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Bank
Chapter Test 5: VALUING BONDS AND STOCKS
EFS
I. True or False (Definitions and Concepts) T 1. A bond is a long-term obligation for borrowed money.
F 2. A bond debenture is the contract detailing the terms of a bond. (FALSE: Should be indenture instead of debenture.) T 3. A call provision gives the issuer the right to pay off the bonds prior to their maturity by paying a call price. F 4. The fair price of a bond is the future value of its promised future coupon and principal payments. (FALSE: Should be present value instead of future value.) T price. 5. The current yield equals the annual coupon payment divided by the closing dollar
F 6. Because a change in the required return causes a change in a bond's fair price, owning a bond is not risky. (FALSE: Should be risky instead of not risky.) F 7. A balloon provision gives the firms an option of calling the bond before its maturity by buying the bond back. (FALSE: Should be call instead of balloon.) T 8. value. T 9. A zero coupon bond (or pure discount bond) is a bond that pays only a terminal Common stockholders are the owners of the firm.
F 10. Common stock payment obligations are typically viewed like debt obligations. (FALSE: Should be preferred instead of common). T 11. Earnings can be paid out in dividends or retained by the firm to finance ongoing productive activities. F 12. A high payout ratio emphasizes income at the expense of growth since a higher rate of dividend payout indicates more retained earnings for growth. (FALSE: Should be less retained earnings instead of more retained earnings.) T 13. rate (g). T T 14. 15. The expression P0 = D1 / (r g) is the value of a perpetuity growing at a constant The expected rate of return for a stock is often called a capitalization rate. A high P/E (which is often deemed good) can also result from a bad year.
II. Multiple Choice (Definitions and Concepts) b 16. a. Common stockholders are the owners of the firm. Which of the following is true? Stockholders do not elect the firm's directors
b. If the firm is liquidated, the stockholders share proportionately after the claimants with higher legal priority are paid. c. In terms of claims, common stockholders rank ahead of preferred stockholders but below bondholders. d. b&c d 17. Which of the following statements (if any) are false? a. If we multiply each side of the equation, P0 = D1 / (r g), by (r g) / P0, and then add g to this expression, we will get: r = (D1/P0) + g. b. The income component of the equation, r = (D1/P0) + g, is (D1/P0) and is called the dividend yield. It can be found in financial publications such as the Wall Street Journal. c. The capital gains component of the equation, r = (D1/P0) + g, is g and is called the capital gains yield. It is estimated by financial sources such as the Value Line Investment Survey. d. none of these a 18. a. b. c. d. Preferred stock payment obligations are typically viewed like debt obligations. issued with a maturity date. valued as an annuity. none of these .
c 19. The price of common stock (Pn) can be expressed as the present value of the expected annual future dividends plus the present value of the expected future sale price of a share of stock at time n. We have: P0 = D1 / (1 + r) + D2 / (1 + r)2 + . . . + Dn / (1 + r)n + Pn / (1 + r)n. Which of the following is true? a. For this calculation, we consider taxes. b. For this calculation, we consider the quarterly payment of dividends. c. The change in price from P0 to Pn is called the capital gain or loss. d. b&c d 20. Growth in earnings depends on the amount of money retained and earned on that which is retained. Which of the following is (are) true? a. The proportion of money retained is the retention rate, which is (1 POR). b. An estimate of g can be obtained by multiplying the retention rate times the expected return on the retained and reinvested money. c. The proportion of money retained is the retention rate, which is (POR 1). d. a&b a 21. If the yield to maturity for a bond is less than the bond's coupon rate, then the market value of the bond is . a. greater than the par value. b. less than the par value. c. equal to the par value. d. cannot tell a 22. a. b. c. d. The return expected by equity investors is called the market capitalization rate. dividend yield. average cost of capital. none of these .
d 23. Assume that the par value of a bond is $1,000. Consider a bond where the coupon rate is 9% and the current yield is 10%. Which of the following statements is true? a. The current yield was a lot less than 9% when the bond was first issued b. The current yield was a lot greater than 9% when the bond was first issued c. The market value of the bond is more than $1,000 d. The market value of the bond is less than $1,000 d 24. a. b. c. d. Bond data found in the financial pages typically include the coupon rate. the year of maturity. the current yield. all of these .
d 25. best defined as a. b. periods. c. d. c 26. a. b. c. d. 27. a. b. c. d.
In many cases, preferred stock can be considered as a perpetuity. A perpetuity is . a payment of a fixed amount for a finite period of time periods. a series of payments of unequal amounts for each of a number of consecutive a series of payments of equal amounts that occur at irregular intervals. none of these Which of the following assets would pay a dividend? a U.S. Treasury security a municipal bond a share of preferred stock corporate bond Which of the following is not the responsibility of the bonds trustees? Decide when the bonds should be converted. Make sure terms of the bond contract are followed. Manage the bond provisions. Monitor the protective covenants for the bondholders.
a
d 28. Which of the following items does not generally appear in a corporate bond quote by the financial press? a. current yield b. maturity yield c. coupon rate d. yield-to-maturity d 29. A bond indenture is the contract detailing the terms of a bond. At a minimum, the typical bond indenture includes: a. the par value (or face value) which is the amount of money (typically $1,000) the issuer must repay by the end of the bond's life. b. the coupon rate which determines the fixed payment promised by the company. c. the maturity or length of the bond's life. d. all of these c 30. A bond indenture is the contract detailing the terms of a bond. At a minimum, the typical bond indenture includes:
a. b. c. d. b
the par value which is the semi-annual interest payment. when the bond will be called. the maturity or length of the bond's life. when the bond will be converted.
31. Which of the following statements is true? a. A bond issue that requires the repayment of the entire principal amount at maturity is said to have a balloon maturity. b. When a bond issue is repaid in multiple installments, the method of repayment is called a sinking fund. c. When the final repayment of principal is larger than its par value then it is called a bullet payment. d. When the required return equals the coupon rate, the fair price equals the call value. a 32. Which of the following statements is true? a. A bond issue that requires the repayment of the entire principal amount at maturity is said to have a bullet maturity. b. When a bond issue is repaid in multiple installments, the method of repayment is called a coupon payment. c. When the final repayment of principal is smaller than its par value then it is called a balloon payment. d. When the required return is greater than the coupon rate, the fair price equals the par value. d year. c. price. d. The CPN is the APR that equates the bond's market price to the present value of its promised future cash flows. b 34. a. b. c. Which of the following statements is false? CPN is the coupon rate times the par value. The bond's current required return is r which is an APY rate for a year. The current yield equals the annual coupon payment divided by the closing dollar The current yield equals the annual coupon payment divided by the closing dollar 33. a. b. Which of the following statements is false? CPN is the coupon rate times the par value. The bond's current required return is r which is an APR or nominal rate for a
price. d. The YTM is the APR that equates the bond's market price to the present value of its promised future cash flows. b true? 35. A bond's expected return is estimated by its YTM. Which of the following is
