_____1. Assume the pre-tax profit of $50,000 has been earned by a business, and the owner/proprietor wants to withdraw all of the after-tax profit for personal use. Assume the tax rate for a C corporation is 34%, while the rate for a person is 27%. The after-tax earnings available under the corporate and proprietorship forms of business are:
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a.
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for a corporation, $24,090; for a proprietorship, $36,500.
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b.
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for a corporation, $25,125; for a proprietorship, $37,500.
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c.
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for either a corporation or a proprietorship, $36,500.
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d.
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for either a corporation or a proprietorship, $24,090.
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The company had cash of $1,206, inventory of $14,290, and accounts receivables
of$6,589. The company's net fixed assets were $42,412, and other assets were $2,822.
It had accounts payable of $11,580, notes payable of $2,886, common stock of $21,800,
and retained earnings of $14,368. How much long-term debt did the firm have?
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a.
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$12,314
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b.
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$16,685
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c.
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$18,334
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d.
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$22,342
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______ 3. The Millennium Chemical Corporation announced that for the period ending December 31, 2015, it earned income after taxes of $2,768,028 on revenues of $13,144,680. The company's costs (excluding depreciation and amortization) amounted to 61% of revenues, and Centennial
had interest expenses of $392,168. What is the firm's depreciation and amortization expense if
its tax rate was 30percent?
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a.
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$540,275
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b.
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$ 486,290
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c.
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$958,083
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d.
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$779,931
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The information below should be used for question 5
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2014 and 2015 Balance Sheets for Nabors, Inc
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($ millions)
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2014
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2015
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2014
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2015
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Cash
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mce_markernbsp; 310
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mce_markernbsp; 405
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Accounts Payable
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mce_markernbsp; 3,520
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mce_markernbsp; 3,770
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Accounts Rec.
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3,250
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3,685
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Notes Payable
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100
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155
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Inventory
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5,275
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3,850
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Long-Term Debt
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8,735
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8,800
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Net Fixed Assets
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10,960
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12,670
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Common Stock
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5,750
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5,825
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Retained Earnings
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1,690
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2,060
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Total Assets
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mce_markernbsp; 19,795
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$ 20,610
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Total Liab. & Equity
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mce_markernbsp; 19,795
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mce_markernbsp; 20,610
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______ 4. What is the change in net working capital from 2014 to 2015?
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a.
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$4,015
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b.
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$1,335
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c.
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-$1,200
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d.
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-$3,405
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______ 5. Further Along, Inc. had earnings after tax (EAT) of $320,000 last year. Its expenses included
depreciation of $55,000, interest of $40,000. It purchased new equipment for $20,000.
The company also sold stock for $40,000. What is Ship-to-Shore's net cash flow for last year?
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a.
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$380,000
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c.
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$315,000
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b.
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$425,000
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d.
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$395,000
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______ 6. GenTech Pharma has reported the following information:
Sales/Total Assets = 2.17ROA = 12.74% ROE = 21.58%
What is the firm's profit margin and debt ratio?
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a.
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4.3%; 1.90
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c.
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3.7%; 1.90
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b.
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5.9%; 0.41
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d.
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3.7%; 0.47
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______ 7. B.J. Industries has sales of $3,000, total assets of $2,500 and a profit margin of 5%. The firm has a total debt ratio of 40%. What is the return on equity?
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a.
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6%
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c.
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10%
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b.
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8%
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d.
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12%
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______8.You are comparing two investment options. The cost to invest in either option is the same today. Both options provide you with $20,000 of income. Option A pays five annual payments of $4,000 each. Option B pays five annual payments starting with $8,000 the first year followed by four annual payments of $3,000 each. Which one of the following statements is correct given these two investment options?
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a.
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Both options are of equal value given that they both provide $20,000 of income.
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b.
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Option A has a higher present value than option B given any positive rate of return.
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c.
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Option B has a higher present value than option A given any positive rate of return.
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d.
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Option B has a lower future value at year 5 than option A given a zero rate of return.
