FIN 534 Midterm Exam 2

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FIN 534 Midterm Exam – 2018

  1. Which of the following statements is CORRECT?
  2. Which of the following statements is CORRECT?
  3. EP Enterprises has the following income statement. How much net operating profit after taxes (NOPAT) does the firm have?
  4. Companies generate income from their “regular” operations and from other sources like interest earned on the securities they hold, which is called non-operating income. Lindley Textiles recently reported $12,500 of sales, $7,250 of operating costs other than depreciation, and $1,000 of depreciation. The company had no amortization charges and no non-operating income. It had $8,000 of bonds outstanding that carry a 7.5% interest rate, and its federal-plus-state income tax rate was 40%. How much was Lindley’s operating income, or EBIT?
  5. Swinnerton Clothing Company’s balance sheet showed total current assets of $2,250, all of which were required in operations. Its current liabilities consisted of $575 of accounts payable, $300 of 6% short-term notes payable to the bank, and $145 of accrued wages and taxes. What was its net operating working capital that was financed by investors?
  6. Which of the following statements is CORRECT?
  7. Heidee Corp. and Leaudy Corp. have identical assets, sales, interest rates paid on their debt, tax rates, and EBIT. However, Heidee uses more debt than Leaudy. Which of the following statements is CORRECT?
  8. Bonner Corp.’s sales last year were $415,000, and its year-end total assets were $355,000. The average firm in the industry has a total assets turnover ratio (TATO) of 2.4. Bonner’s new CFO believes the firm has excess assets that can be sold so as to bring the TATO down to the industry average without affecting sales. By how much must the assets be reduced to bring the TATO to the industry average, holding sales constant?
  9. Your cousin will sell you his coffee shop for $250,000, with “seller financing,” at a 6.0% nominal annual rate. The terms of the loan would require you to make 12 equal end-of-month payments per year for 4 years, and then make an additional final (balloon) payment of $50,000 at the end of the last month. What would your equal monthly payments be?
  10. Which of the following statements is CORRECT?
  11. What’s the future value of $1,200 after 5 years if the appropriate interest rate is 6%, compounded monthly?
  12. Suppose you borrowed $12,000 at a rate of 9.0% and must repay it in 4 equal installments at the end of each of the next 4 years. How large would your payments be?
  13. Which of the following statements is CORRECT?
  14. Assume that a 10-year Treasury bond has a 12% annual coupon, while a 15-year T-bond has an 8% annual coupon. Assume also that the yield curve is flat, and all Treasury securities have a 10% yield to maturity. Which of the following statements is CORRECT?
  15. Sentry Corp. bonds have an annual coupon payment of 7.25%. The bonds have a par value of $1,000, a current price of $1,125, and they will mature in 13 years. What is the yield to maturity on these bonds?
  16. Stock A’s stock has a beta of 1.30, and its required return is 12.00%. Stock B’s beta is 0.80. If the risk-free rate is 4.75%, what is the required rate of return on B’s stock? (Hint: First find the market risk premium.)
  17. Which of the following statements is CORRECT?
  18. Suppose that Federal Reserve actions have caused an increase in the risk-free rate, rRF. Meanwhile, investors are afraid of a recession, so the market risk premium, (rM − rRF), has increased. Under these conditions, with other things held constant, which of the following statements is most correct?
  19. A stock is …..to pay a year-end dividend of $2.00, i.e., D1 = $2.00. The dividend is …..to decline at a rate of 5% a year forever (g = −5%). If the company is in equilibrium and its expected and required rate of return is 15%, which of the following statements is CORRECT?
  20. Which of the following statements is CORRECT?
  21. The required return for Williamson Heating’s stock is 12%, and the stock sells for $40 per share. The firm just paid a dividend of $1.00, and the dividend is expected to grow by 30% per year for the next 4 years, so D4 = $1.00(1.30)4 = $2.8561. After t = 4, the dividend is ….to grow at a constant rate of X% per year forever. What is the stock’s …..constant growth rate after t = 4, i.e., what is X?
  22. Which of the following statements is CORRECT?
  23. You are considering two equally risky annuities, each of which pays $25,000 per year for 10 years. Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due. Which of the following statements is CORRECT?
  24. If D1 = $1.25, g (which is constant) = 4.7%, and P0 = $26.00, what is the stock’s …..dividend yield for the coming year?
    $35.50 per share is the current price for Foster Farms’ stock. The dividend is ….to increase at a constant rate of 5.50% per year. The required rate of return on the stock, rs, is 9.00%. What is the stock’s ….price 3 years from today?
  25. Which of the following statements is CORRECT, assuming positive interest rates and holding other things constant?fin 534 midterm exam