a. The YTM is the APR that equates the bond's market price to the future value of its promised future cash flows. b. Because most bonds pay semiannually, YTM equals 2 times the 6-month return implied by the bond's market price. c. The YTM considers the possibility that the firm might make late payments or even default on its payments.
d. The APY for a bond is less than the YTM or APR since it considers semiannual compounding, e.g., APY = [(1 + r/2)2 1] > r. a 36. A bond's expected return is estimated by its YTM. Which of the following is false? a. The YTM is the APY that equates the bond's market price to the present value of its promised future cash flows. b. Because most bonds pay semiannually, YTM equals 2 times the 6-month return implied by the bond's market price. c. The YTM ignores the possibility that the firm might make late payments or even default on its payments. d. The APY for a bond is greater than the YTM or APR since it considers semiannual compounding, e.g., APY = [(1 + r/2)2 1] > r. a 37. Because a change in the required return causes a change in a bond's fair price, owning a bond is risky even if the bond is otherwise healthy. This risk is called . a. interest rate risk. b. inflation risk. c. market risk. d. bond risk. c 38. a. b. c. d. 39. a. b. c. d. 40. a. b. c. d. 41. a. b. c. d. 42. a. b. c. d. In the long-term, dividends paid to stockholders come from selling assets. borrowing. earnings. none of these In the short-run, dividends paid to stockholders can come from selling assets. borrowing. earnings. all of these The value (P0) of a constant growth stock is D1 / (r g). D1(r + g). D1 / (r + g). D1(r g). . .
d
.
a
d
In the long-term, growth in earnings per share comes from earnings retained. selling stock. borrowing. all of these. Two components of a stocks return are coupon yield an capital gain yield. interest yield and maturity yield. dividend yield and capital gains yield. dividend yield and maturity yield. .
.
c
d
43. a. b. c. d. 44. a. b. c. d.
Growth in dividends is: positively related to payout and return on invested assets. negatively related to payout and return on invested assets. positively related to payout and negatively related to return on invested assets. negatively related to payout and positively related to return on invested assets. When all else is equal, interest rate risk is greater with: a longer original maturity. a longer remaining maturity. a shorter original maturity. a shorter remaining maturity.
b
III. Multiple Choice (Problems) a 45. Suppose you purchase a zero coupon bond for $214.55 with a face value of $1,000 maturing in twenty years. If the yield to maturity (YTM) on the bond is 8.00%, what will the price of the bond be at the end of five years from now? a. $315.24 b. $387.52 c. $410.91 d. none of these [ANSWER: We want to know the future value of the zero coupon bond in five years. We have: FVn = PV(1+r)n = $214.55(1.08)5 = $315.24.] c 46. A bond for Ballhawkers, Inc. has a coupon rate of 7%. The yield to maturity is 6.8%. The bond has a remaining life of 30 years and makes semi-annual coupon payments? What is this bonds current market value? a. $890.941 b. $1,000.00 c. $1,025.46 d. $1,055.46 [ANSWER: We use the bond value formula with semi-annual payments: B0 = PV(coupon payments) + PV(par value) => B0 = (CPN/2)([1 + r/2]2N 1) / [(r/2)(1 + r/2)2N]) + 1,000[1 / (1 + r/2)2N] => B0 = (70/2)([1 + 0.068/2]2(30) 1) / [(0.068/2)(1 + 0.068/2)2(30)]) + 1,000[1 / (1 + 0.068/2)2(30)] => B0 = (35)([1 + 0.034]60 1) / [(0.034)(1 + 0.034)60]) + 1,000[1 / (1 + 0.034)60] => B0 = (35)(6.4341672 / 0.2527616) + 1,000[0.134514] => B0 = ($35)(25.455477) + $134.51 = $890.941 + $134.514 = $1,025.46.] d 47. A bond for Firebird, Inc. has a coupon rate of 7%. The yield to maturity is 6.8%. The bond has a remaining life of 30 years and makes annual coupon payments? What is this bonds current market value? a. $138.95 b. $886.37 c. $1,000.00 d. $1,025.46 [ANSWER: We use the bond value formula with annual payments: B0 = PV(coupon payments) + PV(par value) => B0 = (CPN)([1 + r]N 1) / [(r)(1 + r)N]) + 1,000[1 / (1 + r)N] => B0 = (70)([1 + 0.068]30 1) / [(0.068)(1 + 0.068)30]) + 1,000[1 / (1 + 0.068)30] => B0 = (70)(6.1967693 / 0.4893980) + 1,000[0.13895124] =>
B0 = (70)(12.662482) + 134.51 = 886.3737 + 138.9512 = $1,025.34.] c 48. A bond for J. Morris, Inc. a coupon rate of 6%. The yield to maturity is 7%. The bond has a remaining life of 20 years and makes semi-annual coupon payments? What is this bonds current market value? a. $252.57 b. $640.65 c. $893.22 d. $1,000.00 [ANSWER: We use the bond value formula with semi-annual payments: B0 = PV(coupon payments) + PV(par value) => B0 = (60/2)([1 + 0.07/2]2(20) 1) / [(0.07/2)(1 + 0.07/2)2(20)]) + 1,000[1 / (1 + 0.07/2)2(20)] => B0 = (30)([1 + 0.035]40 1) / [(0.035)(1 + 0.035)40]) + 1,000[1 / (1 + 0.035)40] => B0 = 640.652 + 252.572 = $893.22.] c 49. RCA made a coupon payment yesterday on its "6.25s12" bonds that mature on October 9, 2012. The required return on these bonds is 9.2% APR, and today is April 10, 2003. What should be the market price of these bonds? a. $800.25 b. $807.77 c. $815.78 d. $819.77 [ANSWER: With a coupon rate of 6.25%, the annual coupon payment is $62.50; thus, the semiannual payment of CPN/2 = $62.50/2 = $31.25. The time to maturity (N) is 9.5 years. Thus, the number of periods is 2N = 2(9.5) = 19 periods. The semi-annual APR is 9.2%/2 = 4.6% or 0.046.We use the bond value formula with semi-annual payments: B0 = PV(coupon payments) + PV(par value) => B0 = (62.5/2)([1 + 0.092/2]2(9.5) 1) / [(0.092/2)(1 + 0.092/2)2(9.5)]) + 1,000[1/(1 + 0.092/2)2(9.5)] = (31.25)([1 + 0.046]19 1) / [(0.046)(1 + 0.046)19]) + 1,000[1 / (1 + 0.046)19] => B0 = 390.286 + 425.498 = $815.78.] a 50. Disney Corp. made a coupon payment yesterday on its "6.25s12" bonds that mature on October 9, 2022. The required return on these bonds is 9.2% APR, and today is April 10, 2003. What should be the market price of these bonds? a. $734.85 b. $651.76 c. $561.76 d. $173.09 [ANSWER: With a coupon rate of 6.25%, the annual coupon payment is $62.50; thus, the semiannual payment of CPN/2 = $62.50/2 = $31.25. The time to maturity (N) is 19.5 years. Thus, the number of periods is 2N = 2(19.5) = 39 periods. The semi-annual APR is 9.2%/2 = 4.6% or 0.046.We use the bond value formula with semi-annual payments: B0 = PV(coupon payments) + PV(par value) => B0 = (62.5/2)([1 + 0.092/2]2(19.5) 1) / [(0.092/2)(1 + 0.092/2)2(19.5)]) + 1,000[1/(1 + 0.092/2)2(19.5)] = (31.25)([1 + 0.046]39 1) / [(0.046)(1 + 0.046)39]) + 1,000[1 / (1 + 0.046)39] => B0 = 561.762 + 173.087 = $734.85.] a 51. A bond for J. Morris, Inc. a coupon rate of 6%. The yield to maturity is 7%. The bond has a remaining life of 20 years and makes semi-annual coupon payments? What is the present value of the bonds face value? a. $252.57
b. $640.65 c. $893.22 d. $1,000.00 [ANSWER: Present value of the bonds face value = PV(par value) = 1,000[1 / (1 + 0.07/2)2(20)] = $252.572.] b 52. A bond for J. Morris, Inc. a coupon rate of 6%. The yield to maturity is 7%. The bond has a remaining life of 20 years and makes semi-annual coupon payments? What is the present value of the bonds interest payments? a. $252.57 b. $640.65 c. $893.22 d. $1,000.00 [ANSWER: Present value of the bonds interest payments = PV(coupon payments) = (60/2)([1 + 0.07/2]2(20) 1) / [(0.07/2)(1 + 0.07/2)2(20)]) = (30)([1 + 0.035]40 1) / [(0.035)(1 + 0.035)40]) = $640.65.] a 53. You own a stock that will start paying $0.50 annually at the end of the year. It will then grow each year at a constant annual rate of 5%. If the required rate of return is 14%, what should you pay per share? a. $5.56 b. $4.27 c. $3.57 d. $0.50 [ANSWER: P0 = D1 / (r g) = [$0.50/(0.14 0.05)] = [$0.50/0.09] = $5.56.] c 54. What is the present value of a zero coupon bond that will pay $1,000 in two years if the applicable discount rate equals 8 percent? a. $827.35 b. $847.34 c. $857.34 d. $1,000.00 [ANSWER: PV = FV2/(1+r)2 = $1,000/(1.08)2 = $1,000/1.1664 = $857.34.] c 55. What should you pay for a stock assuming you expect the following: a dividend of $1.00 paid at the end of years 1 and 2; cost of equity equal to 8 percent; and, a selling price of $31 at the end of two years? a. $1.79 b. $26.58 c. $28.36 d. $31.79 [ANSWER: P0 = D1/(1+r) + D2/(1+r)2 + P2/(1+r)2 => P0 = $1/(1.08) + $1/(1.08)2 + $31/(1.08)2 = $0.9259 + $0.8573 + $26.5775 = $28.36.] d 56. Consider the following bond: the current annual bond yield is 7%, the coupon rate is 10%, interest is paid every 6 months, and the remaining maturity on the bond is 5 years. What is the bond's current market value assuming semi-annual interest payments? a. $1,024.75 b. $1,104.75 c. $1,224.75 d. none of these
