"1. TSW. Inc had the following data for last year: Net income = $800; Net operation profit after taxes (NOPAT)= $700; Total assets= $3000; Total operation capital = $2000. Information for the just-completed year is as follows: Net income = $1000; Net operation profit after taxes (NOPAT) = $925; Total assets = $2600; and Total operation capital = $2500. How much free cash flow did the firm generate during the just-completed year?,a. $383,b.$425,c. $468,d.$514,e.$566,,2. Edwards Electronics recently reported $11250 of sales, $5500 of operation costs other than depreciation , and $1250 of depreciation. The company had no amortization charges, it had $3500 of bonds that carry a 6.25% interest rate, and its federal plus state income tax rate was 35%. How much was its net cash flow?,a.$3284.75,b.$3457.63,c.$3639.61,d.$3831.17,e.$4032.81,,3. HHH Inc, reported $12500 of sales and $7025 of operating costs (including depreciation). The company had $18750 of investor-supplied operating assets (or capital), the weighted average cost of that capital (the WACC) was 9.5% and the federal plus state income tax rate was 40%. What was HHH’s Economic Value Added (EVA), i.e., how much value did management add to stockholders wealth during the year?,a.$1357.13,b. $1428.56,c.$1503.75,d.$1578.94,e.$1657.88,,4. Pace Corp.’s assets are $625,000 and its total debt outstanding is & 185,000. The new CFO wants to employ a debt ratio of 55%. How much debt must the company add or subtract to achieve the target debt ratio?,a.$158,780,b. $166,688,c.$175,022,d.$183,773,e.$192,962,,5. LeCompte Corp. has $312,900 of assets, and it uses only common equity capital(zero debt). Its sales for the last year were $620,000 and its net income after taxes was $24,655. Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 15%. What profit margin would LeCompte need in order to achieve the 15% ROE, holding everything else constant?,a. 7.57% b. 7.95% c. 8.35% d. 8.76% e. 9.20%,,6. Last year Altman Corp. had $205,000 of assets, $303,500 of sales, $18250 of net income, and a debt to total assets ratio of 41%. The new CFO believes the firm has excessive fixed assets and inventory that could be sold, enabling it to reduce its total assets to $152,500. Sales, costs, and net income would not be affected, and the firm would maintain the 41% debt ratio. By how much would the reduction in assets improve the ROE?,a. 4.69% b. 4.93% c. 5.19% d. 5.45% e. 5.73%,,7. Which of the following investments would have the highest future value at the end of 10 years? Assume that the effective annual rate for all investments is the same and is greater than zero.,a. investment A pays $250 at the beginning of every year for the next 10 years(a total of 10 payments).,b. investment B pays $125 at the end of every 6 month period for the next 10 years(total of 20 payments).,c. Investment C pays $125 at the beginning of every 6 months period for the next 10 years(total 20 payments).,d. Investment D pays $2500 at the end of 10 years(just 1 payment),e. Investment E pays $250 as the end of every year for the next 10 years(total of 10 payments).,,8. You have a chance to buy an annuity that pays $5000 at the beginning of each year for 5 years. You could earn 4.5% on your money in other investments with equal risk. What is the most you should pay for the annuity?,a. $20,701 b. $21,791 c. $22,938 d, $24,085 e. $25,289,,9. Your grandmother just died and left you $100,000 in a trust fund that pays 6.5% interest. You must spend the money on your college education, and you must withdraw the money in 4 equal installments, beginning immediately. How much could you withdraw today and at the beginning of each of the next 3 years and end up with zero in the account?,a. $24,736 b. $26,038 c. $27,409 d. $28,779 e. $30,218,,10. You plan to borrow $35,000 at 7.5% annual interest rate. The terms require you to amortize the loan with 7 equal end of year payments. How much interest would you be paying in Year 2?,a. $1,99.49 b. 2099.46 c. 2209.96 d. 2326.27 e. 2442.59,,11. Your sister turned 35 today, and she is planning to save $7000 per year for retirement, with the first deposit to be made one year from today. She will invest in a mutual fund that’s expected to provide a return of 7.5% per year. She plans to retire 30 years from today, when she turns 65 and she expects to live for 25 years after retirement to age 90. Under these assumptions, how much can she spend each year after she retires? Her first withdrawal will be made at the end of her first retirement year.,a. $58,601 b. 61,686 c. 64,932 d. 68,179 e. 71,588,,12. McCue Inc.’s bonds currently sell for $1250. The pay a $120 annual coupon, have 15 year maturity and a $1000 par value, but they can be called in 5 years at $1050. Assume that no cost other that the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. What is the difference between this bond’s YTM and its YTC?