Question
1. JBCO.
reported $12,500 of sales and $7,025 of operating costs (including
depreciation). The company had $18,750 of investor-supplied operating assets
(or capital), the weighted average cost of that capital (the WACC) was 9.5%,
and the federal-plus-state income tax rate was 40%. What was HHH's Economic
Value Added (EVA), i.e., how much value did management add to stockholders'
wealth during the year?
Answer
a.
$1,357.13
b.
$1,428.56
c.
$1,503.75
d.
$1,578.94
e.
$1,657.88
2.
YNP Inc. recently
reported net income of $4,750 and depreciation of $885. How much was
its net cash flow, assuming it had no amortization expense and sold none of
its fixed assets.
a.
$4,831.31
b.
$5,085.59
c.
$5,353.25
d.
$5,635.00
e.
$5,916.75
3.
Commerce Bank offers
to lend you $100,000 at an 8.5% annual interest rate to start your new
business. The terms require you to amortize the loan with 10 equal end-of-year
payments. How much interest would you be paying in Year 2?
a.
$7,531
b.
$7,927
c.
$8,323
d.
$8,740
e.
$9,177
4. Jim Angel holds a $200,000 portfolio consisting of the
following stocks:
Stock Investment Beta
A
$ 50,000
0.95
B
50,000
0.80
C
50,000
1.00
D
50,000
1.20
Total $200,000
What is the
portfolio's beta?
a.
0.938
b.
0.988
c.
1.037
d.
1.089
e.
1.143
5.
Lindley Corp.'s stock
price at the end of last year was $33.50, and its book value per share was
$25.00. What was its market/book ratio?
a.
1.34
b.
1.41
c.
1.48
d.
1.55
e.
1.63
6.
Garvin Enterprises’
bonds currently sell for $1,150. They have a 6-year maturity, an annual coupon of
$85, and a par value of $1,000. What is their current yield?
a.
7.39%
b.
7.76%
c.
8.15%
d.
8.56%
e.
8.98%
7.
The Morrissey
Company's bonds mature in 7 years, have a par value of $1,000, and make an
annual coupon payment of $70. The market interest rate for the bonds is 8.5%.
What is the bond's price?
a.
$923.22
b.
$946.30
c.
$969.96
d.
$994.21
e.
$1019.06
8.
Qualcomm`s 5-year
bonds yield 7.00%, and 5-year T-bonds yield 5.15%. The real risk-free rate is
r* = 3.0%, the inflation premium for 5-year bonds is IP = 1.75%, the liquidity
premium for Keys' bonds is LP = 0.75% versus zero for T-bonds, and the maturity
risk premium for all bonds is found with the formula MRP = (t – 1) x 0.1%,
where t = number of years to maturity. What is the default risk premium (DRP)
on Keys' bonds?
a.
0.99%
b.
1.10%
c.
1.21%
d.
1.33%
e.
1.46%
9.
Ten years ago,
Spielberg Inc. earned $0.50 per share. Its earnings this year were $2.20. What
was the growth rate in earnings per share (EPS) over the 10-year period?
a.
15.17%
b.
15.97%
c.
16.77%
d.
17.61%
e.
18.49%
10. Calculate the required rate of return for Climax Inc., assuming
that (1) investors expect a 4.0% rate of inflation in the future, (2) the real risk-free
rate is 3.0%, (3) the market risk premium is 5.0%, (4) the firm has a beta of
1.00, and (5) its realized rate of return has averaged 15.0% over the last 5
years.
a.
10.29%
b.
10.83%
c.
11.40%
d.
12.00%
e.
12.60%
11.
Staple Supplies
recently reported $12,500 of sales, $7,250 of operating costs other than
depreciation, and $1,250 of depreciation. The company had no
amortization charges and no non-operating income. It had $8,000 of
bonds outstanding that carry a 7.5% interest rate, and its federal-plus-state
income tax rate was 40%. How much was the firm's taxable income, or
earnings before taxes (EBT)?
a.
$3,230.00
b.
$3,400.00
c.
$3,570.00
d.
$3,748.50
e.
$3,935.93
a.
$3,230.00
b.
$3,400.00
c.
$3,570.00
d.
$3,748.50
e.
$3,935.93
12. Noblerse
Enterprises has a beta of 1.10, the real risk-free rate is 2.00%, investors
expect a 3.00% future inflation rate, and the market risk premium is 4.70%.
What is Scheuer's required rate of return?
a.
9.43%
b.
9.67%
c.
9.92%
d.
10.17%
e.
10.42%
13 What’s the present value of a 4-year ordinary annuity of
$2,250 per year plus an additional $3,000 at the end of Year 4 if the interest
rate is 5%?
a.
