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2504i_final_soln0

# 2504i_final_soln0 - Final EXAMINATION April 9 2010 DURATION...

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Final EXAMINATION April 9, 2010 DURATION: 3 HOURS No. of Students: 76 Course: BUSI 2504I - Essentials of Business Finance Instructor: Mitch Murphy Student Name: Student Number: Grade: / 60 + / 40 = / 100 AUTHORIZED MEMORANDA BAII Plus calculator One double-sided 8.5”x11” handwritten notes/formula sheet Students MUST count the number of pages in this examination question paper before beginning to write, and report any discrepancy to a proctor. This question paper has 11 pages (including this cover). This examination question paper MAY NOT be taken from the examination room. In addition to this question paper, students require: an examination booklet NO a Scantron sheet YES This examination question paper MAY NOT be released to the library.

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Page 2/11 Final Exam - April 9, 2010, 09:00-12:00 BUSI 2504I PART A: MULTIPLE CHOICE (31 QUESTIONS - 60 MARKS) [ 2] Q1. The process of planning and managing a firm’s long-term investments is called: (a) Working capital management. (b) Financial depreciation. (c) Agency cost analysis. (d) Capital budgeting . (e) Capital structure. [ 2] Q2. What would you pay today for a stock that is expected to make a \$1.50 dividend in one year if the expected dividend growth rate is 3% and you require a 16% return on your investment? (a) \$11.54 . (b) \$12.33. (c) \$12.43. (d) \$13.14. [ 2] Q3. A firm’s stock is selling for \$85 and is expected to be worth \$90.95 one year from now. The dividend yield is 5%. The firm’s tax rate is 32%. What is the firm’s cost of common equity? (a) 8.16%. (b) 10.40%. (c) 12.00% . (d) 12.35%. [ 2] Q4. Mature Corp. has paid annual dividends of \$1.55, \$1.70, and \$1.85 a share over the past three years, respectively. The company now predicts that it will maintain a constant dividend since its business has levelled off and sales are expected to remain relatively constant. Given the lack of future growth, you will only buy this stock if you can earn at least a 16 percent rate of return. What is the maximum amount you are willing to pay to buy one share of this stock today? (a) \$9.97. (b) \$11.56 . (c) \$12.78. (d) \$13.41. [ 2] Q5. F & D Industries common stock sells for \$43.05 a share and pays an annual dividend that increases by 5 percent annually. The market rate of return on this stock is 10 percent. What was the amount of the dividend just paid by F & D? (a) \$1.95. (b) \$2.05 . (c) \$2.15. (d) \$2.21.
BUSI 2504I Final Exam - April 9, 2010, 09:00-12:00 Page 3/11 [ 2] Q6. WACC is the: (a) Cost of obtaining equity financing. (b) Required rate of return on a firm . (c) Average IRR of the firm’s current projects.

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2504i_final_soln0 - Final EXAMINATION April 9 2010 DURATION...

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