FIN 534 Midterm Exam
Question no 1
The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to
Question no 2
One drawback of switching from a partnership to the corporate form of organization is the following:
Question no 3
Jessie’s Bobcat Rentals’ operations provided a negative net cash flow last year, yet the cash shown on its balance sheet increased. Which of the following statements ….the increase in cash, assuming the company’s financial statements were prepared under generally accepted accounting principles? Which of the following statements is CORRECT?
Question no 4
Wolken has never paid a dividend on its common stock, and it issued $2,400,000 of 10-year non-callable, long-term debt in 2014. As of the end of 2015, none of the principal on this debt had been repaid. Assume that the company’s sales in 2014 and 2015 were the same. Which of the following statements must be CORRECT?
Question no 5
Pettijohn Inc. The balance sheet and income statement is shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. Which of the following statements is CORRECT?
Question no 6
Suppose you just won the state lottery, and you have a choice between receiving $2,550,000 today or a 20-year annuity of $250,000, with the first payment coming one year from today. What rate of return is built into the annuity? Disregard taxes.
Question no 7
Suppose you deposited $5,000 in a bank account that pays 5.25% with daily compounding based on a 360-day year.
Question no 8
How much would be in the account after 8 months, assuming each month has 30 days?
Question no 9
Which of the following bank accounts has the lowest effective annual return?
Question no 10
Noncallable bonds that mature in 10 years were recent by Sternglass Inc. They have a par value of $1,000 and an annual coupon of 5.5%. If the current market interest rate is 7.0%, at what price should the bonds sell?
Question no 11
Perry Inc.’s bonds currently sell for $1,150. They have a 6-year maturity, an annual coupon of $85, and a par value of $1,000. What is their current yield?
Question no 12
Stephenson Co.’s 15-year bond with a face value of $1,000 currently sells for $850. Which of the following statements is CORRECT?
Question no 13
Stock A has a beta = 0.8, while Stock B has a beta = 1.6. Which of the following statements is CORRECT?
Question no 14
Data for Atwill Corporation is ….below. Now Atwill acquires some risky assets that cause its beta to increase by 30%.
Question no 15
In addition, expected inflation increases by 2.00%. What is the stock’s new rate of return?
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Question no 16
Returns for the Alcoff Company over the last 3 years are below. What’s the standard deviation of the firm’s returns? (Hint: This is a sample, not a complete population, so the sample standard deviation formula
Question no 17
Kellner Motor Co.’s stock has a required rate of return of 11.50%, and it sells for $25.00 per share. Kellner’s dividend is …..to grow at a constant rate of 7.00%. What was the last dividend, D0?
Question no 18
The value of Broadway-Brooks Inc.’s operations is $900 million, based on the free cash flow valuation model. Its balance sheet shows $70 million in accounts receivable, $50 million in inventory, $30 million in short-term investments that are unrelated to operations, $20 million in accounts payable, $110 million in notes payable, $90 million in long-term debt, $20 million in preferred stock, $140 million in retained earnings, and $280 million in total common equity. If the company has 25 million shares of stock outstanding, what is the best estimate of the stock’s price per share
Question no 19
Alcott’s preferred stock pays a dividend of $1.00 per quarter. If the price of the stock is $45.00, what is its nominal (not effective) annual rate of return?
Question no 20
Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?
Question no 21
Barnette Inc.’s free cash flows are …..to be unstable during the next few years while the company undergoes restructuring. However, FCF is …..to be $50 million in Year 5, i.e., FCF at t = 5 equals $50 million, and the FCF growth rate is …..to be constant at 6% beyond that point. If the weighted average cost of capital is 12%, what is the horizon value (in millions) at t = 5?