Question 1.1. (TCO A) Double taxation is a drawback for which of the following types of business organization except?
S corporation
C corporation
Limited partnership
Limited liability company
Question 2.2. (TCO A) A sole proprietorship is owned by
one person.
one or two people, but if there are two owners, they must be married to each other.
up to 100 owners.
up to 64 owners.
Question 3.3. (TCO B) Which of the following would cause the present value of an annuity to decrease?
Reducing the number of payments.
Increasing the number of payments.
Decreasing the interest rate.
Decreasing the liquidity of the payments.
Question 4.4. (TCO B) In a TVM calculation, if the interest rate is 10% per year and payments are monthly, the interest rate should be entered as
10
.10
.833 or .00833, depending on the method being used.
120 or 1.20 depending on the method being used.
Question 5.5. (TCO G) If you were a manager of a company, which of the three right side components of the DuPont Identity would you want to increase and which would you want to decrease, other things being equal? Give a specific example for how to do that for each of the three.
Question 6.6. (TCO D) A stock pays an annual dividend of $2.50 and that dividend is not expected to change. Similar stocks pay a return of 10%. What is P0?
Question 7.7. (TCO D) A stock has just declared an annual dividend of $2.25 to be paid one year from today. The dividend is expected to grow at a 7% annual rate. The return on equity for similar stocks is 12%. What is P0?
Question 8.8. (TCO D) A particular bond has 8 years to maturity. It has a face value of $1,000. It has a YTM of 7% and the coupons are paid semiannually at a 10% annual rate. What does the bond currently sell for?
Question 9.9. (TCO D) A bond currently sells for $887 even though it has a par of $1,000. It was issued two years ago and had a maturity of 10 years. The coupon rate is 7% and the interest payments are made semiannually. What is its YTM?
Question 10.10. (TCO D) What is β and why is it important to investors and issuers of stock? Describe the behavior of stocks with βs of greater than one, less than one, and less than zero.
Question 11.11. (TCO E) A company has 100 million shares outstanding trading for $8 per share. It also has $900 million in outstanding debt. If its equity cost of capital is 15%, and its debt cost of capital is 12%, and its effective corporate tax rate is 40%, what is its weighted average cost of capital?
Question 12.12. (TCO A) Name and describe the three functions of managerial finance. For each, give an example other than those used in the text and lecture.
Question 13.13. (TCO H) What is the difference between the cash cycle and the operating cycle? Under what condition would they be the same?
Question 14.14. (TCO F) A company has the opportunity to do any of the projects for which the net cash flows per year are shown below. The company has a cost of capital of 12%. Which should the company do and why? You must use at least two capital budgeting methods. Show your work.
Year A B C
0 -350 -250 -250
1 100 -50 100
2 100 100 100
3 100 100 100
4 100 100 100
5 100 100 100
6 50 100 100
7 -200 - 200 0