this is the corporate finance assignment, which has 25 multiple choice

Question 1

1.

This is a debt instrument that is issued without any collateral:

	a.	Debenture
	b.	Serial Bond
	c.	Zero Coupon Bond
	d.	Term Bond

Question 2

1.

Next Dividend is going to be $3.50 per share. The firm has promised to increase all future Dividends by 6%. The Stock of the firm currently sells for $ 33.00 per share. This means the required return is:

	a.	10.6%
	b.	16.6%
	c.	6.0%
	d.	4.6%

Question 3

1.

1. XYZ Corp has return on assets (ROA) of 12%. It's total assets and liabilities are

$50m and $ 10m respectively. XYZ's return equity (ROE) is closest to:

a)

	a.	25%
	b.	15% b)
	c.	30% c)
	d.	20%

Question 4

1.

Fill up the missing figures (??) in the following statement in order to estimate the After Tax Cash Flow.

Net Sales =	500
- COGS =	??
Gross Margin=	370
Non-Cash Expense=	??
Cash Expenses=	200
EBIT =	120
- Int Expense=	10
Taxable Income =	110
-Taxes @ 30% =	??
Net Income =	??
+ Non-Cash Exp =	??
After Tax Cash Flow=

According your calculation the after Cash Flow is:

	a.	144
	b.	100
	c.	127
	d.	117

Question 5

1.

According to Professor Kalia, the best Capital Budgeting Method is:

		Discounted Payback (DPBK)
		Profitability Index
		Net Present Value (NPV)
		Internal Rate of Return (IRR)
		Simple Payback (SPBK)
		Avg Accounting Return (ARR)

Question 6

1.

After paying taxes at an average income tax rate of 25%, XYZ Corp just declared that it had a Net Income of $ 200m. This means ABC’s Before Tax Income was approximately:

	a.	250
	b.	270
	c.	150
	d.	200

Question 7

1.

Which on of the following statement is true regarding Price of a Bnd:

	a.	Market Interest Rate down - Bond Price down
	b.	Market Interest Rate up - Bond Price down
	c.	Market Interest Rate up - Bond Price up
	d.	Market Interest Rate has no effect on the Price of a Bond

Question 8

1.

In year ending 2010, ABC Corp had Total Asset of $ 523m, Total Debt of $367m, EBIT of $ 422m and Interest Expenses of $98m. Calculated values of Leverage Ratios are listed as answer and name of the ratios as questions. Your task is to match the each Answers with the appropriate Question.

Total Debt Ratio (TD/TA)=? Debt to Equity (TD/TE) Ratio=? Equity Multiplier (EM)=? Times Interest Earned (TIE) Ratio=?

Answer A. 3.35 B. 4.31 C. 2.35 D. 0.70

Question 9

1.

ABC Corporation just paid a dividend of $ 2.00 per share. A Wall Street Analyst predicts that the current dividend is likely to increase at constant rate of 8% per year for indefinite period. An investor wants to make a minimum return of 12% by investing in Shares of ABC. If sells these shares after one year, his capital gain yield % would be:

		20.00%
		4.00%
		12.00%
		8.00%

Question 10

1.

The Price of a 8% Bond with remaining maturity of 8 years and a face value of $1,000 would change by what % if the market interest rate suddenly goes up from 10% t0 15%?

	a.	+ 24%
	b.	-50%
	c.	-24 %
	d.	-31%

Question 11

1.

1. ABC Corporation just paid a dividend of $ 2.00 per share. A Wall Street Analyst predicts that the current dividend is likely to increase at constant rate of 8% per year for indefinite period. An investor wants to make a minimum return of 12% by investing in Shares of ABC. If sells these shares after one year, his Dividend yield % would be:

	a.	4.00%
	b.	20.00%
	c.	8.00%
	d.	12.00%

Question 12

1.

1. Net Fixed Assets (NFA) of ABC Corp for the two consecutive years are listed below in a Table:

ABC Corp Net Fixed Assets (NFA)

YR NFA

2008 $ 2.6 m

2009 $ 3.0 m

ABC’s 2009 Income Statement shows Depreciation of $ 88,000. This means ABC’s

Net Capital Spending (NCAPEX) for year 2009 was:

	a.	$ 312,000
	b.	$ 3.000,000
	c.	400,000
	d.	$ 488,000

Question 13

1.

