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**Unformatted text preview: **BUS342 EXAM] NAME; ff 1. Th @ssued by Jensen and Son bear a 6 percent coupon, payable semiannually. The bond matures in 8
years and has a $1,000 face value. Currentlynthe bond sells at par, What is the yield to maturity? A. 5.87 percent 0 = (90/ D '— (00 :K
@597 percent m: ’2: R, “$0 /00
6.00 percent m C : i 0
.6.09 percent f\/; ‘000 PV ‘00 . | / -9“
E.6.17percent (0+m; 7 54) IO K . The discounted payback rule may cause:
some positive net present value projects to be rejected.
. the most liquid projects to be rejected in favor of less liquid projects.
/Gﬁrojects to be incorrectly accepted due to ignoring the time value of money. D. projects with negative net present values to be accepted.
@some projects to be accepted which would otherwise be rejected under the payback rule. 3. The outstanding bonds of Roy Thomas, Inc. provide a real rate of return of 3.6 percent. The current rate of
i ﬂation is 2.5 percent. What is the nominal rate of return on these bonds?
6.10 percent B. 6.13 percent R -; r+ h
f . 6.16 percent
A6.19percent R: 73' (9 + f) "' 6.22 percent
4. Alpo, Inc. invested i$500,00g to help fund a company expansion project schedu - c for eight years fr now.
How much additional money will they have eight years from now if they can ea u ercent rather thalagercent
on this mone '.7 Y): (3 V]: CE
A. $58,829.69 W: 5001000 pvt g 0,000
B. $86,991.91 |\ ._ q ; ’l
C. $118,009.42 2 }
$126,745.19 FV” WWZW'DJL. FV 6B4“, $00,
$137,188.23 W
‘— 1 7571/98, 1 3 5. The primary goal of financial management is to: = maximize current dividends per share of the existing stock.
maximize the current value per share of the existing stock. . avoid ﬁnancial distress.
Minimize operational costs and maximize ﬁrm efﬁciency.
/ . . ~ .
Kmamtam steady growth 1n both sales and net earmngs. 6. Yancy is considering a project which will produce cash inﬂows 0900 .- year for 4 years. The project has a‘9_
We of return and an initial cost of $2,800. What is the discounted payback period? g. years {,0 t‘ tp. t3 154 PPB
.3. years qQO
-1600 QOO 5100 5'01)
Dijiéiiii: 819w Wm W?)
E. never 92.61 3i“
,‘V Bus342 EXAM 1 NAME: 13. The length of time required for a project's discounted cash ﬂows to equal the initial cost of the project is called
the: A. net present value. B. internal rate of return. C. payback period. @discounted proﬁtability index. discounted payback period.
14. The L0 Sun Corporation offers ai6 percent bondlwith a current market price of $875.05) The yield to maturity is 7.34 percent. The face value is $1,000. Interest is paid semiannually. How many years is it until this bond i?” W 5419-094 O " W”
years rm = ‘7 .5
.18Years 97/‘075/1 2V: \OOO tDt/(j’ywt '3 30
C. 24 years Ho vﬂ -., “L
D. 30 years Z ,
E.36years mi? 3‘70 15. Project A has ali10% cost of capitaliand the following cash ﬂows:
Year 0 “MW-2mm? 4 Cash Flow -300 100 150 200 50
What is the modiﬁed internal rate ofrettfrn (MIRR)? A. 7.40% 90
B. 12.15% 12
c. 14.49% twig/e, 100 9
. 15.54% [755 1
® 18.15% - 18% 14.5” m
16. Martin's Yachts has paid annual dividends of $1.40, $1.75, an share over the past three years, respectively. The company now predicts that it will maintain a Const - ividend of $2 since its business has
leveled off and sales are expected to remain relatively constant. Given the lack of future growth, you will only buy this st - 'f you can earn at least a 15 percent rate of return. What is the maximum amount you are willing to pay
to bu, - share of this stock today? Do P1
$1.0 tuna 1.40 1.15 2.00 2.00 2.00
$13.33 :
C. $16.67 w D” 2'00 2 00
D. $18.88 F0 —_ _D_!_ Po 3 55;.” : |’b,3°7
B. $20.00 K4 g - |9 . . The ﬁnancial ratio measured as earnings before interest and taxes, divided by interest expense is the: cash coverage ratio.
