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What happens to the value of nominal interest rate in the economy when the Federal

Question: What happens to the value of nominal interest rate in the economy when the Federal Reserve buys government securities? What happens in the AD-AS model when the Federal Reserve buys government securities?What happens to the value of nominal interest rate in the economy when the Federal Reserve buys government securities? What happens in the AD-AS model when the Federal Reserve buys government securities?
100% (1 rating)Therefore, OMO has a direct effect on money supply. OMO also affects interest rates because if the Fed buy…View the full answer

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Future Value Assignment | Homework For You high school essay help

Find the future value of $300 at 8% compounded quarterly for 7 years. Round to the nearest cent.Get Finance homework help today

Project’s Net Present Value Analysis Assignment | Homework For You high school essay help

What happens to the value of nominal interest rate in the economy when the Federal

Question 40 A corporation is considering funding a potential investment project by using debt only. The project’s initial cash flow projections were developed without considering how the project would be financed. Assuming the corporation decides to use only debt financing, then the project’s net present value analysis most likely should:
not be adjusted to reflect the effect of the project’s all-debt funding on the cash flow or on the discount rate.
be adjusted by altering the discount rate used to reflect that only debt financing is used.
be adjusted by changing the projected cash flows to reflect the interest cost of debt. Get Finance homework help today

Busn 379 Week 6 Course Project Rubric Part 2 Due At The End Of college essay help service

BUSN 379 Week 6

Course Project Rubric

Part 2 Due at the end of Week 6

Task 4 Capital Budgeting

Compute the NPV and IRR of a project and make recommendations based on calculations

1. What is the project’s IRR?

2. What is the project’s NPV?

3. Should the company accept this project and why

4. Explain how depreciation will affect the present value of the project.

Analyze factors affecting the capital budgeting process

Examples of sunken cost, opportunity cost and erosion

Describe project risks and analysis

Explain how you would conduct a scenario and sensitivity analysis of the project. What would be some project-specific risks and market risks related to this project?

Task 5 Cost of Capital

Calculate the WACC and describe methods for computing the cost of capital

1. What is the YTM of the competitor’s bond? You may use a number of sources, but we recommend Morningstar. Find the YTM of one 15 or 20 year bond with the highest possible creditworthiness. You may assume that new bonds issued by AirJet Best Parts, Inc. are of similar risk and will require the same return.

What is the after-tax cost of debt if the tax rate is 34%?

Explain what other methods you could have used to find the cost of debt for AirJet Best Parts Inc.

Explain why you should use the YTM and not the coupon rate as the required return for debt.

2. What is the cost of common equity?

Explain the advantages and disadvantages to use the CAPM model as the method to compute the cost of common equity. Compare and contrast this method with the dividend growth model approach. (10 pts)

3. What is the cost of preferred equity?

Is there any other method to compute this cost? Explain.

4. Assuming that the market value weights of these capital sources are 30% bonds, 60% common equity and 10% preferred equity, what is the weighted cost of capital of the firm?

5. Should the firm use this WACC for all projects? Explain and provide examples as appropriate.

6. Recompute the net present value of the project based on the cost of capital you found. Do you still believe that your earlier recommendation for accepting or rejecting the project was adequate? Why or why not?

Busn 379 Week 4 Midterm Exam 100 All Answers Page 1 Question college essay help service

BUSN 379 Week 4 Midterm Exam ***100% All correct answers***

Page: 1

1. Question : (TCO 1) Which one of the following actions best matches the primary goal of financial management?

increasing the net working capital while lowering the long-term asset requirements

improving the operating efficiency, thereby increasing the market value of the stock

increasing the firm’s market share

reducing fixed costs and increasing variable costs

increasing the liquidity of the firm by transferring short-term debt into long-term debt

Points Received: 3 of 3

Comments:

2. Question : (TCO 1) When analyzing alternative capital structures for a firm, a financial manager must consider which of the following?

type of loan

amount of funds needed

cost of funds

mix of debt and equity

all of the above

Points Received: 3 of 3

Comments:

3. Question : (TCO 1) Book values are different from market values because:

Book values reflect the value of the asset based on generally-accepted accounting principles.

Book values are used in the company’s balance sheet.

Book values do not reflect the amount someone is willing to pay today for an asset.

All of the above

None of the above

Points Received: 3 of 3

Comments:

4. Question : (TCO 1) The income statement reflects:

Income and expenses at the time when those items affect the cash flows of a firm.

Income and expenses in accordance with GAAP.

The cash flows in accordance with GAAP.