(subtract the YTC from YTM).,a. 2.11% b. 2.32% c. 2.55% d. 2.80% e. 3.09%,,13. Moerdyk Corporations bonds have a 10 year maturity, a 6.25% semiannual coupon and a par value of $1000. the going interest rate(RD) is 4.75%, based on semiannual compounding. What is the bonds price?,a. 1063.09 b. 1090.35 c. 1118.31 d, 1146.27 e. 1174.93,,14. In order to accurately assess the capital structure of a firm, it is necessary to convert its balance sheet figures to a market value basis. KJM Corporations balance sheet as of today is as follows:,,Long term debt(bonds, at par) $10,000,000,Preferred stock 2,000,000,Common stock($10par) 10,000,000,Retained earnings 4,000,000,Total debt and equity $26,000,000,,The bonds have a 4.0% coupon rate, payable semiannually, and a par value of $1000. They mature exactly 10 years from today. The yield to maturity is 12%, so the bonds now sell below par. What is the current market value of the firs debt?,a. $5,276,731 b. 5,412,032 c. 5,547,332 d. 7,706,000 e. 7,898,650,,15. O’Brien Ltd.’s outstanding bonds have a $1000 par value, and they mature in 25 years. Their nominal yield to maturity is 9.25%, they pay interest semiannually, and they sell at a price of $850. What is the bond’s nominal(annual) coupon interest rate?,a. 6.27% b. 6.60% c. 6.95% d. 7.32% e. 7.70%,,16. Maxwell Inc. stock has a 50% chance of producing a 25% return, a 30% chance of producing a 10% return and a 20% chance of producing a -28% return. What is the firms expected rate of return?,a. 9.41% b. 9.65% c. 9.90% d. 10.15% e. 10.40%,,17. Moerdyk Company’s stock has a beta of 1.40 the risk free rate is 4.25% and the market risk premium is 5.50%. What is the firms required rate of return?,a. 11.36% b. 11.65% c. 11.95% d. 12.25% e. 12.55%,,18. Consider the following information and then calculate the required rate of return for the Global Investment Fund, which holds 4 stocks. The markets required rate of return is 13.25%, the risk free rate is 7.00% and the Funds assets are as follows:,,Stock Investment Beta,A $200,000 1.50,B $300,000 -0.50,C $500,000 1.25,D $1,000,000 0.75,,a. 9.58% b. 10.09% c. 10.62% d. 11.18% e. 11.77%,,19. Magee Inc.’s manager believes that economic conditions during the next year will be strong, normal, or weak, and she thinks that the firms returns will have the probability distribution shown below. What’s the standard deviation of the estimated returns?,(hint:use the formula for the standard deviation of a population, not a sample),,Economic Conditions Prob. Return,Strong 30% 32.0%,Normal 40% 10.0%,Weak 30% -16.0%,,a. 17.69% b. 18.62% c. 19.55% d. 20.52% e. 21.55%,,20. Whited Inc.’s stock currently sell for $35.25 per share. The dividend is projected to increase at a constant rate of 4.75% per year. The required rate of return on the stock RS is 11.50%. What is the stocks expected price 5 years from now?,a. $40.17 b. 41.20 c. 42.26 d. 43.34 e. 44.46,,21. The Isberg Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future. The company’s beta is 1.15, the market risk premium is 5.00% and the risk free rate is 4.00%. What is the company’s current stock price, P0?,a. $18.62 b. 19.08 c. 19.56 d. 20.05 e. 20.55,,22. Nachman Industries just paid a dividend of D0=$1.32. Analysts expect the company’s dividend to grow by 30% this year, by 10% in Year 2 and at a constant rate of 5% in Year 3 and thereafter. The required return on this low-risk stock is 9.00%. What is the best estimate of the stock’s current market value.,a. $41.59 b. 42.65 c. 43.75 d. 44.87 e. 45.99,,23. If D1=$1.50, g(which is constant)=6.5%, and P0=$56, what is the stocks expected capital gains yield for the coming year?,a. 6.50% b. 6.83% c. 7.17% d. 7.52% e. 7.90%,,24. the Ramirez Company’s last dividend was $1.75. Its dividend growth rate is expected to be constant at 25% for 2 years, after which dividends are expedited to grow at a rate of 6% forever. Its required return(rs) is 12%. What is the best estimate of the current stock price?,,a. $41.58 b. 42.64 c. 43.71 d. 44.80 e. 45.92,
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