[ANSWER: . Note that we have the following values for variables used in the bond formulas: r/2 = 7%/2 = 3.5% or 0.035, 2N = 2(5) = 10, and CPN/2 = (0.1)($1,000)/2 = $50. Using our bond formula and inserting in our values, we get: B0 = PV(coupon payments) + PV(par value) = $415.83 + $708.92 = $1,124.75.] b 57. Suppose Toyota has nonmaturing (perpetual) preferred stock outstanding that pays a $2.00 quarterly dividend and has a required return of 12% APR (3% per quarter). What is the stock worth? a. $33.33 b. $66.67 c. $100.00 d. cannot tell [ANSWER: For a perpetuity, the preferred stock value equals the perpetual dividend payment divided by the required rate of return. Since the payments are quarterly, we use the quarterly dividend payment and the quarterly rate of 3%. Thus, we have: P0 = D/r = $2/0.03 = $66.67. (NOTE. We get the same result using annual data, e.g., P0 = $8/0.12 = $66.67.).] c 58. Assume that IBM is expected to pay a total cash dividend of $5.60 next year and that dividends are expected to grow at a rate of 5% per year forever. Assuming annual dividend payments, what is the current market value of a share of IBM stock if the required return on IBM common stock is 10%? a. $140.00 b. $122.00 c. $112.00 d. none of these [ANSWER: The dividend growth model asserts: P0 = D1 / (r g) where D1 is next year's dividend (e.g., $5.60 at t = 1), g is the growth rate in dividends per year forever (where g = 5%), and r is the required rate of return on stock (where r = 0.1). We have: P0 = $5.60 / (0.10 0.05) = $112.00..] d 59. What is the YTM of a Coca-Cola bond that is currently selling for $782.50, has a 6% coupon rate, and matures in exactly 6 years? a. 6.000% b. 3.000% c. 5.528% d. 11.056% [ANSWER: The inputs are B0 = 782.50, CPN/2 = 30.00 (one-half of 6.00% of $1000), and 2N = 12. The r/2 that solves this problem is 5.528%. Since r is the YTM, the YTM for this bond is two times r/2 or 11.056%. CALC: N = 12; PV = 782.50; PMT = 30.00; FV = 1000; I = 5.528.] a 60. J.C. Penney has a zero-coupon bond that will pay $1000 at maturity on April 9, 2018, and today is April 9, 1998. The bond is selling for $178.43. What is its YTM? a. 8.806% b. 4.403% c. 7.356% d. 10.860% [ANSWER: The inputs used are the same as a coupon paying bond except the input for PMT is zero since zero-coupon bonds to pay out interest in cash but reinvests interest. The r/2 that solves this problem is 4.403%, so the YTM is two times r/2 or 8.806%. CALC: N = 40; PV = 178.43; PMT = 0.00; FV = 1000; I = 4.403.]
b 61. Suppose IBM has a bond that cant be called today, but can be called in 3 years at a call price of $1090. The bond has a remaining maturity of 18 years and a coupon rate of 12%. It currently sells for $1175.97. What is the bonds YTC? In other words, what return will be earned from buying this bond today for $1175.97, if the firm makes all promised payments and redeems the bonds in three years by paying $1090? a. 7.950% b. 8.000% c. 8.050% d. 8.100% [ANSWER: For this problem, we use our calculator with the call price replacing the par value. The inputs are B0 = 1175.97, CPN/2 is 60.00 (one-half of 12% of $1000), future value is 1090, and 2N = 6 (since 3 years until the call). The r/2 that solves the equation is 4.000%. Therefore, this bonds YTC is 8.000%. CALC: N = 6; PV = 1175.97; PMT = 60.00; FV = 1090; I = 4.00.] c 62. You have $500 that you would like to invest. You have two choices. Investment #1 yields a return of 8% compounded annually while Investment #2 yields 7.75% compounded monthly. Which would you choose and why? a. You will choose the 8% yield because it has a higher effective annual rate. b. You will choose the 7.75% yield because it has a lower effective annual rate.. c. You will choose the 7.75% yield because it has a higher effective annual rate. d. cannot tell [ANSWER: We need to figure APYs the for the two investments noting that m is 12 for Investment #2. Since Investment #1 is already an annual rate, its APY is the same as its APR of 8.00%. For Investment #2, we have: APY = [1 + (APR / m)]m 1 = [1 + (0.0775/12)12 - 1 = [1 + (0.00645833)]12 - 1 = [1.00645833]12 - 1 = 1.080313 - 1 = 0.080313 or about 8.03%. Thus, we will choose the 7.75% yield because it has the highest effect rate of return.] a 63. The bonds of Little Johns Inc. pay a 10% annual coupon, have a $1,000 face value, and mature in fourteen years. Bonds of equal risk yield 7%. What should the market value of Little Johns bonds be using annual payments? a. $1,262.37 b. $1,268.37 c. $1,272.37 d. $1,278.37 [ANSWER: We use the bond value formula with annual payments: B0 = PV(coupon payments) + PV(par value) => B0 = (CPN)([1 + r]N 1) / [(r)(1 + r)N]) + 1,000[1 / (1 + r)N] => B0 = (100)([1 + 0.07]14 1) / [(0.07)(1 + 0.07)14]) + 1,000[1 / (1 + 0.07)14] => B0 = (100)(8.745468) + $1,000(0.3878172) = $874.55 + $387.82 = $1,262.37.] c 64. What would you pay for a stock expected to pay a $2.25 dividend in one year if the expected dividend growth rate is 3% and you require a 12% return on your investment? a. $20.00 b. $21.50 c. $25.00 d. $26.00 [ANSWER: According to the dividend valuation model with constant growth, the price of a share of stock (P0) = D1 / (r g) where D1 is the dividend paid at the end of each period, r is the required rate of return on equity, and g is the rate at which the dividends are growing. Inserting the given values, we have: P0 = $2.25 / (0.12 0.03) = $25.00.]
b 65. You own a stock that is currently selling for $50. You expect a dividend of $1.50 next year and you require a 12% rate of return.. What is the dividend growth rate for your stock assuming constant growth? a. 6.00% b. 9.00% c. 12.00% d. 15.00% [ANSWER: We can rearrange the equation for the dividend valuation model with constant growth to solve for the dividend growth rate (g). Doing this, we have: g = r (D1/P0) where r is the required rate of return and (D1 / P0) is the dividend yield. (NOTE. The growth rate, g, is the capital gains yield and is often called the price appreciation.) Inserting the given values, we have: g = 0.12 ($1.50 / $50) = 0.12 0.03 = 9.00%.] c 66. What would you pay for a stock expected to pay a $2.50 dividend in one year if the expected dividend growth rate is zero and you require a 10% return on your investment? a. $18.75 b. $21.50 c. $25.00 d. $26.00 [ANSWER: According to the dividend valuation model with constant growth, the price of a share of stock (P0) = D1 / (r g) where D1 is the dividend paid at the end of each period, r is the required rate of return on equity, and g is the rate at which the dividends are growing. Inserting the given values, we have: P0 = $2.50 / (0.10 0.00) = $25.00.] d 67. Consider the following for a firm. Its stock price (P0) is at $50, its payout ratio (POR) is 0.4, its EPS1 is $2.00, and its expected return on the money retained (i) is 0.10. What is its dividend yield? a. 14.00% b. 13.00% c. 12.00% d. none of these [ANSWER: With POR constant, the next dividend (D1) is simply that proportion of the next period's expected earnings per share, (EPS1), or D1 = POR(EPS1). We have the dividend yield = D1 / P0 = (POR)(EPS1) / P0 = (0.4)($2.0) / $50 = 0.16 or 16.00%.] c 68. Consider the following for a firm. Its stock price (P0) is at $50, its payout ratio (POR) is 0.4, its EPS1 is $2.00, and its expected return on the money retained i is 0.10. What is the percent of capital gains? a. 4.00% b. 5.00% c. 6.00% d. none of these [ANSWER: The capital gains = g = (1 - POR)i. We have: g = (1 POR)i = (1 0.4)(0.1) = (0.6) (0.1) = 0.06 or 6.00%.] d 69. Consider the following for a firm. Its stock price (P0) is at $50, its payout ratio (POR) is 0.4, its EPS1 is $2.00, and its expected return on the money retained (i) is 0.10. What is its required rate of return on equity? a. 6.00% b. 9.00% c. 16.00%
