BFIN300 FA18 Final Guideline Answers.doc - BFIN 300 Final Student Name Fall 2018 Version 1 1 Pegasus Corp's stock has an expected return of 11.20 The

# BFIN300 FA18 Final Guideline Answers.doc - BFIN 300 Final...

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BFIN 300 Final Fall 2018 Version 1 Student Name: 1. Pegasus Corp's stock has an expected return of 11.20%. The expected return for the market is 10.75% and the risk free rate is 2.15%. Pegasus' beta is closest to: A) 1.05 11.2% = 2.15% + B(10.75% - 2.15%) B) 0.84 C) 0.70 2. Mendenhall Co. is considered two independent projects. Project A is expected to return 13.7% and Project B is expected to return 12.5%. If Mendenhall's hurdle rate is 12.9%, what decisions should management make regarding the two projects? A) Accept A, reject B. B) Reject A, accept B. C) Accept both. 3. QuadMark Industries' ROE is 13.8% and the debt to asset ratio is .45. Quadmark's ROA is closest to: 4. The discount rate that makes the net present value of an investment exactly equal to zero is the: 5. One reason why cash flow analysis is popular is: 6. The risk-free rate is 1.5% and the return for the market is 10.75%. A stock with a beta of 0.80 would have an expected return of about: A) 11.30% B) 8.90% = 1.5% + .80(10.75% - 1.5%)C) 10.10%
7. Grupo Brasilia is considering expanding a production line. The new equipment for the line will cost \$60,000. In addition, the cost of installation is \$3,000 and there is an annualmaintenance contract for \$5,000. The new line is expected to generate cash flows for the next four years of 12,000, 17,000, 24,000, and 28,000. GB's discount rate for the project is 7 5/8%. The net present value of the project is closest to: 8. Conestoga Ventures had cash flow from assets in 2014 of \$1,367 (all values in thousands). The company paid interest expense of \$415 and the cash flow to shareholderswas \$342. Conestoga: 9. Droog's Milk Bar has an ROA of 18% and their debt to assets ratio is 25%. Droog's ROE is closest to:

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