Managerial Finance - Multiple choice questions

1. A stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of return is rs = 10.5%, and the expected constant growth rate is g = 6.4%. What is the stock's current price? (Points : 10)        $17.39        $17.84        $18.29        $18.75        $19.22 2. If D1 = $1.50, g (which is constant) = 6.5%, and P0 = $56, what is the stock's expected capital gains yield for the coming year? (Points : 10)        6.50%        6.83%        7.17%        7.52%        7.90% 3. Molen Inc. has an outstanding issue of perpetual preferred stock with an annual dividend of $7.50 per share. If the required return on this preferred stock is 6.5%, at what price should the preferred stock sell? (Points : 10)        $104.27        $106.95        $109.69        $112.50        $115.38 4. Bankston Corporation forecasts that if all of its existing financial policies are followed, its proposed capital budget would be so large that it would have to issue new common stock. Since new stock has a higher cost than retained earnings, Bankston would like to avoid issuing new stock. Which of the following actions would REDUCE its need to issue new common stock? (Points : 10)        Increase the dividend payout ratio for the upcoming year.        Increase the percentage of debt in the target capital structure.        Increase the proposed capital budget.        Reduce the amount of short-term bank debt in order to increase the current ratio.        Reduce the percentage of debt in the target capital structure. 5. Duval Inc. uses only equity capital, and it has two equally-sized divisions. Division A's cost of capital is 10.0%, Division B's cost is 14.0%, and the corporate (composite) WACC is 12.0%. All of Division A's projects are equally risky, as are all of Division B's projects. However, the projects of Division A are less risky than those of Division B. Which of the following projects should the firm accept? (Points : 10)        A Division B project with a 13% return.        A Division B project with a 12% return.        A Division A project with an 11% return.        A Division A project with a 9% return.        A Division B project with an 11% return. 6. Butcher Timber Company hired your consulting firm to help them estimate the cost of common equity. The yield on the firm's bonds is 8.75%, and your firm's economists believe that the cost of common can be estimated using a risk premium of 3.85% over a firm's own cost of debt. What is an estimate of the firm's cost of common from retained earnings? (Points : 10)        12.60%        13.10%        13.63%        14.17%        14.74% 7. Barry Company is considering a project that has the following cash flow and WACC data. What is the project's NPV? Note that a project's expected NPV can be negative, in which case it will be rejected. WACC:  12.00% Year                   0            1           2          3          4          5                     ----------------------------------------------------------------------- Cash flows     -$1,100     $400     $390     $380     $370     $360 (Points : 10)        $250.15        $277.94        $305.73        $336.31        $369.94 8. Data Computer Systems is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's IRR can be less than the WACC (and even negative), in which case it will be rejected. Year                    0           1           2          3                     ----------------------------------------------- Cash flows     -$1,100     $450     $470     $490 (Points : 10)        9.70%        10.78%        11.98%        13.31%        14.64% 9. Stern Associates is considering a project that has the following cash flow data. What is the project's payback? Year                    0           1           2          3          4          5                     ------------------------------------------------------------------------ Cash flows     -$1,100     $300     $310     $320     $330     $340 (Points : 10)        2.31 years        2.56 years        2.85 years        3.16 years        3.52 years 10. Sub-Prime Loan Company is thinking of opening a new office, and the key data are shown below. The company owns the building that would be used, and it could sell it for $100,000 after taxes, if it decides not to open the new office. The equipment for the project would be depreciated by the straight-line method over the project's three-year life, after which it would be worth nothing, and thus it would have a zero salvage value. No new working capital would be required, and revenues and other operating costs would be constant over the project's three-year life. What is the project's NPV? (Hint: Cash flows are constant in years 1-3.) WACC Opportunity cost Net equipment cost (depreciable basis) Straight-line deprec. rate for equipment Sales revenues, each year Operating costs (excl. deprec.), each year Tax rate 10.0% $100,000 $65,000 33.333% $123,000 $25,000 35% a. $10,521 b. $11,075 c. $11,658 d. $12,271 e. $12,885 For instant quote, please mail us mailurhomework@gmail.com