d. 22.00% [ANSWER: With POR constant, the next dividend (D1) is simply that proportion of the next period's expected earnings per share, (EPS1), or D1 = POR(EPS1). Substituting this and the equation, g = (1 - POR)i, into the equation r = (D1/P0) + g, we can express the firm's expected return, as r = (D1 / P0) + g = [(POR)(EPS1) / P0] + (1 POR)i = [(0.4)($2.0) / $50] + (1 0.4) (0.1) = 0.16 + 0.06 = 0.22 or 22.00%.] IV. Longer Problems 70. Suppose you purchase a zero coupon bond for $214.55 with a face value of $1,000 maturing in twenty years. If the yield to maturity (YTM) on the bond remains unchanged, what will the price of the bond be at the end of five years from now? ANSWER: We can follow this procedure. Sometimes we are given a present value, a future value, and a time period. If so, we can derive a formula for r from the fact that PV = FVn[1 / (1 + r)n] or from FVn = PV(1 + r)n where PV is the present value, FV is the future value, and r is the yield to maturity, and n is the number of years. The equation is: r = (FV/PV)1 / n 1. In this problem, we have a future value ($1,000.00), a present value ($214.55), and a time period (n = 20). Inserting these values, we can solve for r. Using this r value, we can compute the price of the bond in five years from today by using the future value formula where FVn = PV(1 + r)n. In computing YTM or "r," we have: r = (FV / PV)1 / n 1 = ($1,000.00 / $214.55)1 / 20 1 = 0.0799995 or about 8.00%. In calculating FVn where n = 5, we have: FVn = PV(1 + r)t = $214.55(1.08)5 = $315.24. 71. DeBeers, Inc. is expected to pay cash dividends next year at the rate of $2.00 per quarter. Its required return on stock is 14%. The stock is currently selling for $37.50 per share. Rearrange the equation for the dividend growth model to solve for g. Then use this equation to solve for the expected growth rate in dividends. Can you get the same answer using annual data? ANSWER: We have: D1 = $0.50 per quarter; r = 0.14/4 = 0.035 quarterly; P0 = $37.50. The dividend growth model states: P0 = D1/(r g). Rearranging this equation to solve for g, we first multiply for sides of this equivalent expression by (r g) to get: (r g)P0 = D1. Multiplying out, we have: P0r P0g = D1. Dividing each side by P0, we have: r g = D1/P0. Adding g to both sides of the equation and subtracting D1/P0 from both sides, we have: g = r D1/P0. Inserting our values gives: g = 0.035 ($0.50/$37.50) = 0.021667 or 2.1667% per quarter or about 8.667% per year. We can get the same answer using annual data. We have: g = 0.14 $2.00/$37.50 = 0.08667 or 8.667% which is the same we got using quarterly data. 72. You are considering investing in Facial Laboratories. Suppose Facial is currently undergoing expansion and is not expected to change its cash dividend while expanding for the next 4 years. This means that its current annual $3.00 dividend will remain for the next 4 years. After the expansion is completed, higher earnings are expected to result causing a 30% increase in dividends each year for 3 years. After these three years of 30% growth, the dividend growth rate is expected to be 2% per year forever. If the required return for Facials common stock is 11%, what is a share worth today? ANSWER: We have two growth rates: g1 = 0.30 for years 5, 6, & 7 and g2 =0.02 beginning with year 8 and lasting forever. Assuming annual dividends and annual rates of return (as opposed to quarterly), we have: P0 = D1 / (1 + r) + D2 / (1 + r)2 + D3 / (1 + r)3 + D4 / (1 + r)4 + D4(1 + g1) / (1 + r)5 + D4(1 + g1)2 / (1 + r)6 + D4(1 + g1)3 / (1 + r)7 + D4(1 + g1)3(1 + g2) / (r g2)(1 + r)7 where D1 = D2 = D3 = D4. Inserting our values given in our problem, we have: P0 = $3.00 / 1.11 + $3.00 / 1.112 + $3.00 / 1.113 + $3.00 / 1.114 +
$3.00(1.3) / 1.115 + $3.00(1.3)2 / 1.116 + $3.00(1.3)3 / 1.117 + $3.00(1.3)3(1.02) / (0.11 0.02)(1.11)7 => P0 = $2.70270 + $2.43487 + $2.19357 + $1.97619 + $2.31446 + $2.71063 + $3.17461 + $35.97892 = about $53.49. 73. You are considering investing in Acme, Inc. Suppose Acme is currently undergoing expansion and is not expected to change its cash dividend while expanding for the next 4 years. This means that its current annual 4.00 dividend will remain for the next 4 years. After the expansion is completed, higher earnings are expected to result causing a 30% increase in dividends each year for 3 years. After these three years of 30% growth, the dividend growth rate is expected to be 2% per year forever. If the required return for Acmes common stock is 11%, what is a share worth today? ANSWER: We have two growth rates: g1 = 0.30 for years 5, 6, & 7 and g2 = 0.02 beginning with year 8 and lasting forever. Assuming annual dividends and annual rates of return (as opposed to quarterly), we have: P0 = D1 / (1 + r) + D2 / (1 + r)2 + D3 / (1 + r)3 + D4 / (1 + r)4 + D4(1 + g1) / (1 + r)5 + D4(1 + g1)2 / (1 + r)6 + D4(1 + g1)3 / (1 + r)7 + D4(1 + g1)3(1 + g2) / (r g2)(1 + r)7 where D1 = D2 = D3 = D4. Inserting our values given in our problem, we have: P0 = $4.00 / 1.11 + $4.00 / 1.112 + $4.00 / 1.113 + $4.00 / 1.114 + $4.00 (1.3) / 1.115 + $4.00 (1.3)2 / 1.116 + $4.00 (1.3)3 / 1.117 + $4.00 (1.3)3(1.02) / (0.11 0.02)(1.11)7 => P0 = about $71.32. 74. Your spouse has several investments. One of them is 500 shares of Royal Oil. Royal is expected to pay a dividend next year of $2.38. The expected dividend growth rate is 6% per year forever. Another of your spouses investments is 600 shares of Light House. It has an expected growth rate in dividends of 4% per year forever. It sells for $51.875. It is expected to pay a dividend of $3.35 per share next year. Answer the below questions. (1) If Royal is selling for $29.45 per share, what is your spouses expected return on Royal Oil? (2) What is your spouses expected return on Light House? (3) Does it appear if one of the investments is superior to the other? Explain. ANSWER (1): The dividend valuation model with constant growth implies that r = (D1/P0) + g. Inserting Royal Oil's value, we have: r = ($2.38/$29.45) + 0.06 = 0.14082 or about 14.08%. ANSWER (2): The dividend valuation model with constant growth implies that r = (D1/P0) + g. Inserting Light House's values, we have: r = ($3.35/$51.875) + 0.04 = 0.10458 or about 10.46%. ANSWER (3): One might assume that Royal Oil is superior to Light House because it has a greater expected return. However, if you recall the Risk-Return Tradeoff Principle, then you realize that the greater return can be explained by greater risk. The market is driven by investors who are risk averse. They will not take on additional risk without additional compensation. Thus, one cannot conclude that a higher expected return leads to a superior investment. All we can say is that, everything else being equal, investors will choose the stock with a greater return. There is probably no need for your spouse to choose between either of the two assets. On the contrary, your spouse might be advised to invest in other assets to achieve diversification. 75. Junk Bond, Inc. has 12.5 percent coupon bonds on the market with eight years left to maturity. The bonds make annual payments. If the bond currently sells for $1,145.68, what is its YTM? Other than using a financial calculator, can you describe other methods for working this problem?
Using a financial calculator, we get: 9.79%. Other than using a financial calculator, there are two methods that can be used. First is trial and error which may seek to estimate to the nearest tenth. Using this method, we see that the current bond value is greater than its par value. This implies that the yield to maturity is less than the coupon rate of 12.5 percent. We can try 11 percent as a first guess estimate. Using this value in our bond valuation formula, we will get a value for B0 that is still greater than the par value of $1,000. The rule of thumb is to try a lower YTM. If we try 10 percent, we will still get a value for B0 that is greater than par. Using 9 percent, we get a value for B0 that is less than $1,000. After a number of attempts, we can determine that the YTM is about 9.8%. A second method involves a formula sometimes used to estimate YTM. This formula is: YTM = {CPN + [(F - B0) / N]} / [(F + 2B0)/3] where F is the par value of the bond. Inserting our values, we have: YTM = {125 + [(1,000 - 1,145.68) / 8]} / [(1,000 + 2,291.36) / 3] = 106.79 / 1097.12 = 0.09734 or about 9.73%. Both of our above answers are close to the 9.79% given by a financial calculator. V. Short Answers 76. What is a bond?
A long-term obligation for borrowed money. 77. What is a premium bond?
A bond thats selling for more than its par value. 78. What is interest rate risk?