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_____ 9. You want to buy a car for $25,650. The finance company will charge you 6.6% annual rate compounded monthly on a 4-year loan. If you can afford $485 monthly payments, how much do you need to borrow? How much do you need for a down payment?
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a.
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$18,441; $7,209
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b.
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$25,650; $0
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c.
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$22,590; $3,060
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d.
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$20,412; $5,238
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_____10.You are the manager of an annuity settlement company. Bob Logan just won the state lottery which promises to pay him $1,000per year for 20 years, starting from today, and $2,000 per year for years 21-45, given a 7.35% discount rate.Your company wants to purchase the proceeds from the lottery from Jim. What is the most that your company can offer?
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a.
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$16,940.38
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b.
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$18,680.93
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c.
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$13,770.90
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d.
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$15,780.51
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____ 11. Mary Spinks currently has $5,750 in a money market account paying 4.37 percent compounded semi-annually. She plans to use this amount and her savings over the next 5 years to make a down payment on a townhouse. She estimates that he will need $15,000 in 5 years. How much should she
invest in the money market account semi-annually over the next 5 years to achieve this target?
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a.
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mce_markernbsp; 886.28
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b.
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mce_markernbsp; 712.01
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c.
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mce_markernbsp; 650.97
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d.
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mce_markernbsp; 610.79
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____ 12. The Felix Corp has just decided to save $10,000 each quarter for the five years as a safety net for economic downturns. The money will be set aside in a separate savings account that pays 6.25 percent annual rate, with interest compounded quarterly. The first deposit will be made today. If the company wanted to deposit an equivalent lump sum today, how much would it have to deposit?
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a.
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$190,454.86
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c.
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$189,468.05
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b.
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$173,299.39
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d.
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$170,633.25
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____ 13. What is the value of this 25 year lease? The first payment, due one year from today is $2,000 and each annual payment will increase by 5%. The discount rate used to evaluate similar leases is 7.5%. (Round to the nearest dollar).
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a.
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$39,808
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b.
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$40,000
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c.
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$35,577
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d.
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$68,000
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____ 14. Fennertyhas a 6-year, 8% annual coupon bond with a $1,000 par value. Riesenhas a 12-year, 8% annual coupon bond with a $1,000 par value. Both bonds currently have a yield to maturity of 6%. Which of the following statements are correct if the market yield increases to 7%?
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a.
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Both bonds will decrease in value by 4.61%.
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b.
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The Riesen bond will increase in value by $88.25.
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c.
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The Fennertybond will increase in value by 4.61%.
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d.
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The Riesenbond will decrease in value by 7.56%.
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____ 15. BioMax Inc. offers a 10 percent coupon bond that has a $1,000 par value, semiannual coupon payments and 20 years of its original 25 years left to maturity. Which of the following statements is true if the market return on similar bonds is 8.5%?
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a.
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The bond will sell at a premium of $1,143 because the coupon rate is less than the market interest rate.
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b.
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The bond will sell at a discount of $871 because the coupon rate is greater than the market interest rate.
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c.
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The bond will sell at a premium of $1,143 because the coupon rate is greater than market interest rate.
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d.
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The bond will sell at a discount of $871 because the coupon rate is less than the market interest rate.
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____ 16.If a stock portfolio is well diversified, then the portfolio variance
|
a.
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will equal the variance of the most volatile stock in the portfolio.
|
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b.
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may be less than the variance of the least risky stock in the portfolio.
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c.
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must be equal to or greater than the variance of the least risky stock in theportfolio.
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d.
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will be a weighted average of the variances of the individual securities in the portfolio.
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____ 17. Collier stock has exhibited a standard deviation in returns of 0.7, whereas Easterly
stock has exhibited a standard deviation of 0.8. The correlation coefficient between the
stock returns is 0.1. What is the standard deviation of a portfolio composed of 70%
Collier and 30%Easterly?
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a.
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0.49578
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b.
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0.32122
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c.
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0.50578
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d.
