Marian plunket owns her own business

1Which organization forms give their owners limited​ liability?

A.Corporations and limited liability companies give owners limited liability.

B.Limited partnerships provide limited liability for the general​ partners, but not for the limited partners.

C.Limited partnerships provide limited liability for the limited​ partners, but not for the general partners.

2. Corporate managers work for the owners of the corporation.​ Consequently, they should make decisions that are in the interests of the​ owners, rather than their own. What strategies are available to shareholders to help ensure that managers are motivated to act this​ way?

A.Ensure that employees are paid a percentage of the​ company's net income.

B.Ensure that underperforming managers are fired.

C.Ensure that employees are paid with company stock​ and/or stock options.

D.Mount hostile takeovers.

E.Write contracts that ensure that the interests of the managers and shareholders are closely aligned

3. What four financial statements can be found in a​ firm's 10-K​ filing? What checks are there on the accuracy of these​ statements?

A.

Balance​ sheet, asset and liability​ statement, statement of cash​ flows, and statement of​ stockholders' equity

B.

Balance​ sheet, income​ statement, statement of cash​ flows, and Statement of income and expenses

C.

Balance​ sheet, income​ statement, statement of cash​ flows, and statement of​ stockholders' equity

D.

Balance​ sheet, cash​ budget, earnings​ statement, and statement of​ stockholders' equity

4. Find online the annual​ 10-K report for Costco Wholesale Corporation​ (COST) for fiscal year 2015​ (file in October​ 2015). Answer the following questions from their balance​ sheet:

a. How much cash did Costco have at the end of the fiscal​ year?

b. What were​ Costco's total​ assets?

c. What were​ Costco's total​ liabilities? How much debt did Costco​ have?

d. What was the book value of Costco​ equity?

a. How much cash did Costco have at the end of the fiscal​ year?

At the end of the fiscal​ year, Costco had cash and cash equivalents of

​$nothin

million.  ​(Round to one decimal​ place.)

5. See Table 2.5

LOADING...

showing financial statement data and stock price data for Mydeco Corp. Suppose Mydeco repurchases

22

million shares each year from

20132013

to

20162016.

What would be its earnings per share in

20162016​?

​(Assume Mydeco pays for the shares using its available cash and that Mydeco earns no interest on its cash​balances.)

​(Select the best choice​ below.)

A.

A repurchase does not impact earnings​ directly, so any change to EPS will come from a reduction in shares outstanding.

20162016

shares outstanding

equals 55 million minus 4 times 2 million equals 47 million=55 million−4×2 million=47 million​,

EPS equals $ 12.7 million divided by 47 million equals $ 0.27EPS=$12.7 million/47 million=$0.27.

B.

A repurchase does not impact earnings​ directly, so any change to EPS will come from a reduction in shares outstanding.

20162016

shares outstanding

equals 55 million minus 4 times 2 million equals 47 million=55 million−4×2 million=47 million​,

EPS equals $ 21.7 million divided by 47 million equals $ 0.46EPS=$21.7 million/47 million=$0.46.

C.

A repurchase does not impact earnings​ directly, so any change to EPS will come from an increase in shares outstanding.

20162016

shares outstanding

equals 55 million plus 4 times 2 million equals 53 million=55 million+4×2 million=53 million​,

EPS equals $ 12.7 million divided by 53 million equals $ 0.24EPS=$12.7 million/53 million=$0.24.

D.

A repurchase does not impact earnings​ directly, so any change to EPS will come from an increase in shares outstanding.

20162016

shares outstanding

equals 55 million plus 4 times 2 million equals 53 million=55 million+4×2 million=53 million​,

EPS equals $ 21.7 million divided by 53 million equals $ 0.41EPS=$21.7 million/53 million=$0.41.