$8,509
b. $8,957
c. $9,428
d. $9,924
e. $10,446
a.
$8,509
b.
$8,957
c.
$9,428
d.
$9,924
e.
$10,446
.
14.
What is the PV of an annuity due with 5 payments of $2,500 at an interest rate
of 5.5%?
a.
$11,262.88
b.
$11,826.02
c.
$12,417.32
d.
$13,038.19
e.
$13,690.10
15.
Suppose you borrowed
$12,000 at a rate of 9.0% and must repay it in 4 equal installments at the end
of each of the next 4 years. How large would your payments be?
a.
$3704.02
b.
$3.889
c.
$4083.69
d.
$4,287.87
e.
$4,502.26
16. A 25-year, $1,000 par value bond has an 8.5% annual coupon. The
bond currently sells for $875. If the yield to maturity remains at its current
rate, what will the price be 5 years from now?
a.
$839.31
b.
$860.83
c.
$882.90
d.
$904.97
e.
$927.60
17. John paid $10,000 (CF at t = 0) for an investment that promises
to pay $750 at the end of each of the next 5 years, then an additional lump sum
payment of $10,000 at the end of the 5th year. What is the expected rate of
return on this investment?
a.
6.77%
b.
7.13%
c.
7.50%
d.
7.88%
e.
8.27%
18.
Moerdyk Company's
stock has a beta of 1.40, the risk-free rate is4.25%, and the market risk
premium is5.50%. What is the firm's required rate of return?
a.
11.36%
b.
11.65%
c.
11.95%
d.
12.25%
e.
12.55%
19.
PAT Financial has
the following income statement. How much net operating profit after
taxes (NOPAT) does the firm have?
Sales
$1,800.00
Costs
1,400.00
Depreciation
250.00
EBIT
$
150.00
Interest expense
70.00
EBT
$
80.00
Taxes (40%)
32.00
Net income
$
48.00
a.
$81.23
b.
$85.50
c.
$90.00
d.
$94.50
e.
$99.23
a.
$81.23
b.
$85.50
c.
$90.00
d.
$94.50
e.
$99.23
20. PuchualaInc believes the following probability
distribution exists for its stock. What is the coefficient of variation
on the company's stock?
Probability
Stock's
State
of
of State
Expected
the Economy Occurring
Return
Boom
0.45
25%
Normal
0.50
15%
Recession
0.05
5%
a.
0.2839
b.
0.3069
c.
0.3299
d.
0.3547
e.
0.3813
21.
Karen just deposited
$2,500 in a bank account that pays a 4.0% nominal interest rate, compounded
quarterly. If you also add another $5,000 to the account one year (4 quarters)
from now and another $7,500 to the account two years (8 quarters) from now, how
much will be in the account three years (12 quarters) from now?
a.
$15,234
b.
$16,035
c.
$16,837
d.
$17,679
e.
$18,563
22. Jim Angel holds a $200,000 portfolio
consisting of the following stocks:
Stock Investment Beta
A
$ 50,000
0.95
B
50,000
0.80
C
50,000
1.00
D
50,000
1.20
Total $200,000
What is the
portfolio's beta?
a.
0.938
b.
0.988
c.
1.037
d.
1.089
e.
1.143
23. Stewart Inc.'s latest EPS was $3.50, its book value per share
was $22.75, it had 215,000 shares outstanding, and its debt ratio was 46%. How
much debt was outstanding?
a.
$3,393,738
b.
$3,572,356
c.
$3,760,375
d.
$3,958,289
e.
$4,166,620
24. Harper Corp.'s sales last year were $395,000, and its year-end
receivables were $42,500. Harper sells on terms that call for customers to pay
30 days after the purchase, but many delay payment beyond Day 30. On average,
how many days late do customers pay? Base your answer on this equation: DSO -
Allowed credit period = Average days late, and use a 365-day year when
calculating the DSO.
a.
7.95
b.
8.37
c.
8.81
d.
9.27
e.
9.74
25. Scheuer Enterprises has a beta of 1.10, the real risk-free rate
is 2.00%, investors expect a 3.00% future inflation rate, and the market risk
premium is 4.70%. What is Scheuer's required rate of return?
a.
9.43%
b.
9.67%
c.
9.92%
d.
10.17%
e.
10.42%
2 6. BCO stock has a beta
of 1.30, and its required return is 12.00%. LAP Stock's beta is 0.80. If the
risk-free rate is 4.75%, what is the required rate of return on LAP Beta's
stock? (Hint: First find the market risk premium.)
a.
8.76%
b.
8.98%
c.
9.21%
d.
9.44%
e.
9.68%