. .debt-equity ratio. times interest earned ratio. I . gross margin.
ﬁ/total debt ratio. Bus342 EXAM 1 NAME:
23. The Bell Weathe o. is a new ﬁrm in a rapidly growing industry. The company is planning on ' creasing its
annual dividend b 'ercent a year for the next four years and then decreasing the growth rate t§percent per year. The company just paid its annual dividend in the amount of$1.00 per share. What is the current value of one ~ - e of this stock if the required rate of return is 9.25 percent?
3563 Do" |-00 to t, ta t3 t4 t5 ,0 38:19 l4" 01-7—9 5 l-OO {2.0 LLN L7? 2.0% l.2%
41.05 V :_ 10,506) Z2 W an.ng
$43.19 95 P 1.2% i. a a $11, %”§
E.$45.8l 4 . 0142‘; I o 2 I I, LI
(1 D 0
24. What is the profitability index for an investment with the following cash flows given a 9 percent required
return?
Year Cash Flow P i ‘ ELEV + |
0 $21,500 (/
1 $7,400
2 $9,800 NPVT qoquq
3 $8,900 \fﬁwﬂ + z | 0 Z
A. .96 7/ I900
B. .98
C. 1.00
1.02
E. 1.04 25. You hope to buy your dream house “ 1
housing prices to rise by an average 0. percent per year over the next six years. How much will your dream house cost by the time you are ready to A. $240,284.08 ﬂ
B. $246,019.67 V7: (0
c. $246,396.67 i —v 4} . 9
$246,8“1.94 , I! ’
@24723920 F V ' Z/Li 255/ . Z 0 26. The annual coupon payment of a bond divided by its market price is called the: A . coupon rate.
a current yield. . yield to maturity.
D. bid-ask spread.
E. capital gains yield. BUS342 EXAM 1 NAME:
32. Wine and Roses, Inc. offers 7 ercent coupon bond with semiannual payments and a yield to maturity of 3 percent. The bonds mature in 9 years. What is the market price of a $1,000 face value bond? \.$953.28 0., 1 PV
B. $953.88 2 _/ 7
8118-12 0113:1130 W '00”
E: 81:401.'86 V1 1" ‘91 019 77 , 2 05 33. Consider 1,000 9 r value bond with a 7% annual coupon. The bond pays interest annually. There are 9
years remaining un i “maturity. What is the current yield on the bond assuming that the required return on the bond is 10%? 1 . a -
445 10.00% 1W iii”) ’l PV “919/2
0 _ .» 01 5/2 r} ’1
Kg?) 8.46%) C w 7 /‘-’ ‘- X.07 1:» 1, 1.6.5
. 7.00% m 1 00 (j D. 8.52% 5%” “7';
E. 8.37% W“ 34. NU YU announced today that they will begin paying annual dividends. The ﬁrst dividend will be paid next year in the amount of $.25 a share. The following dividends will be $.40, $.60, and $.75 a share annually for the
following three years, respectively. After that, dividends are projected to increase by 3.5 percent per year. How
much are you willing to pay to buy one share of this stock if your desired rate of return is 12 percent? Ail“ li‘liw 915019 .00 .00 .7a 070
B. $5.80 I 5 4— 5 I%
© $7.25 , 7:3 . 27/ 01. D.$9.06 I” 1310 D1" DDUT P;;:q lg .97,
E.$10.58 0172! t ‘49 35. A project will produce cash inﬂows of $1,750 a year for four years. The project, initially costs $10,600 to get
started. In year ﬁve, the project will be closed and as a result should produce a cash inﬂow of $8,500. What is the
net present value of this project if the required rate of return is 13.75 percent? .-$5,474.76
13 -$1,011.40 0 401000
C. -$935.56 .
D.$1,011.40 ‘ 179D
E. $5,474.76 2 [191)
5 1 19) 0
Ar 1‘10? 5 0500 NFW
K1 (3,75 305342 EXAM 1 NAME: j ‘9 l l v
39. Given the c 1 ' ws shown below and the additional information t at the appropriate discount rate (the
cost of capital) calculate the followin easures. You may use the cost of - ital as a reinvestment
rate if needed. " e return on the marketnd the riskless rate of interest i [21] (l “‘94— (l “4)” 0.111)” 1 T1 / T2 7 I T3 / T4 T5
-450,000 l 100,000 120,000 150,000 150,000 150,000 (M76001 6700610557, W390i 4738940 607 450.577
0 O O 0 [00,000 + 90,0001» [50/0007 370,000 I
99/3940 *z .90 [0.95 art a. Payback 60,00D
b. IRR
irr t— (3314:0191 him/08>)
bait/cl /
c NPV ...-V*__,,_W_WM_ “5
d. Equivalent Annuity ‘ \+ 0 H4.)