6. Suppose a​ firm's tax rate is

40 %40%.

a. What effect would a

$ 9.15$9.15

million operating expense have on this​ year's earnings? What effect would it have on next​ year's earnings?

b. What effect would a

$ 7.7$7.7

million capital expense have on this​ year's earnings if the capital expenditure is depreciated at a rate of

$ 1.54$1.54

million per year for five​years? What effect would it have on next​ year's earnings?

a. What effect would a

$ 9.15$9.15

million operating expense have on this​ year's earnings? What effect would it have on next​ year's earnings?  ​(Select all the choices that​apply.)

A.

A

$ 9.15$9.15

million operating expense would be immediately​ expensed, increasing operating expenses by

$ 9.15$9.15

million. This would lead to a reduction in taxes of

40 % times $ 9.15 million equals $ 3.66 million40%×$9.15 million=$3.66 million.

B.

A

$ 9.15$9.15

million operating expense would be immediately​ expensed, increasing operating expenses by

$ 9.15$9.15

million. This would lead to an increase in taxes of

40 % times $ 9.15 million equals $ 3.66 million40%×$9.15 million=$3.66 million.

C.

Earnings would decline by

$ 9.15 million minus $ 3.66 million equals $ 5.49 million$9.15 million−$3.66 million=$5.49 million.

There would be no effect on next​ year's earnings.

D.

Earnings would decline by

$ 9.15 million minus $ 3.66 million equals $ 5.49 million$9.15 million−$3.66 million=$5.49 million.

The same effect would be seen on next​ year's earning

7. See Table

LOADING...

showing financial statement data and stock price data for Mydeco Corp.

a. From

20122012

to

20162016​,

what was the total cash flow that Mydeco generated from​ operations?

b. What fraction of the total in

​(a​)

was spent on capital​ expenditures?

c. What fraction of the total in

​(a​)

was spent paying dividends to​ shareholders?

d. What was​ Mydeco's total retained earnings for this​ period?

a. From

20122012

to

20162016​,

what was the total cash flow that Mydeco generated from​ operations?

The total cash flows from operations was

​$nothing

million.  ​(Round to one decimal​ place.)

8. Find online the annual​ 10-K report for Costco Wholesale Corporation​ (COST) for fiscal year 2015​ (filed in October​ 2015).

a. Which auditing firm certified these financial​ statements?

b. Which officers of Costco certified the financial​ statements?

a. Which auditing firm certified these financial​ statements?  ​(Select the best choice​ below.)

A.

KPMG LLP certified​ Costco's financial statements.

B.

Deloitte​ & Touche LLP certified​ Costco's financial statements.

C.

Ernst​ & Young LLP certified​ Costco's financial statements.

D.

PricewaterhouseCoopers LLP certified​ Costco's financial statements.

9.

Honda Motor Company is considering offering a

$ 2 comma 000$2,000

rebate on its​ minivan, lowering the​ vehicle's price from

$ 30 comma 000$30,000

to

$ 28 comma 000$28,000.

The marketing group estimates that this rebate will increase sales over the next year from

40 comma 00040,000

to

55 comma 00055,000

vehicles. Suppose​ Honda's profit margin with the rebate is

$ 6 comma 000$6,000

per vehicle. If the change in sales is the only consequence of this​ decision, what are its benefits and​ costs? Is it a good​ idea?

The benefits are

​$nothing

million.  ​(Round to one decimal​ place.)

10. Suppose the current market price of corn is

$ 3.38$3.38

per bushel. Your firm has a technology that can convert 1 bushel of corn to 3 gallons of ethanol. If the cost of conversion is

$ 1.47$1.47

per​ bushel, at what market price of ethanol does conversion become​ attractive?

The price at which the conversion becomes attractive is

​$nothing

per gallon.  ​(Round to the nearest​ cent.)

11. You run a construction firm. You have just won a contract to build a government office building. It will take one year to construct it requiring an investment of

$ 10.68$10.68

million today and

$ 5.00$5.00

million in one year. The government will pay you

$ 23.50$23.50

million upon the​ building's completion. Suppose the cash flows and their times of payment are​ certain, and the​ risk-free interest rate is

11 %11%.

a. What is the NPV of this​ opportunity?

b. How can your firm turn this NPV into cash​ today?

a. What is the NPV of this​ opportunity?