The risk of a change in the value of a bond because of a change in the interest rate. 79. What is the yield to call?
The APR of a bond, assuming it will be paid off at the first possible call date. 80. What is the payout ratio?
The firm's cash dividend divided by the firm's earnings in the same period. 81. What is a firms dividend policy?
An established guide for the firm to determine the amount of money it will pay out as dividends. 82. What is a bond indenture?
The legal contract detailing the terms of a bond between the issuing corporation and the bondholders. 83. What is a coupon rate?
A bond's interest rate computed by dividing the face or par value by the annual coupon payment. 84. What is par value?
The amount of money to be repaid for a bond at the end of its life. 85. What are coupon payments?
Coupon payments are a bond's interest payments. 86. What is a maturity date?
A maturity date is the date a bond ends. 87. What is a call provision?
A call provision is a provision found in a bond indenture that gives the issuer the right to pay off the bonds prior to their maturity by paying a call price. 88. What is the original maturity?
When a bond is issued, the length of its life is its original maturity 89 What is a balloon payment?
When the final repayment of principal is larger than its par value then it is called a balloon payment. 90. What is the fair price of a bond?
The fair price of a bond is the present value of its promised future coupon and principal payments. 91. What does bond data found in the financial pages typically include?
Bond data found in the financial pages typically include the coupon rate, the year of maturity, the current yield, the trading volume, the closing price (quoted in 100s), and the net change in the bond price. 92. What is the current yield? What does it ignore?
The current yield is the annual coupon payment divided by the closing dollar price. It ignores any gain or loss between the purchase price and the principal repayment. 93. What is the yield to maturity or YTM?
The YTM is the APR that equates the bond's market price to the present value of its promised future cash flows. 94. Why is the yield to maturity (YTM) a better measure of the return than the current yield?
Even though not found in the typically bond data, the yield to maturity (YTM) is a better measure of the return, because it measures the total return from owning a bond including capital appreciation. 95. Name a publication where information on a common stock can be found?
Information on a common stock can be found in Standard & Poor's Stock Guide. VI. Essays or Longer Answers 96. Suppose you buy a 9.75 percent coupon, 30-year bond when the bond is first issued. If interest rates suddenly fall to 8.25 percent, what happens to the value of your bond? Why? Suppose your bond is convertible. Does your answer change? Now suppose your bond can be called at a premium equal to one coupon payment. How does this change your answer? Price and yield move in opposite direction. If interest rates decrease, the price of the bond will increase. This is because the fixed coupon payments determined by the fixed coupon rate are more valuable when interest rates fall. Thus, the price of the bond increases. With a convertible bond, the price is no longer just determined by how interest rates change. This is because the value of the bond will be determined by its conversion value if the conversion value is greater than the present value of all coupon and principal payments. If your bond is callable, then the maximum price it can attain will be its par value plus some designated premium. This value may very well be less than what could be attained if the bonds price was allowed to rise when rates fell or was allowed to rise due to the increase in its conversion value. 97. Consider the dividend valuation model with constant growth. What happens if g equals r, or if g is greater than r? The question arises because if we blindly apply the dividend valuation model then it implies that the stocks value is infinite if g equals r and is negative if g is greater than r. Neither situation makes economic sense. A faster-growing firm is riskier and will have a higher required return, so the larger g is, the larger r will be. Quite simply, g can never be greater than or equal to r. To understand this, consider the following argument: g is the rate at which cash dividends are expected to grow every period, forever. In the long run, dividends are paid from a firms earnings. Therefore, for cash dividends to grow at g, the firms earnings must grow at a rate that at least equals (on average over a long time) to have sufficient income to pay the dividends. It is hard to imagine any company sustaining large growth rates for a prolonged period of time. If they did, then they could eventually own the world. 98. Explain how retained earnings determine a firms growth in dividends and thus its required rate of return. Give an example showing the influence of retained earnings on its dividend yield, its capital gains, and its required rate of return. Money not paid out in dividends, is retained and invested in other assets. This money (or retained earnings) is the source of the firms growth in earnings, which provides for the growth in the firms dividends. Recall that the firms payout ratio (POR) is the proportion of earnings it pays out in dividends. Therefore, (1 POR) is the amount the firm retains and reinvests. Let i represent the expected return on the money retained. Growth is then the product of the two: g = (1 POR)i.
Consider the following example for a firm. Its stock price (P0) is at $75, its payout ratio (POR) is 0.7, its EPS1 is $2.00, and its expected return on the money retained (i) is 0.10. What is its dividend yield? What is its required rate of return on equity? ANSWER: With POR constant, the next dividend (D1) is simply that proportion of the next period's expected earnings per share, (EPS1), or D1 = POR(EPS1). Substituting this and the equation, g = (1 POR)i, into the equation r = (D1/P0) + g, we can express the firm's expected return, as r = (D1 / P0) + g = [(POR)(EPS1) / P0] + (1 POR)i = [(0.7)($2.0) / $75] + (1 0.7) (0.1) = 0.1467 + 0.03 = 0.1767 or 17.67%. We can see that the amount of earnings retained has an influence on both the dividend yield and capital gains and thus the required rate of return] 99. Discuss why it is unclear what a high or a low P/E really indicates without obtaining additional information about the firm. A high P/E typically is seen as positive because it results from investors bidding up the stock price (P) based upon positive expectations about the firms future performance. The earnings (E) component of the P/E ratio is a function of the firms earnings as reflected in its accounting earnings. Thus, it can be noted that a high P/E (which is often deemed good) can also result from a bad year while a low P/E (which is often deemed bad) can result from a good year. Because the earnings value is an accounting number it is subject to change based upon atypical events like selling assets which would inflate earnings. On the other hand, an increase in depreciation and interest expense can cause a lower earnings number. All of these factors should be considered when interpreting the meaning of a firms P/E. 100. Discuss why stocks are riskier than bonds? Is this good or bad?
Stockholders are only paid after bondholders are paid. Bondholders have legal claims on the cash flows of a firm and in case of default they are paid first. What this means in terms of risk is that payments to stockholders are more variable. If the company performs poorly, then stockholders will see the value of their holdings fall significantly. This is less likely to happen with the value of bonds unless the company begins to experience serious financial distress. The fact stock has more risk is not necessarily bad. The Risk-Return Tradeoff Principle states that greater return only comes from taking on additional risk. For a long-term investor, this risk would be minimized because short-run fluctuations in stock values would not be of great concern. However, for an investor who needs money in the near term, the risk associated with stocks could have extreme negative repercussions if stock prices plummet and the investor must sell his shares of stock.

