If a firm has a 100 percent dividend payout ratio

Question 1

1 pts

The selection and management of long term assets by the firm is called:

Working capital management

Depreciation cost recovery

Asset class cost analysis

Capital structure choice

Capital budgeting

What is the effective annual rate of 6%, compounded daily?

6.12%

6.00%

6.14%

6.16%

6.18%

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Question 3

1 pts

If current assets = $105, net working capital equals $100, fixed assets = $340, and the owner’s equity = $135, what is the value of long term debt if it is the only other item on the balance sheet?

$5

$40

$50

$105

$305

Question 4

1 pts

A firm paid 100% of net income out in dividends. Its dividend payout ratio was 100%. The dividend per share was $1.00. If the firm had 70,000 shares of common stock outstanding, what was its net income?

$35,000

$280,000

$70,000

$105,000

$140,000

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Question 5

1 pts

A firm has an equity multiplier of two and total assets of $300. If its return on equity is 10%, what is its net income?

$15.00

$10.00

$30.00

$22.50

$7.50

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CORPORATE FINANCEQuizzesExam 1 2018

Exam 1 2018

Started: Feb 11 at 7:38pm

Quiz Instructions

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Question 1

1 pts

The selection and management of long term assets by the firm is called:

Working capital management

Depreciation cost recovery

Asset class cost analysis

Capital structure choice

Capital budgeting

Flag this Question

Question 2

1 pts

What is the effective annual rate of 6%, compounded daily?

6.12%

6.00%

6.14%

6.16%

6.18%

Flag this Question

Question 3

1 pts

If current assets = $105, net working capital equals $100, fixed assets = $340, and the owner’s equity = $135, what is the value of long term debt if it is the only other item on the balance sheet?

$5

$40

$50

$105

$305

Flag this Question

Question 4

1 pts

A firm paid 100% of net income out in dividends. Its dividend payout ratio was 100%. The dividend per share was $1.00. If the firm had 70,000 shares of common stock outstanding, what was its net income?

$35,000

$280,000

$70,000

$105,000

$140,000

Flag this Question

Question 5

1 pts

A firm has an equity multiplier of two and total assets of $300. If its return on equity is 10%, what is its net income?

$15.00

$10.00

$30.00

$22.50

$7.50

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Question 6

1 pts

Assume a firm has a book value of assets equal to two times the book value of owner’s equity. Sales are ten times owner’s equity. The profit margin is two percent. What is the firm’s ROA?

four percent

five percent

eight percent

ten percent

twenty percent

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Question 7

1 pts

You need $2,000 to buy a new stereo for your car. If you have $800 to invest at 5% compounded annually, how long will you have to buy the stereo? (You might need to expect a new technology.)

6.58 years.

8.42 years.

14.58 years.

15.75 years.

18.78 years.

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Question 8

1 pts

You are considering buying a new car. The sticker price is $15,000 and you have $2,000 to put toward a down payment. If you can negotiate an annual interest rate of 10 percent and you wish to pay for the car over a 5-year period, what are your monthly car payments?

$276.21

$318.71

$282.34

$361.20

$299.78

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Question 9

1 pts

What is the most appropriate goal for a publicly-traded company?

Maximize stock price

Maximize sales

Maximize market share

Maximize earnings

Maximize cash flows

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Question 10

1 pts

Byrd Lumber has 1 million shares of common stock outstanding and its stock price is $35 a share. On the balance sheet, the company has $10 million of common equity. What is the company's Market Value Added (MVA)?

-$15,000,000

$5,000,000

$10,000,000

$15,000,000

$25,000,000

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Question 11

1 pts

Advantages of the corporate form of business, over other forms, include all of the following except:

Lower costs of separation of owners from managers, or so-called “agency costs.”

Greater ease of raising capital.

Limited liability of the shareholders for corporate misdeeds.

Greater liquidity of ownership interests.

Greater ability to hire talented management.

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Question 12

1 pts

You are saving for retirement. You hope to have $1,000,000 accumulated in 35 years, making equally-sized annual payments in a “world” with expected returns of 4.5% over that 35 year period. To the nearest dollar, what is the expected size of your annual payments?

$45,000

$29,857

$57,270

$13,577

$12,270

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Question 13

1 pts

You are given the following information: Book value of stockholders' equity = $2.5 million; price/earnings ratio = 10; shares outstanding = 100,000; and market/book ratio = 1.5. Calculate the market price of a share of the company's stock.