The NPV of this opportunity is

​$nothing

million. ​(Round to two decimal​ places.)

12. Your firm has identified three potential investment projects. The projects and their cash flows are shown​ here:  ​(Click on the icon located on the​ top-right corner of the data table below in order to copy its contents into a​ spreadsheet.)

Project

Cash Flow Today

​(millions)

Cash Flow in One Year

​(millions)

A

negative $ 10−$10

$ 20$20

B

$ 5$5

$ 5$5

C

$ 20$20

negative $ 10−$10

Suppose all cash flows are certain and the​ risk-free interest rate is

10 %10%.

a. What is the NPV of each​ project?

b. If the firm can choose only one of these​ projects, which should it​ choose?

c. If the firm can choose any two of these​ projects, which should it​ choose?

a. What is the NPV of each​ project?

The NPV of project A is

​$nothing

million. ​(Round to two decimal​ places.)

13. Throughout the​ 1990s, interest rates in

JapanJapan

were lower than interest rates in

United StatesUnited States.

As a​ result, many

JapaneseJapanese

investors were tempted to borrow in

JapanJapan

and invest the proceeds in

United StatesUnited States.

  Which of the following explains why this strategy does not represent an abritrage​ opportunity?

​(Select the best choice​ below.)

A.Most JapaneseJapanese investors were prohibited by law from taking advantage of this opportunity.

B.It is an arbitrage opportunity.

C.Other things besides money enter the picture. By investing overseas

JapanJapan

looks weak and so this is regarded as an unpatriotic act. When the cost of appearing unpatriotic is taken into​ account, the profits are erased.

D.Engaging in such transactions may incur a loss if the value of the

U.S. dollar U.S. dollar

falls relative to the

Japanese yen Japanese yen.

Because a profit is not​ guaranteed, this strategy is not an arbitrage opportunity.

14. Calculate the future value of

$ 6 comma 000$6,000

in

a. 55 years at an interest rate of 8 %8% per year.

b. 1010 years at an interest rate of 8 %8% per year.

c. 55 years at an interest rate of 16 %16% per year.

d. Why is the amount of interest earned in part

​(a​) less than half the amount of interest earned in part

​(b​)?

a. Calculate the future value of $ 6 comma 000$6,000 in 55 years at an interest rate of 8 %8% per year.

The future value of $ 6 comma 000$6,000 in 55 years at an interest rate of 8 %8% per year is

$nothing.

​ (Round to the nearest​ dollar.)

15.Your brother has offered to give you either $ 72 comma 000$72,000 today or $ 120 comma 000$120,000 in 1212 years. If the interest rate is 4 %4% per​ year, which option is​ preferable?

What is the present value of the future amount​ (amount received in 1212 years)?

The present value is

​$nothing.

(Round to the nearest​ dollar.)

16. You have a loan outstanding. It requires making 66 annual payments at the end of the next 66 years of $ 1 comma 000$1,000 each. Your bank has offered to allow you to skip making the next 55 payments in lieu of making one large payment at the end of the​ loan's term in 66 years. If the interest rate on the loan is 5.13 %5.13%​, what final payment will the bank require you to make so that it is indifferent between the two forms of​ payment?

The present value of the cash flows is

​$nothing.

​(Round to the nearest​ dollar.)

17. Marian Plunket owns her own business and is considering an investment. If she undertakes the​ investment, it will pay $ 28 comma 000$28,000 at the end of each of the next 33 years. The opportunity requires an initial investment of $ 7 comma 000$7,000 plus an additional investment at the end of the second year of $ 35 comma 000$35,000. What is the NPV of this opportunity if the interest rate is 6 %6% per​ year? Should Marian take​ it?

The NPV of this opportunity is

​$nothing.

​ (Round to the nearest​ dollar.)