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Abraham Baldwin Agricultural College - ACC - 452

Test BankChapter 4: ACCOUNTING, CASH FLOWS, AND TAXESEFSI. True or False (Definitions and Concepts) T 1. In your text, the notation m is the number of compounding periods per year.F 2. APY is the annual percentage rate (or nominal annual rate) and is

Abraham Baldwin Agricultural College - ACC - 452

Test BankChapter 3: ACCOUNTING, CASH FLOWS, AND TAXESEFSI. True or False (Definitions and Concepts) F 1. The income statement reports the financial position of a firm at a particular point in time. (FALSE: Should be balance sheet instead of income stat

Abraham Baldwin Agricultural College - ACC - 452

Test BankChapter 2: The Financial Environment: Concepts and PrinciplesEFSI. True or False (Definitions and Concepts) T 1. relationship. Agency theory analyzes conflicts of interest and behavior in a principal-agentT 2. A principal-agent relationship i

Abraham Baldwin Agricultural College - ACC - 452

Test BankChapter 1: Introduction and OverviewESFI. True or False (Definitions and Concepts) T 1. The area of investments examines financial transactions from the viewpoint of investors outside the firm. T 2. Financial securities are contracts that prov

Abraham Baldwin Agricultural College - ACC - 452

CHAPTER SIXTEEN Multiple Choice Questions 16-1. All but which of the following would affect dividend policy? a. b. c. d. a firms need for funds prospectus restrictions stockholders expectations contractual restrictions16-2. Your stockholders are primaril

Abraham Baldwin Agricultural College - ACC - 452

CHAPTER FOURTEEN Multiple Choice Questions 14-1. An indenture is best described as: a. b. c. d. a bond a contract a prospectus a bond rating14-2. A legal document that gives the provisions of a bond issue is called: a. b. c. d. an indenture a debenture a

Abraham Baldwin Agricultural College - ACC - 452

CHAPTER TWENTY-ONE Multiple Choice Questions 21-1. Each country should concentrate on producing that product which it does well. This is called the law of: a. b. c. d. absolute advantage communicative advantage comparative advantage trade advantage21-2.