The flow of cash into and out of a firm during a stated period of time.

The flow of cash into and out of a firm as of a particular date.

Points Received: 3 of 3

Comments:

5. Question : (TCO 1) Tato’s Pizza has sales of $625,000. They paid $43,000 in interest during the year and depreciation was $79,000. Administrative costs were $100,000 and other costs were $160,000. Assuming a tax rate of 35 percent, what is Tato’s Pizza net income?

$157,950

$322,000

$243,000

$200,000

Points Received: 3 of 3

Comments:

6. Question : (TCO 1) Home Best Hardware had $315,000 in taxable income last year. Using the tax rates provided in Table 2.3, what are the company’s income taxes?

$122,850

$106,100

$94,500

None of the above

Points Received: 3 of 3

Comments:

7. Question : (TCO 1) Pizza A had earnings after taxes of $600,000 in the year 2008, and 300,000 shares outstanding. In year 2009, earnings after taxes increased to $750,000, and 25,000 new shares were issued for a total of 325,000 shares. What is the EPS figure for 2008?

$2.0

$2.21

$0.50

$0.47

Points Received: 3 of 3

Comments:

8. Question : (TCO 1) An income statement:

reveals the net cash flows of a firm over a stated period of time.

reflects the financial position of a firm as of a particular date.

shows the revenue and expenses based upon selected accounting methods.

records revenue only when cash is received for the product or service provided.

records expenses based on the recognition principle.

Points Received: 3 of 3

Comments:

9. Question : (TCO 1) Green Leaf Nursery has EBIT of $250,000, interest of $30,000, taxes of $50,000, and depreciation of $80,000. What is the company’s operating cash flow?

$297,200

$280,000

$340,000

$270,000

$250,000

Points Received: 3 of 3

Comments:

10. Question : (TCO 3) Mark deposited $1,000 today, in an account that pays eight percent interest, compounded semi-annually. Which one of the following statements is correct concerning this investment?

Mark will earn more interest in year 4 than he will in year 3.

Mark will receive equal interest payments every six months over the life of the investment.

Mark would have earned more interest if he had invested in an account paying 8 percent simple interest.

Mark would have earned more interest if he had invested in an account paying annual interest.

Mark will earn less and less interest each year over the life of the investment.

Points Received: 3 of 3

Comments:

11. Question : (TCO 3) Mr. Smith will receive $8,500 a year for the next 14 years from a contract. If the interest rate on this investment is eight percent, what is the approximate current value of these future payments?

$70,070

$53,500

$110,200

$96,700

Points Received: 3 of 3

Comments:

12. Question : (TCO 3) KED Engineering acquired an additional business unit for $310,000. The seller agreed to accept annual payments of $67,000 at an interest rate of 6.5 percent. How many years will it take KED Engineering to pay for this purchase?

4.70 years

5.68 years

6.21 years

7.84 years

8.12 years

Points Received: 3 of 3

Comments:

13. Question : (TCO 3) Fine Oak Woodworks is considering a project that has cash flows of $6,000, $4,000, and $3,000 for the next three years. If the appropriate discount rate of this project is 10 percent, which of the following statements is false?

The current value of the project’s inflows is $13,000

The approximate current value of the project’s inflows is $11,000

The project’s inflows are higher than zero

The project should be accepted because its present value is positive

Points Received: 3 of 3

Comments:

14. Question : (TCO 4) You are considering two investments. Investment I is in a software company, and Investment II is an engineering company. The investments offer the following cash flows:

Year Software Company Engineering Company

1 $5,000 $15,000

2 $3,000 $8,000

3 $4,000 $9,000

4 $3,600 $11,000

If the appropriate discount rate is 10 percent, what is the approximate present value of the Engineering Company investment?

$33,200

$34,500

$42,000

$43,500

Points Received: 3 of 3

Comments:

15. Question : (TCO 3) North Bank offers you an APR of 9.76 percent compounded semiannually, and South Bank offers you an effective rate of 9 percent on a business loan. Which bank should you choose and why?

South Bank because its effective rate is higher.

North Bank because the APR is lower.

South Bank because its effective rate is lower.

North Bank because its effective rate is lower.

