;bond currently sells for $875. If the yield to maturity remains at its current;rate, what will the price be 5 years from now?;a.;$839.31;b.;$860.83;c.;$882.90;d.;$904.97;e.;$927.60;17. John paid $10,000 (CF at t = 0) for an investment that promises;to pay $750 at the end of each of the next 5 years, then an additional lump sum;payment of $10,000 at the end of the 5th year. What is the expected rate of;return on this investment?;a.;6.77%;b.;7.13%;c.;7.50%;d.;7.88%;e.;8.27%;18.;Moerdyk Company's;stock has a beta of 1.40, the risk-free rate is4.25%, and the market risk;premium is5.50%. What is the firm's required rate of return?;a.;11.36%;b.;11.65%;c.;11.95%;d.;12.25%;e.;12.55%;19.;PAT Financial has;the following income statement. How much net operating profit after;taxes (NOPAT) does the firm have?;Sales;$1,800.00;Costs;1,400.00;Depreciation;250.00;EBIT;$;150.00;Interest expense;70.00;EBT;$;80.00;Taxes (40%);32.00;Net income;$;48.00;a.;$81.23;b.;$85.50;c.;$90.00;d.;$94.50;e.;$99.23;a.;$81.23;b.;$85.50;c.;$90.00;d.;$94.50;e.;$99.23;20. PuchualaInc believes the following probability;distribution exists for its stock. What is the coefficient of variation;on the company's stock?;Probability;Stock's;State;of;of State;Expectedthe Economy Occurring;Return;Boom;0.45;25%;Normal;0.50;15%;Recession;0.05;5%;a.;0.2839;b.;0.3069;c.;0.3299;d.;0.3547;e.;0.3813;21.;Karen just deposited;$2,500 in a bank account that pays a 4.0% nominal interest rate, compounded;quarterly. If you also add another $5,000 to the account one year (4 quarters);from now and another $7,500 to the account two years (8 quarters) from now, how;much will be in the account three years (12 quarters) from now?;a.;$15,234;b.;$16,035;c.;$16,837;d.;$17,679;e.;$18,563;22. Jim Angel holds a $200,000 portfolio;consisting of the following stocks;Stock Investment Beta;A;$ 50,000;0.95;B;50,000;0.80;C;50,000;1.00;D;50,000;1.20;Total $200,000;What is the;portfolio's beta?;a.;0.938;b.;0.988;c.;1.037;d.;1.089;e.;1.143;23. Stewart Inc.'s latest EPS was $3.50, its book value per share;was $22.75, it had 215,000 shares outstanding, and its debt ratio was 46%. How;much debt was outstanding?;a.;$3,393,738;b.;$3,572,356;c.;$3,760,375;d.;$3,958,289;e.;$4,166,620;24. Harper Corp.'s sales last year were $395,000, and its year-end;receivables were $42,500. Harper sells on terms that call for customers to pay;30 days after the purchase, but many delay payment beyond Day 30. On average;how many days late do customers pay? Base your answer on this equation: DSO -;Allowed credit period = Average days late, and use a 365-day year when;calculating the DSO.;a.;7.95;b.;8.37;c.;8.81;d.;9.27;e.;9.74;25. Scheuer Enterprises has a beta of 1.10, the real risk-free rate;is 2.00%, investors expect a 3.00% future inflation rate, and the market risk;premium is 4.70%. What is Scheuer's required rate of return?;a.;9.43%;b.;9.67%;c.;9.92%;d.;10.17%;e.;10.42%;26. BCO stock has a beta;of 1.30, and its required return is 12.00%. LAP Stock's beta is 0.80. If the;risk-free rate is 4.75%, what is the required rate of return on LAP Beta's;stock? (Hint: First find the market risk premium.);a.;8.76%;b.;8.98%;c.;9.21%;d.;9.44%;e.;9.68%


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