217.
Theta stock returned 2%, -5%, 12%, and 28% for the past four years, respectively. Based on
this information, what is the 95% probability range of returns for any one given year?
A. -11.68 to 30.18%
B. -19.38 to 37.88%
C. -26.34 to 44.84%
D. -34.02 to

201.
You are considering a new project with a net present value of $25,000 and an initial cash
outlay for fixed assets of $120,000. You are planning on funding this project by selling 2,500
new shares of stock. Currently, your firm has 45,000 shares of st

312.Which one of the following stocks is correctly priced if the risk-free rate of return is 3.2% and the
market risk premium is 8.4%?
A. A
B. B
C. C
D. D
E. E
313.An investor has a portfolio with 40% invested in stock A, and 60% in stock B. It is expecte

150.
You own a stock portfolio that is invested 10% in stock A, 30% in stock B, 40% in stock C, and
20% in stock D. These stocks have betas of 1.2, .8, 1.1, and 1.5, respectively. What is the
beta of the portfolio?
A. 1.04
B. 1.07
C. 1.10
D. 1.13
E. 1.14

174.What is Homer's stock price before the alternative dividend plan is adopted?
A. $164.26
B. $167.73
C. $169.01
D. $172.54
E. $176.24
175.What will be Homer's stock price once the alternate dividend plan is adopted?
A. $164.26
B. $167.73
C. $169.01
D. $

202.
The internal rate of return tends to be:
A. easier for managers to comprehend than the net present value.
B. extremely accurate even when cash flow estimates are faulty.
C. ignored by most financial analysts.
D. used primarily to differentiate betwee

96. You will receive a $100,000 inheritance in 20 years. You can invest that money today at 6%
compounded annually. What is the present value of your inheritance?
A. $27,491.53
B. $29,767.15
C. $31,180.47
D. $35,492.34
E. $100,000.00
97. You just won the

276.
The Eliot Co. needs $210,000 a week to pay bills. The standard deviation of the weekly
disbursements is $24,000. The firm has established a lower cash balance limit of $90,000.
The applicable interest rate is 4 percent and the fixed cost of transferr

220.What is the expected return on this portfolio?
A. 9.50%
B. 9.67%
C. 9.78%
D. 10.59%
E. 10.87%
221.What is the expected return on a portfolio comprised of $3,000 in stock K and $5,000 in stock L if
the economy is normal?
A. 3.75%
B. 5.25%
C. 5.63%
D. 5

321.The fixed costs of a project are $6,000. The depreciation expense is $4,500 and the operating
cash flow is $18,000. What is the degree of operating leverage for this project?
A. 1.33
B. 1.44
C. 1.50
D. 2.25
E. 3.00
322.Donald and Sons manage a product

232.
Toasty Feet makes fur-lined boots for winter wear. The firm has a beta of 1.08 and just paid an
annual dividend of $1.50 per share. Based on the security market line approach, which one of
the following will increase the firm's cost of equity? Assume

Corporate Finance
Spring 2016
Problem Set 2: Rules for Investment Decisions
Solutions
1. You are given a project with the following cash flows: C0 = 6, 750, C1 = 4, 500,
C2 = 18, 000.
(a) Calculate the NPV of the project with discount rates of
i. 0%
15,75

Corporate Finance
Spring 2016
Problem Set 1: Solutions
1. You have to pay $12,000 a year in school fees, payable at the beginning of the year, for
four years. The interest rate is 8% effective annual, for both borrowing and lending.
(a) How much do you ne

Problem Set 1
Due at beginning of class on September 20, 2011
Question 1.
You win a lottery with a prize of $15 million. Unfortunately the prize is paid in 10 equal
annual installments. The first payment is next year. How much is the prize really worth?
T

213.Last year, Marsha purchased a stock at a price of $21.36 a share. Over the course of the year,
she received $.60 in dividends per share while inflation averaged 3.2%. Today, Marsha sold her
shares for $22.80 a share. What is Marsha's real rate of retu

81. One of the effects of a merger that can easily mislead investors into overvaluing a firm is the:
A. Appearance of earnings per share growth when no such growth exists.
B. Change in the number of shares outstanding in an all cash merger.
C. Increase in

