Chapter 01 - Introduction to Corporate Finance
1. The excess return required from a risky asset over that required from a risk-free asset is called
the:
A. risk premium.
B. geometric premium.
C. exces
Chapter 01 - Introduction to Corporate Finance
36. A stock pays a constant annual dividend and sells for $31.11 a share. If the dividend yield of
this stock is 9%, what is the dividend amount?
A. $1.4
Chapter 01 - Introduction to Corporate Finance
48. Bill Bailey and Sons pays no dividend at the present time. The company plans to start paying
an annual dividend in the amount of $.30 a share for two
Chapter 01 - Introduction to Corporate Finance
66. Interest rate risk is often explained by using the concept of a teeter-totter. Explain interest
rate risk and how it is related to the movements of a
Chapter 01 - Introduction to Corporate Finance
37. You have decided that you would like to own some shares of GH Corp. but need an expected
12% rate of return to compensate for the perceived risk of s
Chapter 01 - Introduction to Corporate Finance
Essay Questions
60. Calculate the YTM on a bond priced at $1,036 which has 2 years to maturity, a 10% annual
coupon rate, and a return of $1,000 at matur
Chapter 01 - Introduction to Corporate Finance
78. The Mini-Max Company has the following cost information on its new prospective project.
Calculate the accounting break-even point.
Initial investment
Chapter 01 - Introduction to Corporate Finance
43. A 12-year, 5% coupon bond pays interest annually. The bond has a face value of $1,000. What
is the change in the price of this bond if the market yie
Chapter 01 - Introduction to Corporate Finance
24. Face value is:
A. always higher than current price.
B. always lower than current price.
C. the same as the current price.
D. the coupon amount.
E. No
Chapter 01 - Introduction to Corporate Finance
53. The outstanding bonds of Boutelle, Inc. provide a real rate of return of 3.6%. The current rate
of inflation is 2.5%. What is the nominal rate of ret
Chapter 01 - Introduction to Corporate Finance
Chapter 09 How to Value Stocks Answer Key
Multiple Choice Questions
1. The stock valuation model that determines the current stock price by dividing the
Chapter 01 - Introduction to Corporate Finance
68. Martin's Yachts has paid annual dividends of $1.70, $1.8, and $2.1 a share over the past three
years, respectively. The company now predicts that it
Chapter 01 - Introduction to Corporate Finance
17. The average annual return on long-term corporate bonds for the period of 1926 to 2012 was
_%.
A. 3.8
B. 5.8
C. 6.4
D. 7.9
E. 8.4
18. The average annu
Chapter 01 - Introduction to Corporate Finance
3. The standard deviation for a set of stock returns can be calculated as the:
A. positive square root of the average return.
B. average squared differen
Chapter 01 - Introduction to Corporate Finance
21. A zero coupon bond:
A. is sold at a large premium.
B. has a price equal to the future value of the face amount given a specified rate of return.
C. c
Chapter 01 - Introduction to Corporate Finance
72. A project has a contribution margin of $5, projected fixed costs of $12,000, a projected
variable cost per unit of $12, and a projected present value
Chapter 01 - Introduction to Corporate Finance
97. Sensitivity analysis is a method which allows for evaluation of the NPV given a series of
changes to the underlying assumptions. Discuss why and how
Chapter 01 - Introduction to Corporate Finance
56. The Lo Sun Corporation offers a 8% bond with a current market price of $875.05. The yield to
maturity is 9.18%. The face value is $1,000. Interest is
Chapter 01 - Introduction to Corporate Finance
31. The value of a 25 year zero-coupon bond when the market required rate of return is 10%
(semiannual) is _.
A. $87.20
B. $92.30
C. $95.26
D. $98.31
E.
Chapter 01 - Introduction to Corporate Finance
57. What is the contribution margin under the expected case scenario?
A. $8
B. $8.32
C. $10
D. $16
E. $18
Contribution margin for the base case = $18 - $
Chapter 01 - Introduction to Corporate Finance
64. At a production level of 6,000 units a project has total costs of $120,000. The variable cost per
unit is $14.50. What is the amount of the total fix
Chapter 01 - Introduction to Corporate Finance
9. A bond with a face value of $1,000 that sells for less than $1,000 in the market is called a
_ bond.
A. par
B. discount
C. premium
D. zero coupon
E. f
Chapter 01 - Introduction to Corporate Finance
7. The annual coupon of a bond divided by its face value is called the bond's:
A. coupon.
B. face value.
C. maturity.
D. yield to maturity.
E. coupon rat
Chapter 01 - Introduction to Corporate Finance
86. Wilson's Antiques is considering a project that has an initial cost today of $10,000. The
project has a two-year life with cash inflows of $6,500 a y
Chapter 01 - Introduction to Corporate Finance
70. The current yield on Alpha's common stock is 5.2%. The company just paid a $2.10 dividend.
The rumor is that the dividend will be $2.3 next year. The
Chapter 01 - Introduction to Corporate Finance
62. Doctors-On-Call, a newly formed medical group, just paid a dividend of $.50. The company's
dividend is expected to grow at a 20% rate for the next 5
Chapter 01 - Introduction to Corporate Finance
67. The discussion of asset pricing in the text suggests that an investor will be indifferent
between two bonds which have equal yields to maturity as lo
Chapter 01 - Introduction to Corporate Finance
74. A year ago, you purchased 300 shares of IXC Technologies, Inc. stock at a price of $10.05 per
share. The stock pays an annual dividend of $.10 per sh
Chapter 01 - Introduction to Corporate Finance
20. The net present value of a growth opportunity, NPVGO, can be defined as:
A. the initial investment necessary for a new project.
B. the net present va
Chapter 01 - Introduction to Corporate Finance
40. Your firm offers a 10-year, zero coupon bond. The yield to maturity is 8.8%. What is the
current market price of a $1,000 face value bond?
A. $430.24