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Common stock
d. Preferred stock
2. a bond indenture: a. Contains the legal agreement between the firm and the
trustee. b. States the bonds current rating. c. States the yield to maturity of the bond d.
Allows the sale of accounts receivable
3. A bond has a 1-% coupon rate, a par value of $1000, and a market price of $800. What
is the current yield of this bond? a. 10% b. 11.4% c. 12.2% d. 12.5%
4. Which type of value is shown on the firms balance sheet? a. Liquidation value b.
Book value c. Market value d. Intrinsic value
5. the present value of the expected future cash flows of an asset represents the assets: a.
Liquidation value. b. Book value c. Intrinsic value d. Par value
6. in an efficient securities market, the market value of a security is equal to its: a.
liquidation value, b. book value c. intrinsic value d. par value
7. What is the value of a bond that has a par value of $1000, a coupon of $80(annually),
and matures in 11 years? Assume a required rate of return of 11%, and round your answer
to the nearest $10. a. $320 b. $500 c. $810 d. $790
8. the interest on corporate bonds is typically paid: a. semi-annually b. annually c.
quarterly d. monthly
9. Terminator bug company bonds have a 14% coupon rate. Interest is paid semiannually. The bonds have a par value of $1000 and will mature 10 years from now.
Compute the value of terminator bonds if investors required rate of return is 12%,
rounded to the nearest dollar. a. $1115 b. $1149 c. $1000 d. $894
10. Cassel corporation bonds pay an annual coupon rate of 10%. If investors required
rate of return is now *% on these bonds, they will be priced at: a. par value b. a premium
to par value c. a discount to par value d. asset value
11. How is preferred stock similar to a bond? a. Preferred stock always contains a
maturity date b. Dividends are limited in amount c. Both contain a growth factor
similar to common stock d. Dividends are deductible for tax purposes
12. cumulative preferred stock: a. provides for the right to vote b. provides for the right to
vote cumulatively c. provides for a claim to dividends after common stock d. requires
dividends in arrears to be carried over into the next period
13. valuation methods treat preferred stock as a: a. perpetuity b. capital asset c. common
stock d. long-term bond
14. Style corporation preferred stock pays a dividend of $3.15 a year. What is the value of
the stock if the required rate of return is 8.5%? (round your answer to the nearest$1)
a. 23 b. 27 c. 33 d. 37
15. What is the value of a preferred stock that pays a $2.10 dividend annually to an
investor with a required rate of return of 11%? (round your answer to the nearest $1) a.
$17 b. $19 c. $21 d. $23
16. Common stock involves ____________the Corporation. a. Ownership in b.
Personally managing c. Being a creditor of d. The maturity of
17. Common stock dividends must be ________ before issued. a. Approved by common
stockholders b. Registered with the SEC c. Approved by preferred stockholders d.
Declared by the firms board of directors
18. Which of the following is an example of the internal growth factor of common stock?
a. Acquiring a loan to fund an investment in Germany b. Two strong companies merging
together to increase their economy of scale c. Issuing new stock to provide capital for
future growth d. Retaining profits in order to reinvest into the firm.
19. Little feet Shoe Company just paid a dividend of $1.65 on its common stock. This
companys dividends are expected to grow at a constant rate of 3% indefinitely. If the
required rate of return on this stock is 11%, compute the current value per share of this
stock. a. $15 b. $20.63 c. $21.25 d. $55
20. What is the expected rate of return for a stock with a current market price of $35, if
the expected dividend at the conclusion of this year is $1.75, and earnings are growing at
a 10% annual rate? (Assume that the dividends are anticipated to grow at the same rate.)
a. 25% b. 15% c. 10% d. 5%
1. What is the payback period for a $20000 project that is expected to return $6000 per
year for the first two years and $3000 per year for years three through five? a.3.5 b. b.4.5
c. c.4.66 d. d.5
2. Rymer, inc. is considering a new assembler, which costs $180,000 installed, and has a
depreciable life of 5 years. The expected annual after-tax cash flows for the assembler are
$60,000 in each of the 5 years and nothing thereafter. Calculate the net present value
(NPV) of the assembler if the required rate of return is 14%. Round to the nearest ten
dollars. a. $25,200 b. $25,980 c. $51,960 d. $120,000
3. Which of the following is considered in the calculation of incremental cash flow? a.
Re-engineering and installation costs b. Repayment of principal if new debt is issued c.
1. Use the percent of sales method to forecast next years accounts payable. Current year
slaes are $24,500,000 and sales are expected to rise by 25%. The firms accounts payable
balance is $1,701,600. what is the projection for next years accounts payable? a.
$1,000,600 b. $2,127,000 c. $3,981,250 d. $6,125,000
2. A firm has a return on equity (ROE)of 15%. Dividend payout is 25% of net income.
Leverage is 1.20. What is the sustainable rate of growth? a. 3.75% b. 4.28% c. 11.25% d.
13.50%
3. A company collects 60% of its sales during the month of sale, 30% one month after the
sale, and 10% two months after the sale. Expected sales are: $10,000 in August, $20,000
in September, $30,000 in October, and $40,000 in November. How much cash is
expected to be collected in October? a. $15000 b. $25000 c. $35000 d. $60000
6. Assume the british pound is worth $1.9459. if a new jaguar costs $49,500, what is the
cost in british pounds? a. 12,719 b. 25,438 c. 48,161 d. 96,322