Points Received: 3 of 3

Comments:

Page: 2

1. Question : (TCO 3) Which one of the following will increase the future value of a lump sum invested today?

decreasing the amount of the lump sum

increasing the rate of interest

paying simple interest rather than compound interest

paying interest only at the end of the investment period

shortening the investment time period

Points Received: 3 of 3

Comments:

2. Question : (TCO 3) Which one of the following best exemplifies a perpetuity?

a mortgage of $860 a month for 30 years

$2,000 annual payments from a trust fund indefinitely

social security payments of $2,500 a month for life

student loan payments of $600 a month for three years

$250 a month over the life of a lease

Points Received: 3 of 3

Comments:

3. Question : (TCO 3) Fanta Cola has $1,000 par value bonds outstanding at 12 percent interest. The bonds mature in 25 years. What is the current price of the bond if the YTM is 11 percent? Assume annual payments.

$1080

$1085

$925

$1000

Points Received: 3 of 3

Comments:

4. Question : (TCO 6 and 8) A bond’s debenture will include which of the following?

description of any loan collateral

call provisions

total amount of the bond issue

protective covenants

all of the above

none of the above

Points Received: 3 of 3

Comments:

5. Question : (TCO 3) Bonds issued by Blue Sky Airlines have a face value of $1,000 and currently sell for $850. The annual coupon payments are $80. If the bonds have 10 years until maturity, what is the approximate YTM of the bonds?

10.50%

11.50%

11.75%

12%

Points Received: 3 of 3

Comments:

6. Question : (TCO 3) The preferred stock of Bean Coffee pays an annual dividend of $5.60. It has a required rate of return of eight percent. What is the price of the preferred stock?

$700

$70

$5.20

$6.05

None of the above

Points Received: 3 of 3

Comments:

7. Question : (TCO 3) Intelligence Research, Inc. will pay a common stock dividend of $1.60 at the end of the year. The required rate of return by common stockholders is 13 percent. The firm has a constant growth rate of nine percent. What is the current price of the stock?

$35

$40

$27

$29

Points Received: 3 of 3

Comments:

8. Question : (TCO 3) Royal Electric paid a $4 dividend last year. The dividend is expected to grow at a constant rate of six percent over the next four years. Common stockholders require a 13 percent return. What are the values of the dividends for years 1, 2 and 3, respectively?

$4, $4.5 and $4.8

$4.24, $4.76 and $5.05

$4.24, $4.49, $4.76

$4, $4.50, $5.05

Points Received: 3 of 3

Comments:

9. Question : (TCO 6) The market where new securities are offered is called the _____ market.

primary

main

secondary

principal

dealer

Points Received: 3 of 3

Comments:

10. Question : (TCO 6) The smallest firms listed on NASDAQ are in the NASDAQ _____ Market.

National

Capital

Regional

Global Select

Global

Points Received: 3 of 3

Comments:

11. Question : (TCO 6) The yield to maturity on a bond is:

equal to the coupon rate divided by the current market price.

another name for the current yield.

equal to the annual interest divided by the face value.

the current required market rate.

another name for the coupon rate.

Points Received: 3 of 3

Comments:

12. Question : (TCO 6) A call provision in a bond agreement grants the issuer the right to:

repurchase the bonds prior to maturity at a pre-specified price.

replace the bonds with equity securities.

repurchase the bonds, after maturity at a pre-specified price.

change the coupon rate, provided the bondholders are notified in advance.

buy back the bonds on the open market prior to maturity.

Points Received: 3 of 3

Comments:

13. Question : (TCO 8) Which of the following is true regarding bonds?

Bonds do not carry default risk.

Bonds are sensitive to changes in the interest rates.

Moody’s and Standard and Poor’s provide information regarding a bond’s interest rate risk.

Municipal bonds are free of default risk.

None of the above is true

Points Received: 3 of 3

Comments:

14. Question : (TCO 6) Which of the following is not a floating-rate bond?

A bond that adjusts the coupon payments based on an interest rate index, such as the T-bill.

An EE Savings Bond issued by the U.S. government.

A bond that does not have any coupons until maturity.

A bond that adjusts the coupon and face value payment based on inflation.

TIPS

Points Received: 3 of 3

Comments:

15. Question : (TCO 6) Which of the following is true regarding convertible bonds? Select all that apply:

Are relatively common

Can be exchanged for a fixed number of shares at maturity only

Can be exchanged for a fixed number of shares before maturity

Allow the holder to require the issuer to buy the bond back

Points Received: 3 of 3

Comments:

Page: 3

1. Question : (TCO 1) In a general partnership, each partner is personally liable for:

the partnership debts that he or she personally obtained for the firm.

his or her proportionate share of all partnership debts, regardless of which partner incurred that debt.

the total debts of the partnership, even if he or she was unaware of those debts.

the debts of the partnership, up to the amount he or she invested in the firm.

all personal and partnership debts incurred by any partner, even if he or she was unaware of those debts.

