FIN 311 Extra-credit Homework (Due December 1 in class)

This homework is optional. You should complete the homework independently without discussing with others. Please submit a hard copy of finished homework in class on Dec. 1. Late submission will not be graded. The homework has total 12 points, and will be added to your first or second test score.

Please circle the correct choice below.

1. A firm has $520 in inventory, $1,860 in fixed assets, $190 in accounts receivables, $210 in accounts payable, and $70 in cash. What is the amount of the current assets? A. $710 B. $780

C. $990 D. $2,430 E. $2,640

2. Given the tax rates as shown, what is the average tax rate for a firm with taxable income of $311,360?

A. 28.25 percent B. 31.09 percent C. 33.62 percent D. 35.48 percent E. 39.00 percent

3. At the beginning of the year, a firm had current assets of $121,306 and current liabilities of $124,509. At the end of the year, the current assets were $122,418 and the current liabilities were $103,718. What is the change in net working capital? A. -$19,679

B. -$11,503 C. -$9,387 D. $1,809 E. $21,903

Use the information from Galaxy Investors (above) to answer questions 4 to 12.

4. What is the change in the net working capital from 2008 to 2009 for Galaxy Investors? A. -$1,194 B. $1,306 C. $1,887

D. $4,780 E. $5,172

5. What is the amount of the noncash expenses for 2009? A. $740 B. $1,282 C. $1,333

D. $1,611 E. $2,351

6. What is the amount of the net capital spending for 2009? A. -$382

B. $1,229 C. $1,804

D. $2,375 E. $2,516

7. What is the operating cash flow for 2009? A. $2,114 B. $2,900 C. $2,985

D. $3,536 E. $4,267

8. What is the cash flow from assets for 2009? A. $1,732 B. $2,247 C. $2,961

D. $3,915 E. $4,267

9. What is the amount of net new borrowing for 2009? A. -$1,812 B. -$1,738 C. $240

D. $662 E. $850

10. What is the cash flow to creditors for 2009? A. -$353 B. -$210 C. $300

D. $432 E. $527

11. What is the amount of dividends paid in 2009? A. $0 B. $574 C. $800

D. $2,013 E. $2,174

12. What is the cash flow to stockholders for 2009? A. -$500 B. -$800 C. $500

D. $1,300 E. $2,100

13. Which one of the following accurately describes the three parts of the Du Pont identity? A. operating efficiency, equity multiplier, and profitability ratio B. financial leverage, operating efficiency, and profitability ratio C. equity multiplier, profit margin, and total asset turnover

D. debt-equity ratio, capital intensity ratio, and profit margin E. return on assets, profit margin, and equity multiplier

14. Theo needs $40,000 as a down payment for a house 6 years from now. He earns 3.5 percent on his savings. Theo can either deposit one lump sum today for this purpose or he can wait a year and deposit a lump sum. How much additional money must he deposit if he waits for one year rather than making the deposit today? A. $878.98

B. $911.13 C. $1,138.90

D. $1,348.03 E. $1,420.18

15. Total risk is measured by _____ and systematic risk is measured by _____. A. beta; alpha B. beta; standard deviation C. alpha; beta

D. standard deviation; beta E. standard deviation; variance

16. What is the standard deviation of the returns on a stock given the following information?

A. 1.57 percent B. 2.03 percent C. 2.89 percent

D. 3.42 percent E. 4.01 percent

17. You purchased six call option contracts on ABC stock with a strike price of $32.50 when the option was quoted at $1.80. The option expires today when the value of ABC stock is $34.60. Ignoring trading costs and taxes, what is the net profit or loss on this investment?

A. $0 B. $180 C. $210 D. $840 E. $1,260

18. Three months ago, Central Supply stock was selling for $51.40 a share. At that time, you purchased five put options on the stock with a strike price of $50 per share and an option price of $0.60 per share. The option expires today when the value of the stock is $42.70 per share. What is your net profit or loss on this investment? Ignore trading costs and taxes.

A. -$1,300 B. -$1,000

C. -$300 D. $3,350 E. $3,650

19. Blue Water Systems is analyzing a project with the following cash flows. Should this project be accepted based on the discounting approach to the modified internal rate of return if the discount rate is 14 percent? Why or why not?

A. Yes; The MIRR is 13.48 percent. B. Yes; The MIRR is 17.85 percent. C. Yes; The MIRR is 21.23 percent. D. No; The MIRR is 5.73 percent. E. No; The MIRR is 17.85 percent.