NPV ‘ quq’b.licl PViFA: iﬂwﬂ” 1 193‘ , 5.0
l5f?.f..?l‘” 1 “Bl / e. MIRR WW” “moo + “(Marga—f 10975010. 735 + 1540011072.
\_ " ?,.?:331lf?1 ' 9’ V
mi‘rr ~— il,"o‘i'°/;/ f. Profitayhility'Indexl /
Pl = N-fév + l W~ +7] '- 6LOVU / Ll ‘3 D O O 0
g. Discounted Payback DP?)
001700010 mwwui 50/ r 017507940 W _._._.1_._...1....M..1. W. 4.1.. '13? Mel /\ NAME: H and Bus342 EXAM 1
ccount when you etire in 25 years. You believe that you 36. You wish to have $1,250,000 in your investment a
can achieve a return of at least per year. Assuming that you [email protected] eposits, how much must you set aside for your retirement account? . [4]
’ ~ him/M got and»?
\/« 1 0,000 W
F“: g; a mum, rim“
i “— 11% W: Fv W51) 37. Brimyswil Corp. has a 7% coupon bond issue outstanding. The bonds are now trading at a price of $1 ,136
and will mature in precisely 15 years. The interest payments are paid semi-annually. What is the yield to maturity for these bonds? [5]
0'70/0 QaCD’LLn 2..
m : ‘5) , .., k i 47 NFL \QWM i1? HITOQNWW * (ﬂ 3;: 1 Wm "’
Willow 38. The sharehol - s of Sanson Ford just received a dividend of $1.85. The dividends have been growing at
a constant rate and are expected to continue at that rate. The stock presently sells for $38.85 per share. What is the required return for Sanson? [5]
90 Z i 1‘0"? ._ _2L
(3: (polo P0 Kw?
K K' .00
Ohio”) 3%‘(091 L676”! ((0 01,)
H3017 10.00) = .0909 / YMgUiWC/i mic : “059/. K : all“? W (W) Bus 42 EXAM 1 NAME: I i
. You are analyzing the following two mutually exclusive projects and have developed the followmg 1 rmation. What is the crossover rate? 7 Year Project A Project B
0 -$84,500 -$76,900 '
1 $29,000 $25,000
2 $40,000 $35,000
3 $27,000 $26,000 A. 11.113 percent
B. 13.008 percent
C. 14.901 percent
D. 16.750 percent E. 17.899 percent __\
ll
28. You want to earn [email protected] of return. Panco, Inc. preferred stock pays $4.50 lnnual dividend. What is the maximum price you are W1 ling to pay for one share of this stock? A $32.50 K1 $37.50
. $39.00 D. $40.50
B. $45.00 29. What is the net present value of a project with the following cash flows and a required return of 12 percent?
Year Cash Flow 0 -$28,900 N pv $12,450 1
2 $19,630 ,
3 $2,750 V " [7/ $287.22 r H 7 ' v 1 -$177.62
C. $177.62
D. $204.36
E. $287.22 30. The discount rate that makes the net present value of an investment exactly equal to zero is called the:
A. external rate of return. internal rate of return. average accounting return.
D. proﬁtability index.
E. equalizer. / (@ hey create value for the owners of the ﬁrm. M
a”, the project's rate of return exceeds the rate of inﬂation.
', . they return the initial cash outlay within three years or less.
a the required cash inﬂows exceed the actual cash inﬂows.
e investment‘s cost exceeds the present value of the cash inﬂows. M W ‘5 “(4
l. 6 i I in? ,/ .