Points Received: 3 of 3

Comments:

2. Question : (TCO 1) Trademarks are classified as:

short-term assets.

current liabilities.

long-term debt.

tangible fixed assets.

intangible fixed assets.

Points Received: 3 of 3

Comments:

3. Question : (TCO 1) Can you provide some examples of recent, well-known unethical behavior cases? Explain the situation in one or two sentences.

Points Received: 8 of 8

Comments:

4. Question : (TCO 3) How can we apply the concept of time value of money in evaluating a mortgage? Present at least two scenarios. Briefly explain your rationale.

Points Received: 8 of 8

Comments:

5. Question : (TCO 8) Are U.S. Treasury securities risk-free? Why or why not? Explain your rationale?

Points Received: 8 of 8

Comments:

6. Question : (TCO 6) What are some of the features of zero-coupon bonds that make them attractive to certain investors? Which type of investors will be most interested in these bonds?

Points Received: 10 of 10

Comments:

Busn 379 Question 6 & 7 This Is 30 In The Text Information college essay help service

BUSN 379 Question 6 & 7

This is problem 30 in the text (information from this problem is needed to answer the questions I need to answer)

(only answer what is in red)

The market risk premium is 11 percent, an the risk-free rate is 4 percent. Which stock has the most systematic risk?

Which one has the most unsystematic risk? Which stock is “riskier”? Explain.

Assume that the probability of the state of the economy has changed as follows:

The probability of the recession has increased to 30% and the probability for an normal state of economy is now 40%.

The market risk premium has increased by 1% as well. What is the standard deviation of the stock 1 and 2 respectively?

The probability of a recession has increased to 30% and the probability for normal state of economy is now 40%.

The market risk premium has increased by 1% as well. Which state is true? Select all that apply:

Busn 379 Week 5 100 All Answers 1 Question Tco 8 Over The Period college essay help service

BUSN 379 Week 5 ***100% All correct answers***

1. Question : (TCO 8) Over the period of 1955-2006:

long-term government bonds underperformed large corporate stocks.

small-company stocks underperformed large-company stocks.

inflation exceeded the rate of return on U.S. Treasury bills.

U.S. Treasury bills outperformed long-term government bonds.

Points Received: 3 of 3

Comments:

2. Question : (TCO 8) Which of the following is true regarding the efficient market hypothesis?

It argues that efficient markets are not volatile throughout a trading day.

It suggests that an efficient market can only consider historical information when determining current security prices.

It proves that market inefficiencies do not exist in either the short-run or the long-run.

It implies that all investments in an efficient market have a net present value of zero.

Points Received: 3 of 3

Comments:

3. Question : (TCO 8) Which of the following factors will affect the expected rate of return on a security? Select all that apply:

multiple states of the economy

probability of occurrence for any one economic state

market rate of return given a particular economic state

security beta

Points Received: 4 of 4

Comments:

4. Question : (TCO 8) Assume a project that has the following returns for years 1 to 5: 15%, 4%, -13%, 34%, and 17%. What is the approximate expected return of this investment?

11%

17%

16.60%

10%

Points Received: 3 of 3

Comments:

5. Question : (TCO 8) Assume you are considering investing in two stocks, A & B. Stock A has an expected return of 16% and Stock B has an expected return of 9.5%. Your goal is to create a two-security portfolio that will have an expected return of 12%. If you have $250,000 to invest today, approximately how much would you invest in Stock A?

$96,000

$150,000

$75,000

More than $200,000

Points Received: 3 of 3

Comments:

6. Question : (TCO 8) For this exercise, use the information provided for Problem 30 of Chapter 11 (page 375 of your textbook). Assume that the probability of the state of the economy has changed as follows:

The probability of a recession has increased to 30% and the probability for a normal state of economy is now 40%. The market risk premium has increased by 1% as well. What is the beta of Stock I and II respectively?

0.6 and 1.2

1.2 and 0.6

1.2 and 0.4

Cannot be determined with the information given

Points Received: 3 of 3

Comments:

7. Question : (TCO 8) For this exercise, use the information provided for Problem 30 of Chapter 11 (page 375 of your textbook). Assume that the probability of the state of the economy has changed as follows:

The probability of a recession has increased to 30% and the probability for a normal state of economy is now 40%. The market risk premium has increased by 1% as well. Which statement is true? Select all that apply:

Stock II has more risk than Stock I

Stock II has less systematic risk than Stock I

Stock I has a lower risk premium than Stock II

Stock I has a lower expected return than Stock II

Points Received: 4 of 4

Comments:

