FIN2010 Financial Management
Test 2 (April 26, 2010)
Part I: Multiple Choice Questions (50%)
1. Gloria's Boutique recently paid $1.65 as an annual dividend. Future dividends are projected at $1.68, $1.72,
$1.76, and $1.80 over the next four years, respectively. Beginning five years from now, the dividend is expected
to increase by 2.5 percent annually. What is one share of this stock worth to you if you require an 11 percent
rate of return on similar investments?
2. Shares of Do Naught common stock are currently selling for $46.90. The last dividend paid was $2.21 per
share and the market rate of return is 15.8 percent. At what rate is the dividend growing?
A. 7.69 percent
B. 9.73 percent
C. 10.59 percent
D. 11.09 percent
E. 11.39 percent
3. Berber Mills has a capital structure which includes bonds, preferred stock, and common stock. The firm's
common stock shareholders are most to apt to have which of the following rights?
I. right to all the corporate profits
II. sole right to elect the corporate directors
III. right to vote on proposed mergers
IV. right to the residual assets in a liquidation
A. I and II only
B. II and III only
C. I and IV only
D. II, III, and IV only
E. I, II, III, and IV
4. Corey is considering two projects both of which have an initial cost of $20,000 and total cash inflows of
$25,000. The cash inflows of project A are $3,000, $5,000, $8,000, and $9,000 over the next four years,
respectively. The cash inflows for project B are $9,000, $8,000, $5,000, and $3,000 over the next four years,
respectively. Which one of the following statements is correct if Corey requires a 10 percent rate of return and
has a required discounted payback period of 3 years?
A. Both projects should be accepted.
B. Both projects should be rejected.
C. Project A should be accepted and project B should be rejected.
D. Project A should be rejected and project B should be accepted.
E. You should be indifferent to accepting either or both projects.