$37.50

$25.00

$50.00

$75.00

$16.67

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Question 14

1 pts

The DuPont Identity holds that ROE = PM x T/A T/O x EM. However, after doing some quick algebra, ROE still equals net income divided by owner’s equity. What does the DuPont Identity accomplish with its expansion of the ROE into profit margin, total asset turnover and equity multiplier components?

The identity allows expanding the ROE into the aftertax income.

The identity uses the ROE in describing such things as the costs of Obamacare.

The identity can reveal the impact of new borrowing on employee morale.

The identity separates the ROE into operating, capital budgeting and capital structure components.

The identity is used by bankers in meeting capital requirements under the Dodd Frank Act.

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Question 15

1 pts

A firm’s current market value of equity is $20 million. It has one million shares outstanding. The firm’s equity multiplier is one, and it had sales of $50 million last year. Its profit margin was 5%. What is the firm’s implied price-earnings ratio?

40

5

16

20

8

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Question 16

1 pts

If you deposit $2,000 into an account at the end of each of the next 40 years, at 4.5% interest, how much will you have in the account, to the nearest $1,000, in 40 years?

$184,000

$214,000

$63,000

$122,000

$196,000

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Question 17

1 pts

Your company had net sales of $100,000 over the past year. Half the sales were credit sales. During that time, average receivables were $5,000. What was the average collection period? (Assume a 360-day year)

18 days

27 days

36 days

72 days

60 days

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Question 18

1 pts

You borrow some money on a mortgage loan. Your payments are $750 to start with, on a loan with a 30-year amortization and monthly payments. Your rate is 4% per year, compounded monthly. How much money did you borrow on this loan?

$138,750

$187,500

$123,766

$157,096

$225,000

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Question 19

1 pts

On the loan in number 18, your rate escalates to 9.75% per year, compounded monthly, after two years. Your new rate and payment are calculated on the new balance over the remaining 28 years of the mortgage. What is the difference in interest payments for the second, vs the third, years of your mortgage? In other words, how much more in interest do you pay with this escalating mortgage, in the first year AFTER the interest rate escalates? (Hint: P1=1, and P2=12 for year 1. P1=13 and P2=24 for year 2, etc) Be careful. Think!

$8,938

$8,598

$8,484

$8,363

$8,708

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Question 20

1 pts

You received a $1 savings account earning 6% on your 1st birthday. How much will you have in the account on your 30th birthday if you don't withdraw any money before then?

$4.82

$5.11

$5.42

$5.74

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Question 21

1 pts

Use the following to answer questions 21-22

2017 Income, Retained Earnings, and Dividend Data

All measures below in thousands of dollars:

Taxable income

1,660

Less: Taxes

581

Net income

1,079

Addition to retained earnings

679

Dividends paid

400

If the firm had 115,000 shares of stock outstanding, what were earnings per share for 2016?

$9.38

$1.70

$14.43

$3.48

$5.90

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Question 22

1 pts

Using the information from Problem 21, what were dividends per share for 2017?

$9.38

$1.70

$14.43

$3.48

$5.90

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Question 23

1 pts

ABC Corporation reported retained earnings of $1,250 on its year-end 2016 balance sheet. During 2017, the company reported $420 in net income, and it paid out a dividend of $200. What will retained earnings be for ABC's 2017 year-end balance sheet?

$ 1,370

$ 1,770

$ 1,570

$ 1,470

$ 1,670

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Question 24

1 pts

A firm has a total book value of equity of $300,000, a market to book ratio of .33 (one-third), and a book value per share of $8.00. What is the total market value of the firm's equity?

$ 100,000

$ 37,500

$ 112,500

$ 900,000

$1,200,000

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Question 25

1 pts

Susan is heading up and forming a company to transport toxic materials. She will need substantial capital to create the company. What is probably the best organizational form for her to use?

Sole Proprietorship

North Carolina Form Z Corporation

C-Class Corporation

Limited Partnership

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Question 26

1 pts

A firm has a debt-to-equity ratio of .5. What is its equity multiplier?

1

2.5

3

1.5

2

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Question 27

1 pts

You have $25,000 available for a down payment on your new home. You have determined that you can afford a monthly mortgage payment of $1,400 for principal and interest. If thirty-year terms (360 months) are available for home-financing at 4.8%, what is the highest-valued home you can afford to the nearest $1,000 (do not forget your down payment).