8. Question : (TCO 8) Which statements are false regarding risk? Select all that apply:

The expected return is always the same as the actual return

A key to assessing risk is determining how much risk an investment adds to a portfolio

Risks can always be diversified

The higher the risk, the higher the return investors require for the investment

Points Received: 4 of 4

Comments:

9. Question : (TCO 8) What is systematic risk? Provide two or three examples. How can you diversify it?

Points Received: 3 of 3

Comments:

Busn 379 Week 1 100 All Answers Question Tco Why Is Maximization college essay help service

BUSN 379 Week 1 ***100% All correct answers***

1. Question : (TCO 1) Why is maximization of the current value per share a more appropriate financial management goal than profit maximization?

Because by maximizing the current stock value you also maximize the company’s profit for the year.

Because this criterion is non-ambiguous.

Because financial managers always act in the best interest of shareholders.

B and C

Points Received: 3 of 3

Comments:

2. Question : (TCO 1) Market value is important to the financial manager because:

It reflects the value of the asset based on generally-accepted accounting principles.

Is a crucial component of the balance sheet and can impact the financial statements.

Market values reflect the amount someone is willing to pay today for an asset.

The market value of an asset reflects its historical cost.

Points Received: 3 of 3

Comments:

3. Question : For this question, use the information for Sports Baseballs, Inc. Sports Baseballs, Inc. is a corporation that manufacturers and sells baseballs across several states in the Southeast. It had sales of $2.7 million during the last year. Expenses were as follows:

Cost of goods sold…………………………. $1.2 million

Administrative expenses…………………… $250,000

Marketing and selling expenses…………… $175,000

Depreciation…………………………………. $500,000

Interest expense……………………………. $200,000

Dividends paid………………………………. $150,000

(TCO 1) Suppose that Sports Baseball has 30,000 shares of stock. What is the dividends per share figure?

5.0

8.75

5.25

8.50

Points Received: 3 of 3

Comments:

4. Question : For this question, use the information for Sports Baseballs, Inc. Sports Baseballs, Inc. is a corporation that manufacturers and sells baseballs across several states in the Southeast. It had sales of $2.7 million during the last year. Expenses were as follows:

Cost of goods sold…………………………. $1.2 million

Administrative expenses…………………… $250,000

Marketing and selling expenses…………… $175,000

Depreciation…………………………………. $500,000

Interest expense……………………………. $200,000

Dividends paid………………………………. $150,000

(TCO 1) Assuming a tax rate of 30%, the percentage of dividends per net income is approximately ______ and operating cash flow is _________ than net income.

Hint: You need to calculate the net income and divide dividends by the net income.

30% and lower

60% and lower

30% and higher

60% and higher

Points Received: 3 of 3

Comments:

5. Question : For this question, use the information for Sports Baseballs, Inc. Sports Baseballs, Inc. is a corporation that manufacturers and sells baseballs across several states in the Southeast. It had sales of $2.7 million during the last year. Expenses were as follows:

Cost of goods sold…………………………. $1.2 million

Administrative expenses…………………… $250,000

Marketing and selling expenses…………… $175,000

Depreciation…………………………………. $500,000

Interest expense……………………………. $200,000

Dividends paid………………………………. $150,000

(TCO 1) Select all items that will be included in Sports Baseballs, Inc. Balance Sheet. For this exercise you will be choosing more than one option for your answer:

Cash on hand

Fixed assets

Net sales

Administrative expenses

Taxes

Long-term debt

Dividends paid

Marketing expenses

Consulting revenues

Points Received: 3 of 3

Comments:

6. Question : (TCO 1) Which one of the following activities best exemplify working capital management. For this exercise you will be choosing more than one option for your answer:

Identify three good investment opportunities for the firm.

Obtain a short-term loan to purchase materials.

Assess the level of inventory to be kept on hand.

Sale long-term bonds to raise funds for a new machine.

Determine the return of a potential project.

Calculate the cash flows for a project.

Manage payments to suppliers.

Points Received: 6 of 6

Comments:

7. Question : (TCO 1) Match the following terms with the examples as appropriate:

: Insider trading »

: Social responsibility »

: Sarbanes-Oxley Act »

: Fraud

: Antitrust case »

Points Received: 4 of 4

Comments:

8. Question : (TCO 1) Can you provide some examples of recent well-known unethical behavior cases? Explain the situation in one or two sentences.