20. It will cost $6,000 to acquire an ice cream cart. Cart sales are expected to be $3,600 a year for three years. After the three years, the cart is expected to be worthless as the expected life of the refrigeration unit is only three years. What is the payback period? A. 1.48 years

B. 1.67 years C. 1.82 years D. 1.95 years E. 2.00 years

21. You are analyzing the following two mutually exclusive projects and have developed the following information. What is the crossover rate?

A. 13.17 percent B. 13.33 percent C. 14.32 percent D. 14.96 percent E. 15.20 percent

22. Gateway Communications is considering a project with an initial fixed asset cost of $2.46 million which will be depreciated straight-line to a zero book value over the 10-year life of the project. At the end of the project the equipment will be sold for an estimated $300,000. The project will not directly produce any sales but will reduce operating costs by $725,000 a year. The tax rate is 35 percent. The project will require $45,000 of inventory which will be recouped when the project ends. Should this project be implemented if the firm requires a 14 percent rate of return? Why or why not? A. No; The NPV is -$172,937.49. B. No; The NPV is -$87,820.48. C. Yes; The NPV is $251,860.34 D. Yes; The NPV is $387,516.67 E. Yes; The NPV is $466,940.57

23. Henessey Markets has a growth rate of 4.8 percent and is equally as risky as the market. The stock is currently selling for $17 a share. The overall stock market has a 10.6 percent rate of return and a risk premium of 8.7 percent. What is the expected rate of return on this stock? A. 8.7 percent

B. 9.2 percent C. 10.6 percent D. 11.3 percent E. 11.7 percent

24. Phillips Equipment has 80,000 bonds outstanding that are selling at par ($1000 par value). Bonds with similar characteristics are yielding 6.75 percent. The company also has 750,000 shares of 7 percent preferred stock and 2.5 million shares of common stock outstanding. The preferred stock sells for $53 a share. The common stock has a beta of 1.34 and sells for $42 a share. The U.S. Treasury bill is yielding 2.8 percent and the return on the market is 11.2 percent. The corporate tax rate is 38 percent. What is the firm's weighted average cost of capital?

A. 10.39 percent B. 10.64 percent C. 11.18 percent D. 11.30 percent E. 11.56 percent

This homework is optional. You should complete the homework independently without discussing with others. Please submit a hard copy of finished homework in class on Dec. 1. Late submission will not be graded. The homework has total 12 points, and will be added to your first or second test score.

Please circle the correct choice below.

1. A firm has $520 in inventory, $1,860 in fixed assets, $190 in accounts receivables, $210 in accounts payable, and $70 in cash. What is the amount of the current assets? A. $710 B. $780

C. $990 D. $2,430 E. $2,640

2. Given the tax rates as shown, what is the average tax rate for a firm with taxable income of $311,360?

A. 28.25 percent B. 31.09 percent C. 33.62 percent D. 35.48 percent E. 39.00 percent

3. At the beginning of the year, a firm had current assets of $121,306 and current liabilities of $124,509. At the end of the year, the current assets were $122,418 and the current liabilities were $103,718. What is the change in net working capital? A. -$19,679

B. -$11,503 C. -$9,387 D. $1,809 E. $21,903

Use the information from Galaxy Investors (above) to answer questions 4 to 12.

4. What is the change in the net working capital from 2008 to 2009 for Galaxy Investors? A. -$1,194 B. $1,306 C. $1,887

D. $4,780 E. $5,172

5. What is the amount of the noncash expenses for 2009? A. $740 B. $1,282 C. $1,333

D. $1,611 E. $2,351

6. What is the amount of the net capital spending for 2009? A. -$382

B. $1,229 C. $1,804

D. $2,375 E. $2,516

7. What is the operating cash flow for 2009? A. $2,114 B. $2,900 C. $2,985

D. $3,536 E. $4,267

8. What is the cash flow from assets for 2009? A. $1,732 B. $2,247 C. $2,961

D. $3,915 E. $4,267

9. What is the amount of net new borrowing for 2009? A. -$1,812 B. -$1,738 C. $240

D. $662 E. $850

10. What is the cash flow to creditors for 2009? A. -$353 B. -$210 C. $300

D. $432 E. $527

11. What is the amount of dividends paid in 2009? A. $0 B. $574 C. $800

D. $2,013 E. $2,174

12. What is the cash flow to stockholders for 2009? A. -$500 B. -$800 C. $500

D. $1,300 E. $2,100

13. Which one of the following accurately describes the three parts of the Du Pont identity? A. operating efficiency, equity multiplier, and profitability ratio B. financial leverage, operating efficiency, and profitability ratio C. equity multiplier, profit margin, and total asset turnover

