final - 1. On its 2001 balance sheet, Sherman Books had...

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1. On its 2001 balance sheet, Sherman Books had retained earnings equal to $510 million. On its 2002 balance sheet, retained earnings were also equal to $510 million. Which of the following statements is most correct? a. The company must have had net income equal to zero in 2002 . b. The company did not pay dividends in 2002. c. If the company’s net income in 2002 was $200 million, dividends paid must have also equaled $200 million. d. If the company lost money in 2002, they must have paid dividends. e. None of the statements above is correct. 2. .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.) 3. After-tax returns ABC Corporation has $50,000 which it plans to invest in marketable securities. The corporation is choosing between the following three equally risky securities: Spartan County tax-free municipal bonds yielding 8 percent; Ford bonds yielding 11.5 percent; GE preferred stock with a dividend yield of 12 percent. ABC'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.) 4. Bond value - semiannual payment Assume that you wish to purchase a 10-year bond that has a maturity value of $1,000 and makes semiannual interest payments of $50. 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?
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5. 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? 6. 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 (ks) is 9 percent. What is the current price of ABCs common stock? 7. 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 (k s ) is 10 percent. What is the current price of XYZ's common stock? 8. 7.NPV As the director of capital budgeting for Bingo Corporation, you are evaluating two mutually exclusive projects with the following net cash flows: Cash flows A B -$150,000 -$225,000 1 $55,000 $85,000 2 $70,000 $55,000 3 $70,000 $65,000 4 $75,000 $55,000 5 $80,000 $65,000 If Bingo Corporation's cost of capital is 10 percent, defend which project would you choose. 9.
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This note was uploaded on 07/18/2011 for the course FI 515 taught by Professor Watson during the Spring '09 term at Keller Graduate School of Management.

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final - 1. On its 2001 balance sheet, Sherman Books had...

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