Points Received: 5 of 5

Comments:

Busn 379 Week 8 Final Exam Page 1 Tco 4 Which Of The Following college essay help service

BUSN 379 – Week 8 : Final Exam

page 1

1. (TCO 4) Which of the following is true regarding the evaluation of projects? (Points : 4)

sunk costs should be included

erosion effects should not be considered

financing costs are not included

opportunity costs are irrelevant

2. (TCO 4) There are several disadvantages to the payback method, among them: (Points : 4)

payback ignores cash flows beyond the cutoff.

payback can be used in conjunction with time adjusted methods of evaluation.

payback is easy to use and to understand.

none of the above is a disadvantage.

3. (TCO 3 and 4) You can ensure that an investment is expected to create value for (Points : 4)

have a PI equal to zero.

produce negative rates of return.

have positive AARs.

have positive IRRs.

have positive NPVs.

4. (TCO 3 and 4) What is the net present value of a project with the following cash flows, if the discount rate is 15 percent?

Year 0 1 2 3 4

Cash flow -$45,000 $11,520 $13,630 $16,470 $18,990

(Points : 4)

-$2,989.48

-$2,599.55

$1,153.37

$2,880.08

$3,312.09

5. (TCO 4) Leward Manufacturing is spending $115,000 to update its equipment. This is necessary if the firm wishes to be competitive in the marketplace and provide a wide array of product models. The company estimates that these updates will improve its cash inflows by $27,500 a year, for eight years. What is the payback period? (Points : 4)

4.18 years

5.82 years

6.62 years

7.79 years

This project never pays back

6. (TCO 4) The postponement of a project until conditions are more favorable: (Points : 4)

is not a valuable option.

is referred to as the option to extend.

could cause a negative net present value project to become a positive net present value project.

will generally cause the internal rate of return for a project to decline.

7. (TCO 4) ____________, refers to the situation a firm faces when it has positive net present value projects, but cannot obtain financing for those projects. (Points : 4)

capital planning.

soft rationing.

capital rationing.

hard rationing.

a sunk cause.

8. (TCO 3 and 4) ABC Cameras is considering an investment that will have a cost of $10,000 and the following cash flows: $6,000 in year 1, $4,000 in year 2 and $3,000 in year 3. Assume the cost of capital is 10%. Which of the following is true regarding this investment? (Points : 4)

The net present value of the project is $11,000

This project should be accepted because it has a negative net present value

This project should be accepted because it has a payback higher than 3 years

The net present value of the project is close to $1,000

9. (TCO 4) Assume Company X plans to invest $60,000 in new computers. Using Tables 9.6 and 9.7 of your textbook (Page 277), which is the first year depreciation amount under MACRS? (Points : 4)

$12,000

$8,575

$19,800

None of the above

10. (TCO 1 and 4) Assume a project has earnings before depreciation, and taxes of $110,000, depreciation of $40,000, and that the firm has a 30 percent tax bracket. What are the after-tax cash flows for the project? (Points : 4)

$47,000

$89,000

a loss of $21,000

none of these

11. (TCO 8) Which of the following statements is true regarding systematic risk? (Points : 4)

is diversifiable

is the total risk associated with surprise events

it is measured by beta

it is measured by standard deviation

12. (TCO 8) Which statement is not true regarding risk? (Points : 4)

the expected return is always the same as the actual return

a key to assess risk is determining how much risk an investment adds to a portfolio

risks can not always be diversified

the higher the risk, the higher the return investors require for the investment

13. (TCO 8) The stock of Chocolate Galore is expected to produce the following returns, given the various states of the economy. What is the expected return on this stock?

State of Economy Probability of State of Economy Rate of Return

Recession .02 -.06

Normal .88 .11

Boom .10 .17

(Points : 4)

7.33 percent

9.82 percent

11.26 percent

11.33 percent

11.50 percent

14. (TCO 8) You own a portfolio that consists of $8,000 in stock A, $4,600 in stock B, $13,000 in stock C, and $5,500 in stock D. What is the portfolio weight of stock A? (Points : 4)

14.79 percent

15.91 percent

18.42 percent

19.07 percent

25.72 percent

15. (TCO 8) You currently own a portfolio valued at $24,000 that has a beta of 1.1. You have another $8,000 to invest, and would like to invest it in a manner such that the risk of the new portfolio matches that of the overall market. What does the beta of the new security have to be? (Points : 4)

.46

.55

.61

.70

.90

page 2

1. (TCO 8) Company insiders cannot earn excess profits based on the knowledge they have related to their employer if the financial markets are: (Points : 4)

weak form efficient.

strong form efficient.

semistrong form efficient.

efficient at any level.

aware that the trader is an insider.