{I l. The primary reason that company projects with positiveinet present values are considered acceptable is that: Bus342 , 1 .QIAME: 9—? 18. Aﬂond with a face value of @000 ' rrently sells [email protected] Which of the following statements is ost correct?
The bond’s yield to maturity is greater than its coupon rate.
_. . If the yieldto maturﬂbstays constant until the bond matures the bonds price will remain at $850. C. The bondiswentnyie is equal to the bond’s coupon rate. Cj ._._ A I P O
. Statementsband'c are correct. r0000? 090F— _ I 0 $90 8 3 “K
® All of the statements above are correct. g r K _ l. q ‘OQDK 1 0 W00 C
19. Bill and Paula just purchased a car. The loan ham nominal annual rate and the interest is L‘ V90 %
compounded monthly. What is the effleftive annual r e loan?
0 . war-(M) -( v—n-
- - 0 ‘1 m : 11.
C. 12.55%
12.62% EAR? 1209
@ 12.68%
20. What is thelinternal rate of returnion an investment with the following cash ﬂows?
Year Cash Flow .
0 $123,400 if V
l 5 36,200
2 $ 54,800
3 5 48,100
A. 5.93 percent
5.96 percent 5 ,6] (p C. 6.04 percent
D. 6.09 percent
E. 6.13 percent a 21. If you receive $15,000 ioday and can invest it at annual rate compounded continuously, what will be
5 DO 0 your ending value a er 20 years? PV ‘— | 2 a
. $35,821 3.47qu r- W, EAR—— (1+.05) «1
$40,774 uo’mb 4% m - (09
C. $75,000 40W“ 9 LO EHR- l.
D. $81,342 4017, 0 19790 W: {9000/1
E. $86,750 0‘ “Huang
22. A bond which, at the election of the holder, can be swapped for a fixed number of shares of common stock at
any time prior to the bonds maturity is called a bond.
A. zero coupon
B. callable
putable
convertible
E. warrant Bu5342 EXAM 1 NAME: 7. Lee Hong lmports paid alSl per share annual dividend la eek. Dividends are expected to increase by 5
percent annually. What is one share of this stock worth to yo if the appropriate discount rate is 14 percent? A. $7.14 DD = i .00
3- $750 1 5% P0 = I109
.$ll.ll '05)
$11.67
113512.25 : p.07
8. A standardizes items on the income statement and‘balance sheet as a percentage of total sales and total assets, respectively.
A. tax reconciliation statement
B. statement of standardization
C. statement of cash ﬂows . common-base year statement
® common-size statement 9. Bob bought some land costing $14,990:. Today that same land is valued at 55,000 ow long has Bob owned
this land if the price of land has been increasing at 6 percent per year? A.2l.82years PV1 \Ltﬂﬁft)
B. 21.98 years A}: V f 953 00 O
. 22.03 years m ~, “D
.2231 years ‘- 2 m -, 22 I 73) I E. 22.44 years 9 10. The preferred stock of North Coast Shoreline pays an annual dividend oti $1 .70land sells fori $20.24ia share. What is the rate of return on this security? _
W 0 f 0 4
A. 5.95 percent l . 7 O 5 - 2 7754 ‘90 ._ 91
B. 7.08 percent 10 14; .——~ 0 ' l - ,4 C. 8.40 percent l4 P 5 1L
. 11.90 percent f 0] 0 K
. 14.17 percent K C li' 11. Bet'R Bilt Bikes just announced that their 1 dividend for this coming year will [email protected] share and that
all future dividends [email protected] to increase bégﬁercent annually. What is the market rate 0 return if this stock is currently selling to $22 share? : _ Z ‘ 29 2 7| (4% 09
A. 9.5 percent P0 21’ 27/ ' W
B. 11.0 percent Do 2 2? K”. 0 2‘3
12.5 percent 5 r I a z
@135 percent 7 K 'I 019 vllléb
.15.0percent OH ' K: 12. Protective covenants: ’~ [7) , 7 0‘71.) % are primarily designed to protect the issuing corporation from unreasonable demands of bondholders.
B. are consistent for all bonds issued by a corporation within the United States.
C. are limited to stating actions which a ﬁrm must take.
~— _ only apply to bonds that have a deferred call provision. ;\ Erlare primarily designed to protect bondholders from future actions of the bond issuer. ...

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