上财公司金融试卷样卷-

1、Test III-FINN3120-090 Fall 2009 (2.5 PTS PER QUESTION. MAX 100 PTS Type AName_IDPRINT YOUR NAME AND ID ON THE TEST, ANSWER SHEET AND FORMULA SHEET.TURN IN THE TEST, OPSCAN ANSWER SHEET AND FORMULA SHEET.STUDENT CAN HAVE ONE LETTER SIZE FORMULA SHEET PREPARED BY STUDENT HIM/HERSELF. FINANCIAL CALCULA

2、TOR/TI-83 OR THEIR EQUIVALENCES ARE ALLOWED.MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.1Preferred stock is similar to common stock in the following way:1Aas equity, both are subordinate to bondholders in the event of bankruptcy.Bboth preferr

3、ed stock and common stock provide equal periodic dividends.Cboth contain a dividend growth factor.Dboth investments have a final maturity value set by the issuing agreement.2ABC Corp. common stock paid $2.50 in dividends last year (D0. Dividends are expected to grow2 at a 12-percent annual rate fore

4、ver. If ABCs current market price is $70.00, what is the stocksexpected rate of return (nearest .01 percent?A16.00%B5.50%C18.25%D19.00%33Yanti Corp. preferred stock has a 5% stated dividend percentage, and a $100 par value. What is thevalue of the stock if your required rate of return is 6% per year

5、?A$30.00B$100.00C$94.05D$83.3344Preferred stock is similar to a bond in the following way:Aboth provide interest payments.Bpreferred stock always contains a maturity date.Cboth investments provide a stated income stream.Dboth contain a growth factor similar to common stock.55You observe Golden Flash

6、es Common Stock selling for $40.00 per share. The next dividend isexpected to be $4.00, and is expected to grow at a 2% annual rate forever. If your required rate ofreturn is 14%, should you purchase the stock?AYes, because the present value of the expected future cash flows is less than $40.BNo, be

7、cause the present value of the expected future cash flows is less than $40.CNo, because the present value of the expected future cash flows is greater than $40.DYes, because the present value of the expected future cash flows is greater than $40.66Greenland Airlines has net income of $1 million this

8、 year. The book value of Greenland Airlinescommon equity is $5 million dollars. The companys dividend payout ratio is 70% and is expectedto remain this way. What is Greenland Airlines internal growth rate?A15%B5.7%C6.0%D9%77Which of the following statements concerning the required rate of return on

9、stocks is true?AIf risk is reduced, the required return will decrease because more investors are risk-averse.BThe higher an investors required rate of return, the higher the value of the stock.CThe required return on preferred stock is generally higher than the required return oncommon stock.DThe hi

10、gher the risk, the higher the required return, other things being equal.8You are considering the purchase of a common stock that paid a dividend of $2.00 yesterday. You8 expect this stock to have a growth rate of 10 percent for the next 3 years. The long-run normalgrowth rate after year 3 is expecte

11、d to be 5 percent (that is, a constant growth rate after year 3 of5% per year forever. If you require a 15 percent rate of return, how much should you be willing to pay for this stock?A$26.89B$18.65C$ 36.24D$23.879Nogrowth Corporation expects their dividend to stay at $1.50 per share each year into

12、the9 foreseeable future. Therefore,AThe stock will be valued at $1.50 times the number of years an investor plans to keep it.BThe value of the stock can be estimated as $1.50 divided by an investors required rate ofreturn.CThe value of the stock can not be determined using the dividend valuation mod

13、el because thegrowth rate is zero.DThe free cash flow model will yield a higher stock value if free cash flow is greater than $1.50per share.10 10XYZ common stock is currently selling for $8.00. It just paid a dividend of $1.50 and dividends areexpected to grow at a rate of 6% indefinitely. What is

14、the required rate of return on XYZs stock?A33.00%B26.00%C20.60%D18.00%11 11A project requires an initial investment of $50,000. The project generates free cash flow of $80,000at the end of year 2. What is the internal rate of return for the project?A34.16%B44.08%C19.66%D26.44%12 12The Kitchen Inc. i

15、s considering the following 3 mutually exclusive projects. Projected cash flowsfor these ventures are as follows:Plan A Plan B Plan CInitial Initial InitialOutlay=$4,000,000Outlay=$5,000,000Outlay=$1,750,000Cash Flow:Cash Flow:Cash Flow:Yr 1=$ -0-Yr 1=$4,000,000Yr 1=$1,000,000Yr 2= -0-Yr 2= 3,000,00