2. (TCO 5) Royal Petroleum Co. can buy a piece of equipment that can be financed with debt at a cost of 9 percent (after-tax) and common equity at a cost of 16 percent. Assume debt and common equity each represent 50 percent of the firm’s capital structure. What is the weighted average cost of capital? (Points : 4)

between 4.5% and 8%

more than 13%

between 12 and 13%

between 13 and 14%

none of the above

3. (TCO 5, 6 and 7) An issue of common stock is expected to pay a dividend of $4.80 at the end of the year. Its growth rate is equal to eight percent. If the required rate of return is 13 percent, what is its current price? (Points : 4)

$103.68

$36.92

$96.00

none of these

4. (TCO 5, 6 and 7) Which of the following is true regarding the cost of debt? (Points : 4)

It is the same as cost of equity.

It is the interest rate that the firm pays on current/existing borrowing.

An appropriate method to compute the cost of debt is using the YTM of current bonds outstanding.

All of the above are true.

5. (TCO 5) Which of the following is not true regarding the cost of retained earnings? (Points : 4)

it is relevant to the WACC

does not require new funds to be raised

has associated flotation costs

has a cost, which is the opportunity cost associated with stockholder funds

6. (TCO 4) A project has the following cash flows. What is the internal rate of return?

Year 0 1 2 3

Cash flow -$195,600 $99,800 $87,600 $75,300

(Points : 4)

less than 5%

between 5 and 15%

between 15 and 18%

more than 21%

7. (TCO 5, 6 and 7) Which one of the following is a correct statement regarding a firm’s weighted average cost of capital (WACC)? (Points : 4)

the WACC can be used as the required return for all new projects.

the WACC of a leveraged firm will decrease when the tax rate decreases.

an increase in the market risk premium will tend to decrease a firm’s WACC.

the WACC is a starting point for the subjective approach to setting discount rates.

a reduction in the risk level of a firm will tend to increase the firm’s WACC.

8. (TCO 5, 6 and 7) The six percent preferred stock of FKH Manufacturing is selling for $62 a share. What is the firm’s cost of preferred stock, if the tax rate is 34 percent and the par value per share is $100? (Points : 4)

5.98%

7.06%

8.05%

9.68%

10.10%

9. (TCO 2) Which one of the following statements is true concerning a bankruptcy? (Points : 4)

a Chapter 7 bankruptcy is a reorganization proceeding.

a “prepack” is intended to shorten the time a firm spends in bankruptcy.

the absolute priority rule applies to both Chapter 7 and Chapter 11 bankruptcy proceedings, and must be adhered to by the courts.

creditors cannot force a firm into bankruptcy, even though they might like to do so.

a reorganization plan, can only be approved if the firm’s creditors all agree with the plan.

10. (TCO 5) Which of the following statements is false regarding the cost of capital? (Points : 4)

The cost of capital should consider the flotation costs.

All other being equal, it is preferable to use market value weights than book value weights.

The WACC is the most appropriate discount rate for all projects.

Should include the cost of retained earnings.

11. (TCO 2) Select any actions that do not affect the cash account. (Points : 4)

Goods are sold cash

An interest payment on a notes payable is made

A payment due is received from a client

Dividends are paid to shareholders

Inventory is purchased and paid for with credit

12. (TCO 2) Which of the following statements is true? (Points : 4)

Firms should avoid offering credit at all cost.

An increase in a firm’s average collection period generally indicates that an increased number of customers are taking advantage of the cash discount.

The costs of the credit application process and the costs expended in the collection process are carrying costs of granting credit.

Character, refers to the ability of a firm to meet its credit obligations out its operating cash flows.

The optimal credit policy, is the policy that produces the largest amount of sales for a firm.

13. (TCO 2) All else constant, a decrease in the accounts receivable period will: (Points : 4)

lengthen the accounts payable period.

shorten the inventory period.

lengthen the operating cycle.

shorten the cash cycle.

shorten the accounts payable period.

14. (TCO 2) The Yellow Box has the following estimated quarterly sales for next year. The accounts receivable period is 45 days. What is the expected accounts receivable balance at the end of the third quarter? Assume each month has 30 days.

Q1 Q2 Q3 Q4

Sales $1,200 $1,400 $1,800 $1,700

(Points : 4)

$600

$750

$900

$1,050

$1,200

15. (TCO 1) Why is maximization of the current value per share a more appropriate financial management goal than profit maximization? (Points : 4)

Because by maximizing the current stock value, you also maximize the company’s profit for the year.

Because this criterion is non-ambiguous.

