1. The Kumar corp is planning on issuing bonds that pay no interest but can be converted into $6000 at maturity, 9 years from their purchase.To price these bond competitively with other bods of equal risk, it is determined that they should yield at 9 percent, compounded annually. At what price should the kumar corp sell these bonds? Round to nearest cent(two decimal places)
2. Mr. Bill purchased a new house at $100,000. He paid $25,000 down and agreed to pay the rest over the next 30 years in 30 equal end-of –year payments plus 8 percent compound interest on the unpaid balance. What will these equal payments be?
3. Levine Inc. is considering several investments. The rate on treasury bills is currently 6.5 percent, and the expected return for the market is 13.0 percent. What should the rate of return for each investment be (using the CAPM)
Required rate of return for security A
Required rate of return for security B
Required rate of return for security C
Required rate of return for security D
4.The market price is $925 for a 16 year bond ($1,000 par value) that pays 11 percent interest (5.5 percent semiannually)what is the bond’s expected rate of return?
5. Shelly bond have a coupon rate of 16 percent. The interest is paid semiannually, and the bonds mature in 13 years. Their par value is $1,000. If your required rate of return is 9 percent, what is the value of the bond? What is the value of the interest paid annually?
6. You are planning to purchase 100 shares of preferred stock and must choose between Stock A and Stock B. Stock A pays an annual dividend of $3.75 and is currently selling for $32. Stock B pays an annual interest of $3.55 and is selling for $34. If your required return rate is 11.08 percent, which stock should you choose?
What is the expected return of stock A?
What is the expected return of stock B?
Which should you choose?
7. Dalton Inc. has a return on equity of 12.9 percent and retains 59 percent of its earnings for reinvestment purposes. It recently paid a dividend of $3.00 and the stock is currently selling for $44.
What is the growth rate for Dalton Inc?
What is the expected return for Dalton’s stock?
If you require a 13 percent return, should you invest in the firm? Yes or no?
8. You intend to purchase Marigo common stock at $49.00 per share, hold it for 1 year, and then sell it after a dividend of $5.25 is paid. How much will the stock price have to appreciate for you to satisfy your required rate of return of 18 percent?
9.Which for of business organization limits the liability of owners?
10. Rogue industries reported the following items for the current year. Sales=$3,000,000;Cost of goods sold=$1,500,000;Depreciation expense=$170,000;Administrative Expenses=$30,000;Marketing Expenses=$80,000;and Taxes=$300,000. What is Rogue’s gross profit?
11.A corporation has annual sales of $18 million, total assets of $4 million, a debt ratio of 40%, depreciation expense of $200,000, and tax rate of 40%. What is the corporation’s total stockholder’s equity?
12. Generally accepted accounting principles (GAAP) require finance statements prepared on a cash basis because these statements are most useful for investors and managers. True or False
14.Benkart Corporation has sales of $5,000,000, net income of $800,000, total assets of $2,000,000, and $100,000 shares of common stock outstanding. If Benkart’s P/E ratio is 12, what is the company’s current stock price?
15. Given an accounts receivable turnover of 10 and annual credit sales of $900,000, the average collection period is?
16.RBW corp has cash of $48,000; short – term notes payable of $35,000, accounts payable of $100,000; accounts payable of $120,000;inventories of $200,000; and accruals of $90,000. What is RBW’s current ratio?
17. You have been depositing money at the end of each year into an account drawing 8% interest. What is the balance in the account at the end of year four if you deposited the following amounts?
YEAR END OF YEAR DEPOSIT
18. Last National Bank is offering you a loan at 10%; payments on the loan are to be made monthly. Credit Onion is offering you a loan where payments are to be made semi-annually; the rate on the loan is also 10%. Local Bank down the street is also offering a loan at 10% where the payments are made quarterly. Which loan has the lowest annual cost?
19. You are ready to retire. A glance at your 401(k) statement indicates that you have $750,000. If the funds remain in an account earning 9.0%, how much could you withdraw at the beginning of each year for the next 25 years?
20. Stock W has the following returns for various states of the economy:
State of Economy Probability Stock W’s Return
Recession 10% -30%
Below Average 20%-2%
Average 40% 10%
Above Average 20% 18%
Boom 10% 40%
Stock W’ standard deviation of return is?
21. Which type of security is considered the most risky:
Long term corporate bond, common stocks of large companies, common stocks of small companies, long tern government bonds?
22. How can investors reduce the risk associated with an investment portfolio without having to accept a lower expected return?
a. increase the amount of money invested in the portfolio
b. Wait until the stock market rises
c. purchase a variety of securities; i.e., diversity
d. purchase stocks that have exceptionally high standard deviations
23. An example of a Eurobond is a bond issued in Asia by U.S. Corporation with interest and principal payments made in U.S. Dollars. True or False
24. The present value of the expected future cash flows of an asset represents the asset’s__________?
25. What is the value of a bond that has a par value of $1000, a coupon of $120 (annually), and matures in 10 years? Assume a required rate of return of 7.02%?
26. Lithium Lakes industries preferred stock has a par value of $100 and pays a dividend of $6.00 per share. It presently sells for $87 per share. What do investors require as a rate of return on this stock? Round off to the nearest .10%
27. DYI construction co is considering a new inventory system that will cost $750,000. The system is expected to generate positive cash flows over the next four years in the amounts of $350,000 in year one, $325,000 in year two, $150,000 in year three, and $180,000 in year four. DYI’s required rate of return is 8%. What is the payback period of this project?
28. Your firm is considering an investment that will cost $920000 today. The investment will produce cash flows of $450,000 in year 1, $270,000 in years 2 through 4, and $200,000 in year 5. The discount rate that your firm uses for projects of this type is 11.25%. What is the investment’s net present value?