q4+version1 (1) - MGT 3062 FINANCIAL MANGEMENT SUMMER 2009...

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MGT 3062 FINANCIAL MANGEMENT SUMMER 2009 QUIZ 4 Student: ___________________________________________________________________________ Choose the BEST answer to each question. Bubble in your answer on the form provided. If you feel that the answer is not provided, show your work, explain your assumptions, and write your answer on the exam. Questions are worth 3 points each. Remove all hats and dark glasses. If you have to go to the restroom, go now. No electronic devices allowed. You may not use your cell phone as a calculator. As a courtesy to your classmates, no questions are allowed after initial instructions are given. Ethics Challenge: I swear by everything I hold sacred and my family honor that: the work on this exam is my own without any outside assistance; that I did not provide assistance to another classmate; that I used no electronic devices for information storage, retrieval, or communications; that I have abided by the Georgia Tech honor code in the preparation and execution of this exam. Signature:________________________________________________________________ 1. The principle of diversification tells us that: A. concentrating an investment in two or three large stocks will eliminate all of the unsystematic risk. B. spreading an investment across many diverse assets will eliminate some of the total risk. C. spreading an investment across five diverse companies will not lower the total risk. D. concentrating an investment in three companies all within the same industry will greatly reduce the systematic risk. E. spreading an investment across many diverse assets will eliminate all of the systematic risk. 2. Photo Imaging, Inc. has paid annual dividends of $1.00, $1.05, $1.10, and $1.18 per share over the last four years, respectively. The stock is currently selling for $38 a share. What is this firm's cost of equity if you calculate dividend growth as the average annual growth? A. 8.79 percent B. 10.38 percent C. 11.79 percent D. 8.96 percent E. 10.53 percent 3. You purchased 300 shares of stock at a price of $35.86 per share. Over the last year, you have received total dividend income of $336. What is the dividend yield? A. 9.4 percent B. 1.1 percent C. 3.1 percent D. 10.7 percent E. 6.8 percent THE BUSINESS SCHOOL AT GEORGIA TECH Barry Marchman, Ph.D. Room 407 (404) 894-5110
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4. Orson, Inc. uses one-third common stock and two-thirds debt to finance their operations. The aftertax cost of debt is 6 percent and the cost of equity is 12 percent. The management of Orson, Inc. is considering a project that will produce a cash inflow of $48,000 in the first year. The cash inflows will then grow at 4 percent per year thereafter. What is the maximum amount the firm can initially invest in this project to avoid a negative net present value for the project? A. $800,000
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This note was uploaded on 02/09/2012 for the course MGT 3078 taught by Professor Marchman during the Spring '12 term at Georgia Institute of Technology.

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q4+version1 (1) - MGT 3062 FINANCIAL MANGEMENT SUMMER 2009...

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