Because financial managers always act in the best interest of shareholders.

Because it creates short-term gains in the financial statements.

page 4

1. (TCO 6) Which of the following is true regarding put bonds? (Points : 4)

Have coupons that depend on the company’s income

Can be exchanged for a fixed number of shares before maturity only

Can be exchanged for a fixed number of shares before maturity

Allow the holder to require the issuer to buy the bond back

2. (TCO 6 and 7) The document that outlines the covenants and duties existing between bondholders and the issuing corporation is called (Points : 4)

an indenture.

a debenture.

secured debt.

protective covenants.

3. (TCO 6) Company A has a bond outstanding with $90 annual interest payment, a market price of $820, and a maturity date in five years. Assume the par value to be $1,000. What is the bond’s yield to maturity? (Points : 4)

9%

14%

11%

Cannot be determined

None of the above

4. (TCO 2) Which of the following does not reduce collection float? (Points : 4)

consolidate all lockboxes into one lockbox, located near the home office.

consolidate all lockboxes into one lockbox, located far from the home office.

make sure all checks it receives are properly dated and signed.

utilize the benefits of the Check Clearing Act for the 21st Century.

5. (TCO 2) Storage and tracking costs, insurance and taxes, and losses due to theft are examples of: (Points : 4)

Inventory depletion costs

Sunk costs

Inventory costs

None of the above

6. (TCO 1) Recent announcements of massive layoffs have increased stock prices for certain companies. Critics argue that this reaction encourages companies to fire employees. Do you agree or disagree? (Points : 10)

7. (TCO 4) What is an opportunity cost? Provide two real-life examples of opportunity costs for a project. Should opportunity costs be included in the project analysis process? Why or why not? Explain your rationale. (Points : 10)

8. (TCO 8) What is the difference between business risk and financial risk? If Company A has a higher business risk than Company B, should its cost of capital be higher? Why or why not? Explain your rationale. (Points : 10)

9. (TCO 2) What are some important elements of the collection policy? (Points : 10)

10. (TCO 6 and 7) Consider the following statement: “In order to maximize value, all firms should maintain a 30/70 debt to equity ratio”. Do you believe this statement is correct? Explain your rationale. (Points : 10)

Busn 379 Week 2 100 All Answers 1 Question Tco 3 You Have Been college essay help service

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1. Question : (TCO 3) You have been approved for a $70,000 loan toward the purchase of a new home at 12% interest. The mortgage is for 30 years. How much are the approximately annual payments of the loan? Hint: Assume you pay yearly.

$2613

$8690

$5740

None of the above

Points Received: 3 of 3

Comments:

2. Question : (TCO 3) First Choice Bank pays 9% APR compounded quarterly on its business loans. National Emerald Bank pays 16% APR compounded daily. The EAR for First Choice and National Emerald Bank are:

9.31% and 17.35%, respectively

9% and 17.50%, respectively

9.31% and 17.50%, respectively

9% and 17.35%, respectively

Points Received: 3 of 3

Comments:

3. Question : (TCO 3) Computer Parts, Inc. is considering an investment that will have cash flows of $8,000, $7,000 and $4,000 for years 1 through 3. What is the approximate value of this investment today if the appropriate discount rate is 10% per year?

$24,250

$20,900

$16,060

None of the above

Points Received: 3 of 3

Comments:

4. Question : (TCO 3) You deposited $3,000 in your bank account today. An increase in which of the following will increase the future value of your deposit assuming that all interest is reinvested? Assume the interest rate is a positive value. Select all answers that apply:

interest rate

initial amount of your deposit

frequency of the interest payments

length of the investment period

Points Received: 4 of 4

Comments:

5. Question : (TCO 3) If you borrow $50,000 today at 10% interest for eight years. How much of your second payment will be applied to interest?

$5,000

$4,562

$4,809

can not be determined with the information given

Points Received: 3 of 3

Comments:

6. Question : (TCO 3) Match the following terms with the examples as appropriate:

: Pure discount loan

: Amortized Loan

: Interest-only Loan

: Treasury Bill

Points Received: 4 of 4

Comments:

7. Question : (TCO 3) You are interested in saving to buy a new machine that costs $387,120. You can deposit $32,805 in your bank today. If your bank pays 14% annual interest on its accounts, how long will it take you to save for the new machine?

about 19 years

about 5 years

about 12 years

Can not be determined

Points Received: 4 of 4

Comments:

8. Question : (TCO 3) How can we apply the concept of time value of money in evaluating a mortgage?

Points Received: 6 of 6

Comments:

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