Abraham Baldwin Agricultural College - ACC - 452

CHAPTER TWENTY Multiple Choice Questions 20-1. Calculate the effective annual interest rate of foregoing the discount and paying on the 30th day when the terms are 2/cash, n 30. Use a 365-day year: a. b. c. d. 30.13% 27.86% 25.78% 29.77%20-2. Which of th

Abraham Baldwin Agricultural College - ACC - 452

CHAPTER NINETEEN Multiple Choice Questions 19-1. With respect to offering credit terms to customers, which of the following statements is most correct? a. b. c. d. offering less credit decreases sales but increases costs offering more credit increases sal

Abraham Baldwin Agricultural College - ACC - 452

CHAPTER EIGHTEEN Multiple Choice Questions 18-1. A firms cash balances are best described as: a. b. c. d. currency only checking accounts and currency only checking accounts, currency, and small savings only currency and coin only18-2. The size of a firm

Abraham Baldwin Agricultural College - ACC - 452

CHAPTER SEVENTEEN Multiple Choice Questions 17-1. Working capital includes all but which of the following: a. b. c. d. accounts payable accounts receivable marketable securities prepaid expenses17-2. The level of net working capital is affected by all bu

Abraham Baldwin Agricultural College - ACC - 452

CHAPTER FIFTEEN Multiple Choice Questions 15-1. Which of the following statements about residual income is not accurate? a. it is income left over after other claimants of the firm have been paid b. it is usually paid out in the form of a cash dividend to

Abraham Baldwin Agricultural College - ACC - 452

CHAPTER THIRTEEN Multiple Choice Questions 13-1. The sales break-even point is defined as: a. b. c. d. the level of sales that a firm must reach to cover fixed costs the level of income that a firm must reach to cover variable costs the level of sales tha

Abraham Baldwin Agricultural College - ACC - 452

CHAPTER TWELVE Multiple Choice Questions 12-1. If the yield-to-maturity of a bond is less than the coupon rate, the bond will sell at: a. b. c. d. a discount a premium par value market value12-2. If the yield-to-maturity of a bond is more than the coupon

Abraham Baldwin Agricultural College - ACC - 452

CHAPTER ELEVEN Multiple Choice Questions 11-1. If a new machine requires an increase in current assets from $50,000 to $60,000 and current liabilities from $30,000 to $50,000, the dollar change in net working capital is: a. b. c. d. negative positive zero

Abraham Baldwin Agricultural College - ACC - 452

CHAPTER TEN Multiple Choice Questions 10-1. The payback period is best defined as: a. the time it takes to receive cash flows sufficient to cover your initial investment b. the time period required for total revenue received to equal the initial investmen

Abraham Baldwin Agricultural College - ACC - 452

CHAPTER NINE Multiple Choice Questions 9-1. Cost of capital can best be defined as: a. compensation demanded by the investor of a firm before taxes and transaction costs b. compensation demanded by the investor of a firm after taxes and transaction costs

Abraham Baldwin Agricultural College - ACC - 452

CHAPTER EIGHT Multiple Choice Questions 8-1. You deposit $10,000 in a bank and plan to keep it there for five years. The bank pays 8% annual interest compounded continuously. Calculate the future value at the end of five years. a. b. c. d. 8-2. $14,693 $1

Abraham Baldwin Agricultural College - ACC - 452

CHAPTER SEVEN Multiple Choice Questions 7-1. a. b. c. d. The expected return on an investment is: equal to the required return less than the required return equivalent to the actual return the mean of the distribution of possible returns7-2. A good measu

Abraham Baldwin Agricultural College - ACC - 452

CHAPTER SIX Multiple Choice Questions Use the following information to answer questions 6-1 through 6-4:Income Statement for the year ending December 31, 1999 (In thousands) Sales COGS Selling Expenses Depreciation Fixed Expenses EBIT Taxes (40%) Net Inc

Abraham Baldwin Agricultural College - ACC - 452

CHAPTER FIVE Multiple Choice Questions Table 5-1Income Statement Sales $20,000,000 Cost of Goods Sold 8,000,000 Gross Profit 12,000,000 Selling and Administrative 1,600,000 Depreciation 3,000,000 7,400,000 Interest 2.000,000 5,400,000 Taxes (40%) 2,160,0

Abraham Baldwin Agricultural College - ACC - 452

CHAPTER FOUR Multiple Choice Questions 4-1. The income statement: a. is a financial statement that shows the firms financial position at a particular point in time. b. is a financial statement that summarizes a firms revenues and expenses over a period of

Abraham Baldwin Agricultural College - ACC - 452

CHAPTER THREE Multiple Choice Questions 3-1. The economy is experiencing a severe recession. The Fed will most likely: a. b. c. d. 3-2. lower reserves at commercial banks buy Treasury securities increase the discount rate increase the reserve requirement

Abraham Baldwin Agricultural College - ACC - 452

CHAPTER TWO Multiple Choice Questions 2-1. Stocks that are not traded on national or regional exchanges but instead are offered for sale in a secondary market that consists of a network of dealers trading over computers are: a. b. c. d. 2-2. not liquid ri

Abraham Baldwin Agricultural College - ACC - 452

CHAPTER ONE Multiple Choice Questions 1-1. One of the most important disadvantages of the corporate form of business is: a. b. c. d. 1-2. limited owner liability ease of transferring ownership double taxation unlimited owner liabilityAn important advanta

Abraham Baldwin Agricultural College - ACC - 452

QuizbowlRF12 E1. Acceptingan engagement tocompileafinancialprojectionforapubliclyheldcompanymostlikely wouldbeinappropriateiftheprojectionweretobedistributedto a. Abankwithwhichtheentryisnegotiatingforaloan. b. Alaborunionwithwhichtheentityisnegotiatingac

Abraham Baldwin Agricultural College - ACC - 452

QuizbowlRF12 E1. Acceptingan engagement tocompileafinancialprojectionforapubliclyheldcompanymostlikely wouldbeinappropriateiftheprojectionweretobedistributedto a. Abankwithwhichtheentryisnegotiatingforaloan. b. Alaborunionwithwhichtheentityisnegotiatingac