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0.56676
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_____ 18. Circle Enterprises, Inc. paid a dividend last year of $3.55, which is expected to grow at a constant rate of 6%. Star Solutions has a beta of 1.5 and their stock is currently selling for $51.66. If the market interest rate is 11% and the risk-free rate is 3%, would you purchase Star Solutions' stock?
|
a.
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No, because it is overvalued $4.76
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c.
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Yes, because it is undervalued $9.85
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b.
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Yes, because it is undervalued $4.76
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d.
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No, because it is overvalued $9.85
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_____ 19. You are comparing stock A to stock B. Given the following information, which one of these two
Stocksshould you prefer and why?
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Rate of Return if State Occurs
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State of the Economy
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Probability of State of the Economy
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Stock A
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Stock B
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Boom
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60%
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9%
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15%
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Recession
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40%
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4%
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-6%
|
|
a.
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Stock A; because it has a higher expected return and appears to be less risky than stock B.
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b.
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Stock A; because it has a lower expected return but appears to be less risky than stock B.
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c.
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Stock B; because it has a higher expected return and appears to be more risky than stock A.
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d.
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Stock B; because it has a higher expected return and appears to be less risky than stock A.
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_____ 20. Carmen Electronics bought a new machine for $5 million. The company expects additional cash flows from the machine of $1.2 million each year for the next seven years. What is the payback period for this project? If their acceptance period is 5 years, will this project be accepted?
|
a.
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4.17 years; yes
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c.
|
3.83 years, yes
|
|
b.
|
4.17 years; no
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d.
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3.83 years; no
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_____21. Jekyll and Hyde, Inc. has just purchased the rights to a movie. The company has the option of producing the movie on either a large budget of $25 million or a small budget of $10 million. The cash flow in year 1 for the large budget movie is $65 million, while the cash flow in year 1 for the small-budget movie is $40 million. The cost of capital is 25%. Which project should be accepted?
|
a.
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The large-budget movie because the IRR is higher.
|
|
b.
|
The small-budget movie because the NPV is lower.
|
|
c.
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The large-budget movie because the NPV is higher.
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d.
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The small-budget movie because the IRR is lower.
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____ 22. The projected cash flows for two mutually exclusive projects are as follows:
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Year
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Project A
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Project B
|
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0
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($150,000)
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($150,000)
|
|
1
|
0
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50,000
|
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2
|
0
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50,000
|
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3
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0
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50,000
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4
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0
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50,000
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5
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250,000
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50,000
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If the cost of capital is 10%, the decidedly more favorable project is:
|
a.
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project B with an NPV of $39,539 and an IRR of 19.9%.
|
|
b.
|
project A with an NPV of $5,230 and an IRR of 10.8%.
|
|
c.
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project A with an NPV of $39,539 and an IRR of 10.8%.
|
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d.
|
project B with an NPV of $5,230 and an IRR of 19.9%.
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____ 23. You are considering two mutually exclusive projects with the following cash flows. Will your choice between the two projects differ if the required rate of return is 8% rather than 11%? If so, what should you do?
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Year
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Project A
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Project B
|
|
|
0
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($240,000)
|
($198,000)
|
|
|
1
|
0
|
110,800
|
|
|
2
|
0
|
82,500
|
|
|
3
|
325,000
|
45,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
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Yes; select A at 8% and B at 11%.
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|
|
b.
|
Yes; select B at 8% and A at 11%.
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|
|
c.
|
No; regardless of the required rate, project A always has the higher NPV.
|
|
|
d.
|
No; regardless of the required rate, project B always has the higher NPV.
|
| |
|
|
|
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_____24.Capital budgeting analysis of mutually exclusive projects A and B yields the following:
|
|
Project A
|
Project B
|
|
IRR
|
18%
|
22%
|
|
NPV
|
$270,000
|
$255,000
|
|
Payback Period
|
2.5 yrs
|
2.0 yrs
|
Management should choose:
|
a.
|
project B because most executives prefer the IRR method.
|
|
b.
|
projectBbecause two out of three methods choose it.
|
|
c.
|
project A because NPV is the best of the three methods.
|
|
d.
|
either project because the results aren't consistent.
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