Question 1. 1. (TCO A) In the United States, which of the following types of organization has the greatest revenue in total? (Points : 5)
Question 2. 2. (TCO A) A sole proprietorship is owned by (Points : 5)
one or two people, but if there are two owners, they must be married to each other.
up to 100 owners.
up to 64 owners.
Question 3. 3. (TCO B) Which of the following would cause the present value of an annuity to increase? (Points : 5)
Reducing the number of payments.
Increasing the interest rate.
Decreasing the interest rate.
Decreasing the liquidity of the payments.
Question 4. 4. (TCO B) Which of the following is an annuity due? (Points : 5)
A typical car loan.
A typical mortgage.
A typical apartment rental agreement.
A credit card balance.
Question 5. 5. (TCO G) If net income, total assets, and book value of equity stayed the same, what would be the effect on the DuPont Identity of an increase in sales? (Points : 20)
Question 6. 6. (TCO D) A stock has just paid a dividend and will pay a dividend of $3.00 in a year. The dividend will stay constant for the rest of time. The return on equity for similar stocks is 14%. What is P0? (Points : 20)
Question 7. 7. (TCO D) A stock has just declared an annual dividend of $2.25 to be paid one year from today. The dividend is expected to grow at a 7% annual rate. The return on equity for similar stocks is 12%. What is P0? (Points : 20)
Question 8. 8. (TCO D) A bond has 5 years to maturity and has a YTM of 8%. Its par value is $1,000. Its semiannual coupons are $50. What is the bonds current market price? (Points : 10)
Question 9. 9. (TCO D) A bond currently sells for $1,030 even though it has a par of $1,000. It was issued two years ago and had a maturity of 10 years. The coupon rate is 7% and the interest payments are made semiannually. What is its YTM? (Points : 10)
Question 10. 10. (TCO D) Explain thoroughly how stock portfolios affect the risk to an investor. (Points : 30)
Question 11. 11. (TCO E) A company has 30 million shares outstanding trading for $8 per share. It also has $90 million in outstanding debt. If its equity cost of capital is 15%, and its debt cost of capital is 9%, and its effective corporate tax rate is 40%, what is its weighted average cost of capital? (Points : 30)
Question 12. 12. (TCO A) Name and describe the three functions of managerial finance. For each, give an example other than those used in the text and lecture. (Points : 25)
Question 13. 13. (TCO H) What is the difference between the cash cycle and the operating cycle? Under what condition would they be the same? (Points : 30)
Question 14. 14. (TCO F) A company has the opportunity to do any of the projects for which the net cash flows per year are shown below. The company has a cost of capital of 12%. Which should the company do and why? You must use at least two capital budgeting methods. Show your work.
Year A B C
0 -300 -100 -300
1 100 -50 100
2 100 100 100
3 100 100 100
4 100 100 100
5 100 100 100
6 100 100 100
7 -100 -200 0
(Points : 40)