See supp slide ch 26. 13-19 and ch.5 Verspreiden niet toegestaan | Gedownload door Peter Liao ([email protected]) lOMoARcPSD
ActSc 371 Midterm Test Aids: non-programmable Calculator Instruction: Multiple choice (MC) type: Circle your answer. Note that -0.5 pts will be given for the wrong answer. Written answer (WA) type: Answer all questions in the space provided. Show all work. ID#: _____________________ Last Name: ____________________ First Name: ____________________ Marks: MC: _____________________ WA: _____________________ Total: _____________________ Verspreiden niet toegestaan | Gedownload door Peter Liao ([email protected]) lOMoARcPSD
Consider a Canadian bond which has a coupon rate of 7% with 8 years to maturity. The YTM is 8% on bonds of this risk. Compute the bond price $X and circle of the following ranges. A) X<900 B) 900<X<930 C) 930<X<960 D) 960<X<990 E) X>990 Answer: (C) because X=941.74 The corporation’s payment of interest on debt is tax deductible A) true B) false Ans: A) from Ch 15 reading material Long-term bonds and stocks are both: A) Money markets B) Capital markets C) Dealer markets D) All of the above E) None of the above Ans: B) Verspreiden niet toegestaan | Gedownload door Peter Liao ([email protected]) lOMoARcPSD
The Felix Corp. projects to pay a dividend of $0.75 next year and then have it grow at 12% for the next 3 years before growing at 8% indefinitely thereafter. The equity has a required return of 10% in the market. Compute the estimated stock price X and circle one of the followings: A) X < $45 B) $45<X<$50 C) $50<X<$55 D) $55<X<$60 E) X>$60 Answer: A) WA type questions begin here 1. [4 pts] What is the ‘separation theorem’ in financial markets? Explain in one sentence. All investors will want to accept or reject the same investment projects by using the NPV rule, regardless of their personal preferences OR The value of an investment to an individual is not dependent on his/her consumption preference. Verspreiden niet toegestaan | Gedownload door Peter Liao ([email protected]) lOMoARcPSD
2. [8 pts] The most recent financial statements for Nosa Co. are: Income statement Sales $500 Costs 400 Taxes 50 Net income $ 50 Balance sheet Current assets $ 200 Current liabilities $ 400 Fixed assets 2000 Long-term debt 700 Equity 1100 $2200 $2200 Assets, costs, and current liabilities are proportional to sales. Long-term debt is not. Assume no new stock issues. Nosa maintains a constant 50% dividend payout. Next year's sales are projected to be $540.
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