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FI515Final Exam - (Assume the company chooses on the basis...

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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 company’s 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. (Points: 20) 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?
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Unformatted text preview: (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 20-year bond that has a maturity value of $1,000 and makes semiannual interest payments of $40. If you require a 10 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 ABC Company was $2.00. ABC’s growth rate is expected to be a constant 4 percent. ABC's required rate of return on equity (k s ) is 9 percent. What is the current price of ABCs common stock? (Points: 25) 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...
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