229.
Calculate Marble Comics' ROE for 2009.
A. 20.5%
B. 22.1%
C. 23.4%
D. 25.6%
E. 161.8%
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #229
Type: Problems
230.
Sales are

27. A disruption in the production schedule due to a lack of materials is called a:
A. Cash-out.
B. Shortage cost.
C. Flexible cost.
D. Maturity hedging cost.
E. Compensating cost.
28. The financing of short-term assets with short-term debt is known as:
A

182.
What is the break-even EPS for these two capital structures?
A. $2.40
B. $3.28
C. $4.25
D. $5.00
E. $8.75
Difficulty: Basic
Learning Objective: 16-01 The effect of financial leverage on firm value and cost of capital.
Ross - Chapter 16 #182
Type: Pro

231.
Which one of the following statements is correct about the pro forma statements for a costcutting project which requires an initial investment in fixed assets?
A. the depreciation expense has no effect on the cash flows
B. the operating income is equ

238.
Baker's Chocolate common stock had annual returns of 13.7%, 11.3%, 4.6%, and - 8.9% over
the last four years, respectively. What is the standard deviation of these returns?
A. 10.1%
B. 10.7%
C. 11.3%
D. 11.8%
E. 12.1%
Average return = (.137 + .113 +

237.
Roger's Trucking is currently an all equity firm that has 24,000 shares of stock outstanding at a
market price of $50 a share. The firm has decided to leverage its operations by issuing
$280,000 of debt at an interest rate of 8%. This new debt will b

326.
You are analyzing the following two mutually exclusive projects and have developed the
following information. What is the crossover rate?
A. 6.02 percent
B. 7.23 percent
C. 10.92 percent
D. 12.21 percent
E. 14.47 percent
Difficulty: Challenge
Learnin

Type: Essay
310.
Draw the following two graphs, one above the other: In the top graph, plot firm value on the
vertical axis and total debt on the horizontal. Use the graph to illustrate the value of a firm
under M&M without taxes, M&M with taxes, and the

221.
Regulatory dialectic refers to:
A. The pressures governments exert on financial institutions and regulatory bodies.
B. The pressures financial institutions and regulatory bodies exert on each other.
C. The pressures corporations exert on financial in

175.You purchased 300 shares of Deltona, Inc. stock for $44.90 a share. You have received a total of
$630 in dividends and $14,040 in proceeds from selling the shares. What is your capital gains
yield on this stock?
A. 4.06%
B. 4.23%
C. 4.68%
D. 8.55%
E.

226.
You are considering two mutually exclusive projects with the following cash flows. Will your
choice between the two projects differ if the required rate of return is 8 percent rather than 11
percent? If so, what should you do?
A. yes; Select A at 8 p

279.You are considering the following two mutually exclusive projects. The required rate of return is
13 percent for project A and 10.5 percent for project B. You should accept Project _ because
its NPV is _ greater than that of the other project.
A. A; $

255.
J&J Automotive is analyzing two machines to determine which one they should purchase. The
company requires a 16% rate of return and the machinery belongs in a 30% CCA class.
Machine A has a cost of $427,000, annual operating costs of $13,000, and a 4

263.
Abco is an all equity firm with 32,000 shares of stock outstanding at a market price of $40 a
share. The company's earnings before interest and taxes are $92,000. Abco has decided to
add leverage to its financial operations by issuing $220,000 of deb

Syllabus: Corporate Finance
FINC-UB.0007 Fall 2016
SCHEDULE:
TR 9:30 10:45 (Section 001)
TR 11:00 12:15 (Section 002)
First class on 9/6; last class on 12/15
No classes: 11/24, 12/13
LOCATION:
KMC 3-90
INSTRUCTOR:
Andres Liberman
Email:
[email protected]

USEFUL:
If the problem gives you the D/E ratio, then:
D
=
D+E
If the problem gives you the D/(D+E) ratio, then:
D
=
E
1
D
E
D
E
D
D+E
D
D+E
+1
=
D
D+E
E
D+E

Giacomo Da Mommio
Corporate Finance: Problem Set 8
Exercise 1
a.
A = E + D, so 400m = 150m + E, E = 250m. We have 8m shares outstanding, which means that the
Share price = E/#SO = 250m/8m = $31.25.
b.
If they distribute dividend for 20m, the ba