A Corporate Bond with 10% Coupon Rate and remaining maturity of 6 years is currently selling for $ 1,130. This is a Callable Bond in 2 years time. If called the issuer will pay the face value of Bond, $1,000, plus 10% of the face value. Your best friend wants to buy this Bond and plans to hold it for 3 years at the end of which he would sell it for $1,050. Various calculated Bond Yields are listed as Answer along with name of each type of yield as questions. Your task is to match the appropriate Answer with Question.

Yield to Maturity (YTM)=? Yield to Call (YTC)=? Yield to Holding Period (YTH)=? Curr Yield =?

Answer A. 8.85% B. 5.45% C. 7.90% D. 6.68%

Question 14

1.

Which one of the following Bonds is a Tax free Bond:

	a.	3.5% Treasury Bond with Maturity of 20 years
	b.	7% Corporate Bond with maturity of 15 years
	c.	6% Callable Corporate Bond
	d.	5% State Revenue Bond with maturity of 12 years

Question 15

1.

In a country experiencing relatively high inflation rate of 20% per year, the nominal Interest Rate is 24%. This means the exact real interest rate is:

	a.	4.0%
	b.	3.3%
	c.	24.0%
	d.	103.3%

Question 16

1.

ABC Corp just issued 8% Coupon Bonds, with maturity of 10 years, worth $ 20m under Sinking Fund Provision that requires thatABC must put aside at the end of each year $X in an investment vehicle earning at 6% per year for orderly retirement of these Bonds. According to your calculation X is equal to:

	a.	$ 2.0m
	b.	$1.88m
	c.	$2.12m
	d.	$1.52m

Question 17

1.

1. Estimated Cash Flows for a Construction Truck that ABC Corp is considering to buy are given below:

Yr	Adjusted CF
0	$ (500.00)
1	$ 175.00
2	$ 175.00
3	$ 175.00
4	$ 225.00

Note: ABC’s Policy is to use a Discount Rate of 15%

The Discounted Payback for the Construction Truck is:

a)

	a.	3.10
	b.	3.14 c)
	c.	1.14
	d.	2.86 b)

Question 18

1.

Name of a Bond that never mature is:

	a.	Zero Coupon Bond
	b.	Term Bond
	c.	Console
	d.	Non-Callable Bond

Question 19

1.

ABC Corp just paid a dividend of $ 2.75 per share. The future dividends are expected to grow at a constant rate of 6.5% forever. If the investors’ require a return of 15%, the price per share at the end of 5 years will be:

	a.	$13.62
	b.	$47.21
	c.	$34.46
	d.	$73.22

Question 20

1.

1. A new proposed project, with a life of 5 years, has following per year estimates:

Net Sales = $ 877,000

Variable Expenses = 60% of Net Sales

Fixed Cost = $ 550,000

Depreciation = $ 87,000

Tax Rate = 35%

According to your calculations, the estimated A0fter Tax Cash flow per year is:

	a.	$ 84,470
	b.	$258,470
	c.	$ 350,800
	d.	$ 171,470

Question 21

1.

It is a Cardinal Rule of Capital Budgeting that:

	a.	Ignoring Interest Expenses makes the Capital Budgeting Process ineffective.
	b.	The Interest Expenses are sometimes included in the Estimation of Cash Flows
	c.	The Interest Expenses are always included in the Estimation of Cash Flows
	d.	The Interest Expenses are never included in the Estimation of Cash Flows

Question 22

1.

Capital Intensity Ratio (CIR) of a Firm is 1.20. Currently the Firm is operating at Full Capacity. Marketing Department has indicated that Sales for the next year is going to increase by 10% from current level of $100m per year. This means firms would need additional assets worth approximately:

	a.	$ 12 m
	b.	$ 120 m
	c.	$ 5 m
	d.	$ 20 m

Question 23

1.

XYZ Corp has a Debt to Equity ratio of 0.4, Profit Margin of 10% and Total Asset Turnover of 1.35. This means XYZ has a Return on Equity of:

	a.	13.5%
	b.	10%
	c.	18.9 %
	d.	54.0%

Question 24

1.

Your Uncle wants to buy a Home selling for $ 250,000 in the Worcester County by making a required down payment of 20% and financing the balance from a Friendly Bank in Worcester at a fixed rate of 3.99% over 30 years with monthly payments. Your Uncle needs your help in figuring out his monthly payments. According to your calculation your monthly payments would be:

	a.	$ 954
	b.	$ 556
	c.	$ 665
	d.	$ 7,016

Question 25

1.

If the investors’ required rate of return is 14.5%, then price of a preferred Stock that pays Dividend of $ 12,00 per year per share must be:

	a.	$ 63.85
	b.	$ 82.75
	c.	$ 99.26
	d.	$ 27.45