Finance Quiz 10 - 1. To earn the free half point associated...

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1. To earn the free half point associated with this question, choose answer "A" below and save the answer to this question. Student Response Correct Answer Feedback A. record this quiz attempt General Feedback: NOTE: Get into the habit of "saving" the answer to each question as you complete it. Always "submit" when you have finished the quiz. Score: 0.5/0.5 2. Your firm expects its net income to be $2.5 billion, and it expects to have a 70 percent dividend payout ratio. The company’s target debt ratio is 40 percent, and the firm is financed with only common equity and debt. What is the firm’s forecasted total capital budget for the year? Student Response Correct Answer Feedback A. $2.292 billion B. $1.875 billion C. $1.667 billion D. $1.458 billion E. $1.250 billion General Feedback: SOLUTION: Dividends paid = Net income x Dividend payout ratio = $2.5 billion x 0.70 = 1.75 billion. Expected capital budget = (Net income – Dividends)/Equity ratio = ($2.5 – $1.75)/0.60 = $1.25 billion. Score: 0/0.2 3. Your firm sells its major product at a price of $4.60 per unit. The variable costs
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associated with this product are $3.25 per unit. Meanwhile, the company incurs a fixed cost of $1,000,000 per year to produce this product. What is the company’s breakeven point? In other words, how many units must it sell before its operating income becomes positive? Student Response Correct Answer Feedback A. 740,741 units B. 333,333 units C. 952,381 units D. 312,500 units E. 571,429 units General Feedback: SOLUTION: The break-even point for unit sales can be solved for: Break- even = Fixed costs / (Price – Variable costs) = $1,000,000/($4.60 - $3.25) = 740,741. Score: 0/0.2 4. Your firm has a capital structure that consists of 20% debt and 80% equity. The CFO wants to use a comparable company’s beta to help determine its own beta. If the beta of an otherwise similar all-equity firm is 1.0 and the firm’s tax rate is 30%, what is its levered beta, b L ? Student Response Correct Answer Feedback A. 1.76 B. 1.61 C. 2.29 D. 1.18 E. 1.68 General Feedback: SOLUTION: b L = b U x (1 + (D/E)(1-T)) = 1.0 x (1 + (0.20/0.80)*(1 – 0.30)) = 1.18 Score: 0/0.2 5.
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A firm is considering splitting its stock, because the current stock price is outside the optimal range for stock prices. Analysts expect that the split will send a positive signal to the market, which will result in a 5% increase in market value. If the current price is
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This note was uploaded on 09/25/2008 for the course FIN 3403 taught by Professor Tapley during the Spring '06 term at University of Florida.

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Finance Quiz 10 - 1. To earn the free half point associated...

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