16、0Yr 2= -0-Yr 3= -0-Yr 3= 2,000,000Yr 3=1,000,000Yr 4= -0-Yr 4= -0-Yr 4=1,000,000Yr 5=$7,000,000Yr 5= -0-Yr 5=1,000,000If the Kitchen has a 12% cost of capital, what decision should be made regarding the projectsabove?AAccept plan A BAccept plan BCAccept plan C DAccept Plans B and C13 13Palm, Inc. is

17、 considering two mutually exclusive projects, A and B. Project A costs $75,000 and isexpected to generate $48,000 in year one and $45,000 in year two. Project B costs $80,000 and isexpected to generate $34,000 in year one, $37,000 in year two, $26,000 in year three, and $25,000 inyear four. Zellars,

18、 Inc.s required rate of return for these projects is 10%. The modified internal rate of return for Project A and B,respectively, are:A16.49% and 15.74%.B19.43% and 13.40%.C14.19% and 15.74%.D14.19% and 13.40%.14You are considering investing in a project with the following year-end after-tax cash flo

19、ws:14Year 1: $57,000Year 2: $72,000Year 3: $78,000Year 4: $20,000If the initial outlay for the project is $185,000, compute the projects internal rate of return.A10.89%B5.54%C9.61%D6.98%15Which of the following methods of evaluating investment projects can properly evaluate projects15of unequal live

20、s?AThe payback.BThe equivalent annual annuity.CThe internal rate of return.DThe net present value.16 16Your firm is considering an investment that will cost $750,000 today. The investment will producecash flows of $250,000 in year 1, $300,000 in years 2 through 4, and $100,000 in year 5. The discoun

21、t rate that your firm uses for projects of this type is for year 1 through year 4 is 13.25%. However,you expect that you can reduce the dicount rate to 12.5% for year 5. What is the investments netpresent value?A$147.544B$149,525C$147,613D$132,00017 17Project A has an internal rate of return (IRR of

22、 15 percent. Project B has an IRR of 12 percent. Bothprojects have a required return of 14 percent. Which of the following statements is most correct?AProject B has a higher profitability index than Project A.BBoth projects have a positive net present value (NPV.CIf the required return were less tha

23、n 14 percent, Project B would have a higher IRR thanProject A.DProject A must have a higher NPV than project B.18We compute the profitability index of a capital budgeting proposal by18Adividing the present value of the annual after tax cash flows by the cash investment in theproject.Bmultiplying the

24、 cash inflow by the internal rate of return.Cmultiplying the internal rate of return by the cost of capital.Ddividing the present value of the annual after tax cash flows by the cost of capital.1919The disadvantage of the IRR method is that:Athe IRR will always give the same project accept/reject de

25、cision as the NPV.Bthe IRR requires long, detailed cash flow forecasts.Cthe IRR gives equal regard to all returns within a projects life.Dthe IRR deals with cash flows.20 20Rent-to-Own Equipment Co. is considering a new inventory system that will cost $450,000. Thesystem is expected to generate posi

26、tive cash flows over the next four years in the amounts of$250,000 in year one, $125,000 in year two, $25,000 in year three, and $100,000 in year four.Rent-to-Owns required rate of return is 10%. What is the payback period of this project?A3.50 years B4.00 years C2.68 years D2.50 years21Which of the

27、 following statements about the net present value is true?21AIt produces a percentage result that is easy to describe.BIt is likely that there will be more than one NPV for a project.CIt has an inadequate reinvestment assumption.DIt may be used to select among projects of different sizes.22The advan

28、tages of NPV are all of the following except:22Ait allows the comparison of benefits and costs in a logical manner through the use of timevalue of money principles.Bit provides the amount by which positive NPV projects will increase the value of the firm.Cit can be used as a rough screening device t

29、o eliminate those projects whose returns do notmaterialize until later years.Dit recognizes the timing of the benefits resulting from the project.23 23All of the following are sufficient indications to accept a project except(assume that there is nocapital rationing constraint, and no consideration

30、is given to payback as a decision tool:AThe net present value of an independent project is positive.BThe IRR of a mutually exclusive project exceeds the required rate of return.CThe profitability index of an independent project exceeds one.DThe NPV of a mutually exclusive project is positive and exc