D. debt-equity ratio, capital intensity ratio, and profit margin E. return on assets, profit margin, and equity multiplier

14. Theo needs $40,000 as a down payment for a house 6 years from now. He earns 3.5 percent on his savings. Theo can either deposit one lump sum today for this purpose or he can wait a year and deposit a lump sum. How much additional money must he deposit if he waits for one year rather than making the deposit today? A. $878.98

B. $911.13 C. $1,138.90

D. $1,348.03 E. $1,420.18

15. Total risk is measured by _____ and systematic risk is measured by _____. A. beta; alpha B. beta; standard deviation C. alpha; beta

D. standard deviation; beta E. standard deviation; variance

16. What is the standard deviation of the returns on a stock given the following information?

A. 1.57 percent B. 2.03 percent C. 2.89 percent

D. 3.42 percent E. 4.01 percent

17. You purchased six call option contracts on ABC stock with a strike price of $32.50 when the option was quoted at $1.80. The option expires today when the value of ABC stock is $34.60. Ignoring trading costs and taxes, what is the net profit or loss on this investment?

A. $0 B. $180 C. $210 D. $840 E. $1,260

18. Three months ago, Central Supply stock was selling for $51.40 a share. At that time, you purchased five put options on the stock with a strike price of $50 per share and an option price of $0.60 per share. The option expires today when the value of the stock is $42.70 per share. What is your net profit or loss on this investment? Ignore trading costs and taxes.

A. -$1,300 B. -$1,000

C. -$300 D. $3,350 E. $3,650

19. Blue Water Systems is analyzing a project with the following cash flows. Should this project be accepted based on the discounting approach to the modified internal rate of return if the discount rate is 14 percent? Why or why not?

A. Yes; The MIRR is 13.48 percent. B. Yes; The MIRR is 17.85 percent. C. Yes; The MIRR is 21.23 percent. D. No; The MIRR is 5.73 percent. E. No; The MIRR is 17.85 percent.

20. It will cost $6,000 to acquire an ice cream cart. Cart sales are expected to be $3,600 a year for three years. After the three years, the cart is expected to be worthless as the expected life of the refrigeration unit is only three years. What is the payback period? A. 1.48 years

B. 1.67 years C. 1.82 years D. 1.95 years E. 2.00 years

21. You are analyzing the following two mutually exclusive projects and have developed the following information. What is the crossover rate?

A. 13.17 percent B. 13.33 percent C. 14.32 percent D. 14.96 percent E. 15.20 percent

22. Gateway Communications is considering a project with an initial fixed asset cost of $2.46 million which will be depreciated straight-line to a zero book value over the 10-year life of the project. At the end of the project the equipment will be sold for an estimated $300,000. The project will not directly produce any sales but will reduce operating costs by $725,000 a year. The tax rate is 35 percent. The project will require $45,000 of inventory which will be recouped when the project ends. Should this project be implemented if the firm requires a 14 percent rate of return? Why or why not? A. No; The NPV is -$172,937.49. B. No; The NPV is -$87,820.48. C. Yes; The NPV is $251,860.34 D. Yes; The NPV is $387,516.67 E. Yes; The NPV is $466,940.57

23. Henessey Markets has a growth rate of 4.8 percent and is equally as risky as the market. The stock is currently selling for $17 a share. The overall stock market has a 10.6 percent rate of return and a risk premium of 8.7 percent. What is the expected rate of return on this stock? A. 8.7 percent

B. 9.2 percent C. 10.6 percent D. 11.3 percent E. 11.7 percent

24. Phillips Equipment has 80,000 bonds outstanding that are selling at par ($1000 par value). Bonds with similar characteristics are yielding 6.75 percent. The company also has 750,000 shares of 7 percent preferred stock and 2.5 million shares of common stock outstanding. The preferred stock sells for $53 a share. The common stock has a beta of 1.34 and sells for $42 a share. The U.S. Treasury bill is yielding 2.8 percent and the return on the market is 11.2 percent. The corporate tax rate is 38 percent. What is the firm's weighted average cost of capital?

A. 10.39 percent B. 10.64 percent C. 11.18 percent D. 11.30 percent E. 11.56 percent

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