18. What is the present value of $ 7 comma 000$7,000 paid at the end of each of the next 5050 years if the interest rate is 7 %7% per​ year?The present value is

​$nothing.

  ​(Round to the nearest​ dollar.)

19.Your grandmother has been putting $ 4 comma 000$4,000 into a savings account on every birthday since your first​ (that is, when you turned​ 1). The account pays an interest rate of

4 %4%. How much money will be in the account on your 18th birthday immediately after your grandmother makes the deposit on that​ birthday?

The amount in the account upon your 18th birthday is

​$nothing.

​(Round to the nearest​ dollar.)

20. You have an investment opportunity that requires an initial investment of $ 5 comma 000$5,000 today and will pay $ 6 comma 000$6,000 in one year. What is the IRR of this​ opportunity?The internal rate of return​ (IRR) is

nothing​%.

​ (Round to the nearest whole​ percentage.)

21. The Tillamook County Creamery Association manufactures Tillamook Cheddar Cheese. It sells the cheese in four​ varieties: aged 2​ months, 9​ months, 15​ months, and 2 years. At the shop in the​ dairy, it sells 2 pounds of each variety for the following​ prices: $ 8.00$8.00​, $ 9.50$9.50​, $ 11.50$11.50​, and $ 12.00$12.00​, respectively. Consider the cheese​ maker's decision whether to continue to age a particular​ 2-pound block of cheese. At 2​ months, he can either sell the cheese immediately or let it age further. If he sells it​ now, he will receive $ 8.00$8.00 immediately. If he ages the​ cheese, he must give up the $ 8.00$8.00 today to receive a higher amount in the future. What is the IRR​ (expressed in percent per​ month) of the investment of giving up $ 80.00$80.00 today by choosing to store 20 pounds of cheese that is currently 2 months old and instead selling 10 pounds of this cheese when it has aged 9​ months, 6 pounds when it has aged 15​ months, and the remaining 4 pounds when it has aged 2​ years?

The IRR is

nothing​%

per month. ​(Round to two decimal​ places.)

22.You are thinking of purchasing a house. The house costs $ 200 comma 000$200,000.

You have $ 29 comma 000$29,000 in cash that you can use as a down payment on the​ house, but you need to borrow the rest of the purchase price. The bank is offering a 3030​-year mortgage that requires annual payments and has an interest rate of 7 %7% per year. What will your annual payment be if you sign up for this​ mortgage?

The annual payment is

​$nothing.

23. You have an investment opportunity in Japan. It requires an investment of $ 0.99$0.99 million today and will produce a cash flow ofyen 114¥114 million in one year with no risk. Suppose the​ risk-free interest rate in the United States is 4.2 %4.2%​, the​ risk-free interest rate in Japan is 1.9 %1.9%​, and the current competitive exchange rate is yen 110¥110 per dollar. What is the NPV of this​ investment? Is it a good​ opportunity?What is the NPV of this​ investment?

The NPV of this investment is

​$nothing.

​(Round to the nearest​ dollar.)

24

An Exchange Traded Fund​ (ETF) is a security that represents a portfolio of individual stocks. Consider an ETF for which each share represents a portfolio of 11 shareshare of​Hewlett-Packard (HPQ),

11 shareshare of Sears​ (SHLD), and 44

shares of General Electric​ (GE). Suppose the current stock prices of each individual stock are as shown​ here:

Stock

Current Market Price

HPQ

$ 35$35

SHLD

$ 41$41

GE

$ 16$16

a. What is the price per share of the ETF in a normal​ market?

b. If the ETF currently trades for $ 122$122​, what arbitrage opportunity is​ available? What trades would you​ make? (Ignore any transaction​ costs.)

c. If the EFT currently trades for $ 152$152​, what arbitrage opportunity is​ available? What trades would you​ make? (Ignore any transaction​ costs.)

a. What is the price per share of the ETF in a normal​ market?

The price per share of the ETF in a normal market is

​$nothing.

​(Round to the nearest​ dollar.)