Solved by verified expert :What’s the value of a preferred stock if we

assume it has an annual dividend $5

per share and the required rate of return is 20%? ______

$ 5

$ 10

$ 25

$ 100

How to

compute the real risk-free rate? ______

Equal

to nominal risk-free rate

Equal

to nominal risk-free rate plus the expected inflation rate

Equal

to nominal risk-free rate minus the expected inflation rate

By maximizing the net income of a firm we

will ensure that the price per share of

common stock is maximized, hence shareholders’ wealth will also be maxi-

mized._______

True

False

A firm

has $900 millions of current assets, including $300 millions of inventory. It

has $500 millions of current liabilities. What’s the firm’s quick ratio?

0.60

1.80

For a

discount bond, the coupon interest rate should be greater than its yield to

maturity. ______

True

False

1.40

1.20

A firm has a times interest earned

ratio of 2. This means that the firm has twice

as much _______

net

income as it owes in interest.

interest

expense as it does net income.

earnings

before interest and taxes as it does interest expense.

earnings

before interest and taxes plus depreciation as it does interest

expense.

If we assume a perpetuity pays $100

per year forever. What would the

perpetuity be worth if the required rate of return is 10%? ______

$100

$500

$1,000

$2,000

Under straight voting, each share of stock allows the

shareholder one vote, and

each position on the board of directors is voted on separately. But with

cumulative voting, each share of stock allows the stockholder a number of votes

equal to the number of directors being selected. So cumulative voting procedure

helps protect minority shareholders. _____True

False

You just inherited $10,000. You are

investing this money for two years at 10%

simple interest. In whole dollars, how much money will you have at the end of

the two years?

$10,500

$11,000

$12,025

F12,000

John purchased 1000 shares of

Facebook common stock at IPO. This transaction

occurs in the:

Primary

market.

Secondary

market.

Credit

market.

Money

market.

At maturity, the value of either

premium bond or discount bond is always equal

to its par value. ______

True.

False.

The percentage of a firm’s net

income which is transferred into retained earnings

is known as the _______.

Profit

margin

Dividend

payout ratio

Retention

ratio

Return

on equity

Theresa borrows $800 today in

exchange for one payment of $1,000 five years

from now. This is an example of a(n) ________

interest-only

loan

amortized

loan

pure

discount loan

quoted

rate loan

Project

selection ambiguity can arise if you rely on the internal rate of return

(IRR)

instead of the net present value (NPV) when

A

project’s cash flows are non-conventional.

There

are multiple IRRs.

Projects

are mutually exclusive.

All

of the above.

Which of

the following statements is most correct?______

Preferred

stockholders have claim priority over common stockholders.

A

big advantage of preferred stock is that preferred stock dividends are tax

deductible for the issuing corporation.

Preferred

stockholders have claim priority over bondholders.

None

of the above statements is correct.

Other

things held constant, for a given change in the market interest rate, the

_______the time to maturity of bond, the the change in the bond price.

longer;

smaller.

shorter;

larger.

longer;

greater.

When evaluating two

mutually-exclusive project, the best method to use is the:

internal

rate of return

net

present value

payback

rule

average

accounting return

What’s

the future value of the initial $1,000 investment after 20 years? We

assume the expected annual return is 8%_____

$4,078.23

$4,660.96

$4,810.15

$5,020.78.

What’s

the present value of the $1,000 due in 20 years (FV=$1,000)? We assume

current interest rate is 8%, compounded annually_____

$190.39

$205.14

$214.55

$365.67.

EA store

is offering a diamond ring for sale for 36 months at $135 per month.

The retail price of the ring is $3,900. What is the interest rate on this

offer?

13.8%

14.9%

15.5%

16.6%

What’s

the value of a 15-year, $1,000 par value, 9% coupon rate bond if the yield

to maturity (YTM) is 9%? ______

$800

$950

$1,000

$1,100

What’s

the value of a 15-year, $1,000 par value, 9% coupon rate bond if the yield to

maturity (YTM) increases to 12%? ______

$795.67

$813.26

$1,000

$1,123.15

Based on the information in Question

35, the bond is a: ______

Par

value bond

Discount

bond

Premium

bond

What’s the value of a 15-year,

$1,000 par value, 9% coupon rate bond if the yield

to maturity (YTM) decreases to 6%? ______

$916.23

$1000

$1,176.30

$1,291.37

Based on

the information in Question 37, the bond is a: ______

Par

value bond

Discount

bond

Premium

bond

A

stock has the required rate of return at 16%. The most recent dividend paid

D0 = $2.00 and the expected dividend

growth rate g = 5%. What’s the first dividend expected to pay at the end of

this year?_____

$2.00

$2.10

$2.20

$2.50

Based

on the information from Question 39, What’s the estimated value of the

stock?_____

$17.2

$19.1

$21.5

$30.8

Based

on the information from Question 39~40, if the current trading price of the

stock on the stock market is $22.28 per share, we should give a _____ recommendation

to the stock.

Buy

Hold

Sell

A

company has a net working capital of $4,800, total liabilities of $15,900,

and

long-term debt of $9,500. What is the value of the current assets?

$4,800

$11,200

$20,700

$30,200

A

firm is considering a new inventory system that will cost $120,000. The

system is expected to generate positive cash flows over the next four years

in the amounts of $35,000 in year 1, $55,000 in year 2, $65,000 in year 3,

and $40,000 in year 4. The firm’s required rate of return is 9%.

What

is the payback period of

this project? _______

1.95

years

2.46

years

2.99

years

3.10

years

Based

on the information from Question 43. What is the net present value (NPV)

of the project? _____

$28,830.29

$30,929.26

$36,931.43

$39,905.28

Based

on the information from Question 43, what is the internal rate of return

(IRR) of this project?

14.03%

17.56%

19.26%

21.78%

Based on the information from

Question 43, what is the profitability index (PI) of

this project?

0.87

1.11

1.31

1.83.

A firm has total assets of $13,200,

fixed assets of $8,500, current liabilities of

$2,700, and long-term liabilities of $5,200. What is the total debt ratio?

0.47

0.60

0.72

0.83

You want to receive $5,000 per month

in retirement. If you can earn 0.75% per

month and you expect to need the income for 25 years, how much do you need

to have in your account at retirement?

$623,798

$686,453

$798,204

What is the value of a stock that is

expected to pay a constant dividend of $5 per

year if the required return is 10%?

$15

$50

$100

$105

Based on the information from

Question 49, what the value of the stock if the

company starts increasing dividends by 5% per year, beginning with the next

dividend?

$15

$50

$100

$105