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Finance Multiple Choice Questions




Question;1.(TCO D) A stock just paid a;dividend of D0 = $1.50. The required rate of return is rs;= 10.1%, and the constant growth rate is g = 4.0%. What is the current;stock price? (Points: 10);$23.11;$23.70;$24.31;$24.93;$25.57;2.(TCO D) If D1 = $1.25, g;(which is constant) = 5.5%, and P0 = $44, what is the stock?s;expected total return for the coming year? (Points: 10);7.54%;7.73%;7.93%;8.13%;8.34%;3.(TCO D) Molen Inc. has an;outstanding issue of perpetual preferred stock with an annual dividend of;$7.50 per share. If the required return on this preferred stock is 6.5%, at;what price should the preferred stock sell? (Points: 10);$104.27;$106.95;$109.69;$112.50;$115.38;4.(TCO E) Which of the following is NOT;a capital component when calculating the weighted average cost of capital;(WACC) for use in capital budgeting? (Points: 10);Long-term;debt;Accounts payable;Retained earnings;Common stock;Preferred stock;5.(TCO E) The MacMillen Company has;equal amounts of low-risk, average-risk, and high-risk projects. The firm's;overall WACC is 12%. The CFO believes that this is the correct WACC for the;company?s average-risk projects, but that a lower rate should be used for;lower-risk projects and a higher rate for higher-risk projects. The CEO;disagrees, on the grounds that even though projects have different risks;the WACC used to evaluate each project should be the same because the;company obtains capital for all projects from the same sources. If the;CEO?s position is accepted, what is likely to happen over time?(Points;10);The;company will take on too many high-risk projects and reject too many low-risk;projects.;The company will take on too many low-risk projects and reject too many high-risk;projects.;Things will generally even out over time, and, therefore, the firm?s risk;should remain constant over time.;The company?s overall WACC should decrease over time because its stock price;should be increasing.;The CEO?s recommendation would maximize the firm?s intrinsic value.;6.(TCO D) Scanlon Inc.'s CFO hired;you as a consultant to help her estimate the cost of capital. You have been;provided with the following data: rRF = 4.10%, RPM =;5.25%, and b = 1.30. Based on the CAPM approach, what is the cost of common;from retained earnings? (Points: 10);9.67%;9.97%;10.28%;10.60%;10.93%;7.(TCO F) Cornell Enterprises is;considering a project that has the following cash flow and WACC data. What;is the project's NPV? Note that a project's expected NPV can be negative;in which case it will be rejected.;WACC: 10.00%;Year 0 1 2 3;-----------------------------------------------;Cash flows -$1,050 $450 $460 $470 (Points: 10);$;92.37;$ 96.99;$101.84;$106.93;$112.28;8.(TCO F) Maxwell Feed & Seed is;considering a project that has the following cash flow data. What is the;project's IRR? Note that a project's 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 -$9,500 $2,000 $2,025 $2,050 $2,075 $2,100 (Points: 10);2.08%;2.31%;2.57%;2.82%;3.10%;9.(TCO F) 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 -$900 $500 $500 $500 (Points: 10);1.88;years;2.09 years;2.29 years;2.52 years;2.78 years;10.(TCO H) TexMex Food Company is;considering a new salsa whose data are shown below. The equipment to be used;would be depreciated by the straight-line method over its three-year life and;would have a zero salvage value, and no new working capital would be;required. Revenues and other operating costs are expected to be constant over;the project?s three-year life. However, this project would compete with other;TexMex products and would reduce their pre-tax annual cash flows. What is the;project?s NPV? (Hint: Cash flows are constant in years 1-3.);WACC;Pre-tax cash flow reduction for other products (cannibalization);Investment cost (depreciable basis);Straight-line deprec. rate;Sales revenues, each year for three years;Annual operating costs (excl. deprec.);Tax rate;10.0%;$5,000;$80,000;33.333%;$67,500;$25,000;35.0%;a. $3,636;b. $3,828;c. $4,019;d. $4,220;e. $4,431


Paper#51481 | Written in 18-Jul-2015

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