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1. (TCO C)
On its 1999 balance sheet, Sherman Books showed a balance of retained earnings equal to $510 million. On its 2000 balance sheet, the balance of retained earnings was also equal to $510 million. Which of the following statements is most correct? Show your calculations. a. The company must have had net income equal to zero in 2000. b. The company had a profit in 2000 but did not pay a dividend in 2000. c. the companys net income in 2000 was $200 million. d. If the company lost money in 2000, they must have paid a dividend. e. None of the statements above is correct.
2. (TCO D) After-tax returns
The XYZ Corporation has $1000,000 which it plans to invest in marketable securities. The corporation is choosing between the following three equally risky securities: Greenville County tax-free municipal bonds yielding 7 percent; AB corp. bonds yielding 11.5 percent; XZ corp. preferred stock with a dividend yield of 10 percent. XYZ's corporate tax rate is 35 percent. What is the after-tax return on the best investment alternative? (Assume the company chooses on the basis of after-tax returns.) (Points: 20)
3. (TCO D) Bond value - semiannual payment
Assume that you wish to purchase a 25-year bond that has a maturity value of $1,000 and makes semiannual interest payments of $45. If you require a 7 percent nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond? (Points: 25)
4. (TCO E) Constant growth stock
The last dividend paid by XYZ Company was $1.00. XYZs growth rate is expected to be a constant 5 percent. XYZ's required rate of return on equity (ks) is 10 percent. What is the current price of XYZ's common stock?
5. (TCO B, F) NPV
As the director of capital budgeting for Denver Corporation, you are evaluating two mutually exclusive projects with the following net cash flows: Cash Flows A B -$100,000 -$125,000 1
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