Abraham Baldwin Agricultural College - ACC - 452

Punongbayan & Araullos Auditing Problems Quiz EASY 1.On July 01, 2007, one of FLOYD INC.'S delivery trucks was destroyed in an accident. On that date, the truck's book value was P900,000. On July 15, 2007, FLOYD INC. received and recorded a P42,000 invoi

Abraham Baldwin Agricultural College - ACC - 452

AuditingTheory1. AcontrolwhichrelatestoallpartsoftheEDPsystemiscalleda(n) a. Systemscontrol b. Generalcontrol c.Applicationscontrol d.Universalcontrol2. Whichofthefollowingisnotanoutputcontrol? a. Properauthorizationoftransaction b. Controltotals c. Che

Abraham Baldwin Agricultural College - ACC - 452

Accountancy Department College of Business and Accountancy Notre Dame University Cotabato City, PhilippinesCPA MOCK BOARD EXAMINATION AUDITING PROBLEMS MR. RONALD GERMO MAMARIL INSTRUCTION: Select the correct answer for each of the following questions. M

Abraham Baldwin Agricultural College - ACC - 452

Following are multiple choice questions recently released by the AICPA. These questions were released by the AICPA with letter answers only. Our editorial board has provided the accompanying explanations. Please note that the AICPA generally releases ques

Abraham Baldwin Agricultural College - ACC - 452

Following are multiple choice questions recently released by the AICPA. These questions were released by the AICPA with letter answers only. Our editorial board has provided the accompanying explanations. Please note that the AICPA generally releases ques

Abraham Baldwin Agricultural College - ACC - 452

Abraham Baldwin Agricultural College - ACC - 452

Abraham Baldwin Agricultural College - ACC - 452

Abraham Baldwin Agricultural College - ACC - 452

Abraham Baldwin Agricultural College - ACC - 452

Abraham Baldwin Agricultural College - ACC - 452

Saint Joseph's University - BIO SCI - 65

Announcements Lecture 6 Come to the exam knowing your assigned seat (website) and bring #2 pencils, erasers, and student ID Rules of exam1Designing PCR Primers They must flank the DNA sequence to be amplified Typically the length of the primer is > 15

Saint Joseph's University - BIO SCI - 65

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Saint Joseph's University - BIO SCI - 65

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Saint Joseph's University - BIO SCI - 65

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Abraham Baldwin Agricultural College - ACC - 452

Chapter 15Service Department Costing: An Activity ApproachSolutions to Questions15-1 Operating departments are the units in an organization within which the central purposes of the organization are carried out; these departments usually generate revenu

Abraham Baldwin Agricultural College - ACC - 452

Chapter 13Relevant Costs for Decision MakingSolutions to Questions13-1 A relevant cost is a cost that differs in total between the alternatives in a decision. 13-2 An incremental cost (or benefit) is the change in cost (or benefit) that will result fro

Abraham Baldwin Agricultural College - ACC - 452

Chapter 12Segment Reporting and DecentralizationSolutions to Questions12-1 In a decentralized organization, decision-making authority isnt confined to a few top executives, but rather is spread throughout the organization with lower-level managers and

Abraham Baldwin Agricultural College - ACC - 452

Chapter 11Flexible Budgets and Overhead AnalysisSolutions to Questions11-1 A static budget is a budget prepared for a single level of activity that remains unchanged even if the activity level subsequently changes. 11-2 A flexible budget can be adjuste

Abraham Baldwin Agricultural College - ACC - 452

Chapter 10Standard Costs and the Balanced ScorecardSolutions to Questions10-1 A quantity standard indicates how much of an input should be used to make a unit of output. A price standard indicates how much the input should cost. 10-2 Ideal standards as

Abraham Baldwin Agricultural College - ACC - 452

Chapter 9Profit PlanningSolutions to Questions9-1 A budget is a detailed plan outlining the acquisition and use of financial and other resources over a given time period. As such, it represents a plan for the future expressed in formal quantitative ter

Abraham Baldwin Agricultural College - ACC - 452

Chapter 8Activity-Based Costing: A Tool to Aid Decision MakingSolutions to Questions8-1 Activity-based costing differs from traditional costing systems in a number of ways. In activity-based costing, nonmanufacturing as well as manufacturing costs may

Abraham Baldwin Agricultural College - ACC - 452

Chapter 7Variable Costing: A Tool for ManagementSolutions to Questions7-1 The basic difference between absorption and variable costing is due to the handling of fixed manufacturing overhead. Under absorption costing, fixed manufacturing overhead is tre

Abraham Baldwin Agricultural College - ACC - 452

Chapter 5Cost Behavior: Analysis and UseSolutions to Questions5-1 a. Variable cost: A variable cost remains constant on a per unit basis, but changes in total in direct relation to changes in volume. b. Fixed cost: A fixed cost remains constant in tota

Abraham Baldwin Agricultural College - ACC - 452

Chapter 4Systems Design: Process CostingSolutions to Questions4-1 A process costing system should be used in situations where a homogeneous product is produced on a continuous basis. 4-2 1. Job-order costing and process costing have the same basic purp

Abraham Baldwin Agricultural College - ACC - 452

Chapter 3Systems Design: Job-Order CostingSolutions to Questions3-1 By definition, overhead consists of costs that cannot practically be traced to products or jobs. Therefore, if they are to be assigned to products or jobs, overhead costs must be alloc

Abraham Baldwin Agricultural College - ACC - 452

Chapter 2Cost Terms, Concepts, and ClassificationsSolutions to Questions2-1 The three major elements of product costs in a manufacturing company are direct materials, direct labor, and manufacturing overhead. 2-2 a. Direct materials are an integral par

Abraham Baldwin Agricultural College - ACC - 452

Chapter 1Managerial Accounting and the Business EnvironmentSolutions to Questions1-1 Managerial accounting is concerned with providing information to managers for use within the organization. Financial accounting is concerned with providing information

Abraham Baldwin Agricultural College - ACC - 452

12nd Flr, GF Partners Bldg, 139 H.V. dela Costa, Salcedo Village, Makati CityAUDITINGPROBLEMSAuditofReceivablesProf.L.O.Aristorenas _ _ GAAPONRECEIVABLESDEFINITION: Receivablesrefertoclaimsagainstothersformoney,goods orservicesarisingfrom saleofmer

University of Western States - PETR - 2510

Petroleum Engineering Fundamentals PETR2510 Exam infoDr Elena Pasternak Slide 1Exam comprises 6 questions (3 hours). Half of the exam paper is dedicated to the questions built around the lecture notes, the other half - around problems similar to the one

Waterloo - ACTSC - 231

Assignment 1ACTSC231 (Mathematics of Finance), FALL 2010 Due: (Friday) October 01, 2010 Hand in to the instructor in class To earn the credit of the assignment, you need to justify your answer. Simply listing the nal answer is unacceptable. I might only

Waterloo - ACTSC - 231

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