31、eeds that of all other projects.24 24Initial Outlay Cash Flow in Period1234$4,000,000$1,546,170$1,546,170$1,546,170$1,546,170The Internal Rate of Return (to nearest whole percent is:A24%.B20%.C18%.D10%.2525The risk free rate of return is 4% and the expected return on the market portfolio is 12%. A f

32、irm hasa beta of 1.8 and a standard deviation of returns of 16%. Its marginal tax rate is 30%. Analystsexpect Starships net income to grow by 8% per year for the next 5 years. Using the capital assetpricing model, what is Starship Enterprises cost of retained earnings?A22.2%B18.2%C18.4%D16.6%26 26Th

33、e ABC Company is planning a $100 million expansion. The expansion is to be financed byselling $40 million in new debt and $60 million in new common stock. The before-tax required rate of return on debt is 10 percent and the required rate of return on equity is 15 percent. If thecompany is in the 30

34、percent tax bracket, what is the firms cost of capital?A12.9%B9.7%C10.000%D11.8%27 27A company has preferred stock with a current market price of $26.5 per share. The preferred stockpays an annual dividend of 4% based on a par value of $100. Flotation costs associated with thesale of preferred stock

35、 equal $1.50 per share. The companys marginal tax rate is 40%. Therefore,the cost of preferred stock is:A15.09%.B22.22%.C16.00%.D4.00%.28Cost of capital is:28Athe average cost of the firms assets.Ba hurdle rate set by the board of directors.Cthe rate of return that must be earned on additional inves

36、tment if firm value is to remainunchanged.Dthe coupon rate of debt.29 29Which of the following causes a firms cost of capital (WACC to differ from an investors requiredrate of return on the companys common stock?AThe market risk premium exceeds 12%.BThe fact that the risk free rate of interest has i

37、ncreased.CThe incurrence of flotation costs when new securities are issued.DNone of the above the WACC and required return are the same30Durocorp has a target capital structure of 50% debt and 50% equity. Durocorp is planning to invest30in a project that will necessitate raising new capital. New deb

38、t will be issued at a before-tax yieldof 15%, with a coupon rate of 10%. The equity will be provided by internally generated funds so no new outside equity will be issued. If the required rate of return on the firms stock is 20% and itsmarginal tax rate is 40%, compute the firms cost of capital.A14.

39、5%B17.5%C15.00%D13.68%31Given the following information on S & G Inc.s capital structure, compute the companys31weighted average cost of capital.Type of Percent of Before-TaxCapital Capital Structure Component CostBonds40%10%Preferred Stock10%15%Common Stock (Internal Only50%20%The companys marg

40、inal tax rate is 40%.A15.5%B10.6%C13.9%D15%32A Company has a capital structure made up of 40% debt and 60% equity and a tax rate of 30%. A32new issue of $1,000 par bonds maturing in 20 years can be issued with a coupon of 9% at a price of $1,098.18 with no flotation costs. The firm has no internal e

41、quity available for investment at thistime, but can issue new common stock at a price of $45. The next expected dividend on the stock is $2.80. The dividend for Mars Co. is expected to grow at a constant annual rate of 5% per yearindefinitely. Flotation costs on new equity will be $5.00 per share. T

42、he WACC for the firm is:A9.76%B9.44%C9.20%D14%3333Which of the following should NOT be considered when calculating a firms WACC?AAfter-tax cost of accounts payable BCost of newly issued preferred stockCAfter-tax YTM on a firms bonds DCost of newly issued common stock34 34Bell Corp. has a preferred s

43、tock that pays a dividend of $2.40. If you are willing to purchase thestock at $11, what is your required rate of return (round your answer to the nearest .1% andassume that there are no transaction costs?A9.1%B11.0%C20.1%D21.8%35 The cost of new preferred stock is 

44、;equal to: A the preferred stock dividend divided by the market price. B the preferred stock dividend divided by its par value. C preferred stock dividend divided by the net sellin

45、g price of preferred. D (1 - tax rate times the preferred stock dividend divided by net price. 36 Nogrowth Corporation expects their dividend to stay at $0.50 per share e

46、ach year into the foreseeable future. Therefore, A The stock will be valued at $0.50 times the number of years an investor plans to keep it. B The value of the stock 

47、;can be estimated as $0.50 divided by an investors required rate of return. C The free cash flow model will yield a higher stock value if free cash flow is greater&#

48、160;than $0.50 per share. D The value of the stock can not be determined using the dividend valuation model because the growth rate is zero. TRUE/FALSE.  A. True B. False 37 Preferred stock and common stock issued by the same firm will have the same required return because