$292,000

$529,000

$267,000

$241,000

$242,000

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Question 28

1 pts

You have won the lottery! That is just great. But, what have you really won? It is a $10,000,000 lottery, with ten payments (the first one is provided today) of $1,000,000 each. If the best discount rate for these future cash flows is 8%, what is the actual value, including today’s payment, of your “$10 million lottery?”

$6,710,081

$6,246,888

$7,246,888

$8,246,888

$7,710,081

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Question 29

1 pts

Timmons, Inc., has 7% bonds, with an annual coupon, on the market with 10 years left to maturity. If the yield to maturity is 8%, what is the bond’s current price?

$1,055

$1,105

$933

$975

$904

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Question 30

1 pts

Neverwho Co. has 7 percent bonds on the market with eight years left to maturity. The bonds make annual payments and sell for $902.25. On these bonds, what is the yield to maturity?

7.22%

7.00%

8.75%

7.76%

6.32%

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Question 31

1 pts

When pricing bonds, if a bond's coupon rate is more than the required rate of return, then:

The bond sells at a larger premium if it has a long maturity and at a smaller premium if it has a short maturity.

The holder of the bond will realize a capital loss if the bond is held to maturity.

The bond sells at par because the required rate of return is adjusted to reflect the discrepancy.

The bond sells at a premium if it has a long maturity and at a discount if it has a short maturity.

The holder of the bond is assured of a profit regardless of when the bond is eventually sold.

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Question 32

1 pts

J&J Manufacturing just issued a bond with a $1,000 face value and a coupon rate of 8%. If the bond has a life of 20 years, pays annual coupons, and the yield to maturity is 7.5%, what is the total present value of the bond's maturity or face

value?

$235.41

$341.15

$1,050.97

$1,000.00

$815.56

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Question 33

1 pts

Joe Kernan Co. has bonds on the market with 10 years to maturity; they have an annualized YTM of 8.5%, and a current price of $1,090. The bonds make semi-annual payments (two payments per year). What must be the coupon rate on these bonds?

9.1%.

8.8%.

4.9%.

9.9%.

4.8%.

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Question 34

1 pts

A bond with a face value of $1,000 that sells for less than $1,000 in the market is called a:

Par bond.

Discount bond.

Premium bond.

Zero coupon bond.

Floating rate bond.

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Question 35

1 pts

D&G Enterprises issues bonds with a $1,000 face value that make coupon payments of $10 every 3 months. What is the coupon rate?

1.00%

4.00%

6.00%

8.00%

12.00%

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Question 36

1 pts

If corporate bond yields are at 8.4% and you are in the 40% federal marginal income tax bracket, at what level of tax-free municipal bond yields would you be indifferent between owning corporate bonds or muni bonds? Ignore the impact of state and local taxes.

5.95%

5.54%

5.04%

4.67%

4.11%

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Question 37

1 pts

A firm has an ROA of 6%, sales of $80, and total assets of $100. What is its profit margin?

3.75%

4.25%

6.75%

7.50%

9.25%

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Question 38

1 pts

The monthly mortgage payment on your house is $821.69. It is a 30 year mortgage at 6.5% compounded monthly. How much interest do you pay the third year? (Recall P1 = 1, and P2 = 12 for the first year, P1 = 13, etc for the second year ...)

$8,895

$1,654

$8,450

$1,787

$8,206

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Question 39

1 pts

The total market value of the firm's equity is determined by ________________.

the firm's accountants

the firm's management

manipulators in the stock market

investors in the stock market

regulators at the Securities and Exchange Commission (SEC)

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Question 40

1 pts

You are investing $1,000 at 4% for thirty years. Over those thirty years, how much “extra” will you earn in compound, versus simple, interest? (Recall you are earning simple interest at 4% for 30 years, and compound interest - or interest on the interest - as well. How much "interest on the interest" do you earn over 30 years?)

$1,200

$2,200

$2,243

$1,043

$3,243

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Question 41

1 pts

Which of the following is a true statement concerning corporations?

The equity that can be raised by the corporation is limited to the current shareholders’ personal wealth.

The life of the corporation is unlimited.

The corporation has limited liability for business debts.

When dividends are paid, corporate profits are taxed once.

It is difficult to transfer ownership of corporate shares

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