Posted: June 15th, 2022

FINN 3120 Test III MCQs and True/False

MULTIPLE CHOICE. Select the one different that greatest completes the assertion or solutions the Question Assignment.1) Most well-liked inventory is much like frequent inventory within the following method:A) as fairness, each are subordinate to bondholders within the occasion of chapter.B) each most well-liked inventory and frequent inventory present equal periodic dividends.C) each comprise a dividend progress issue.D) each investments have a last maturity worth set by the issuing settlement.1)2) ABC Corp. frequent inventory paid $2.50 in dividends final yr (D0). Dividends are anticipated to growat a 12-percent annual fee endlessly. If ABC?s present market worth is $70.00, what’s the inventory?sexpected fee of return (nearest .01 %)?A) 16.00% B) 5.50% C) 18.25% D) 19.00%2)three) Yanti Corp. most well-liked inventory has a 5% acknowledged dividend share, and a $100 par worth. What’s thevalue of the inventory in case your required fee of return is 6% per yr?A) $30.00 B) $100.00 C) $94.05 D) $83.333)four) Most well-liked inventory is much like a bond within the following method:A) each present curiosity funds.B) most well-liked inventory at all times comprises a maturity date.C) each investments present a acknowledged revenue stream.D) each comprise a progress issue much like frequent inventory.four)5) You observe Golden Flashes Widespread Inventory promoting for $40.00 per share. The subsequent dividend isexpected to be $four.00, and is anticipated to develop at a 2% annual fee endlessly. In case your required fee ofreturn is 14%, must you buy the inventory?A) Sure, as a result of the current worth of the anticipated future money flows is lower than $40.B) No, as a result of the current worth of the anticipated future money flows is lower than $40.C) No, as a result of the current worth of the anticipated future money flows is larger than $40.D) Sure, as a result of the current worth of the anticipated future money flows is larger than $40.5)6) Greenland Airways has web revenue of $1 million this yr. The guide worth of Greenland Airlinescommon fairness is $5 million dollars. The corporate?s dividend payout ratio is 70% and is expectedto stay this fashion. What’s Greenland Airways? inner progress fee?A) 15% B) 5.7% C) 6.Zero% D) 9percent6)7) Which of the next statements regarding the required fee of return on shares is true?A) If threat is decreased, the required return will lower as a result of extra buyers are risk-averse.B) The upper an investor?s required fee of return, the upper the worth of the inventory.C) The required return on most well-liked inventory is usually increased than the required return oncommon inventory.D) The upper the danger, the upper the required return, different issues being equal.7)18) You’re contemplating the acquisition of a typical inventory that paid a dividend of $2.00 yesterday. Youexpect this inventory to have a progress fee of 10 % for the subsequent three years. The long-run normalgrowth fee after yr three is anticipated to be 5 % (that’s, a continuing progress fee after yr three of5% per yr endlessly). Should you require a 15 % fee of return, how a lot must you be keen topay for this inventory?A) $26.89 B) $18.65 C) $ 36.24 D) $23.878)9) Nogrowth Company expects their dividend to remain at $1.50 per share annually into theforeseeable future. Due to this fact,A) The inventory can be valued at $1.50 instances the variety of years an investor plans to maintain it.B) The worth of the inventory might be estimated as $1.50 divided by an investor?s required fee ofreturn.C) The worth of the inventory cannot be decided utilizing the dividend valuation mannequin as a result of thegrowth fee is zero.D) The free money movement mannequin will yield the next inventory worth if free money movement is larger than $1.50per share.9)10) XYZ frequent inventory is at the moment promoting for $eight.00. It simply paid a dividend of $1.50 and dividends areexpected to develop at a fee of 6% indefinitely. What’s the required fee of return on XYZ?s inventory?A) 33.00% B) 26.00% C) 20.60% D) 18.00%10)11) A mission requires an preliminary funding of $50,00Zero. The mission generates free money movement of $80,000at the tip of yr 2. What’s the inner fee of return for the mission?A) 34.16% B) 44.08% C) 19.66% D) 26.44%11)12) The Kitchen Inc. is contemplating the next three mutually unique initiatives. Projected money flowsfor these ventures are as follows:Plan A Plan B Plan CInitial Preliminary InitialOutlay=$four,00Zero,00Zero Outlay=$5,00Zero,00Zero Outlay=$1,750,000Cash Move: Money Move: Money Move:Yr 1=$ -Zero- Yr 1=$four,00Zero,00Zero Yr 1=$1,00Zero,000Yr 2= -Zero- Yr 2= three,00Zero,00Zero Yr 2= -Zero-Yr three= -Zero- Yr three= 2,00Zero,00Zero Yr three=1,00Zero,000Yr four= -Zero- Yr four= -Zero- Yr four=1,00Zero,000Yr 5=$7,00Zero,00Zero Yr 5= -Zero- Yr 5=1,00Zero,000If the Kitchen has a 12% value of capital, what resolution must be made relating to the projectsabove?A) Settle for plan A B) Settle for plan BC) Settle for plan C D) Settle for Plans B and C12)13) Palm, Inc. is contemplating two mutually unique initiatives, A and B. Challenge A prices $75,00Zero and isexpected to generate $48,00Zero in yr one and $45,00Zero in yr two. Challenge B prices $80,00Zero and isexpected to generate $34,00Zero in yr one, $37,00Zero in yr two, $26,00Zero in yr three, and $25,00Zero inyear 4. Zellars, Inc.?s required fee of return for these initiatives is 10%. The modified inner rateof return for Challenge A and B,respectively, are:A) 16.49% and 15.74%. B) 19.43% and 13.40%.C) 14.19% and 15.74%. D) 14.19% and 13.40%.13)214) You’re contemplating investing in a mission with the next year-end after-tax money flows:12 months 1: $57,000Year 2: $72,000Year three: $78,000Year four: $20,000If the preliminary outlay for the mission is $185,00Zero, compute the mission?s inner fee of return.A) 10.89% B) 5.54% C) 9.61% D) 6.98%14)15) Which of the next strategies of evaluating funding initiatives can correctly consider projectsof unequal lives?A) The payback. B) The equal annual annuity.C) The interior fee of return. D) The web current worth.15)16) Your agency is contemplating an funding that can value $750,00Zero right this moment. The funding will producecash flows of $250,00Zero in yr 1, $300,00Zero in years 2 by four, and $100,00Zero in yr 5. The discountrate that your agency makes use of for initiatives of this sort is for yr 1 by yr four is 13.25%. Nonetheless,you anticipate you can scale back the dicount fee to 12.5% for yr 5. What’s the funding?s netpresent worth?A) $147.544 B) $149,525 C) $147,613 D) $132,00Zero16)17) Challenge A has an inner fee of return (IRR) of 15 %. Challenge B has an IRR of 12 %. Bothprojects have a required return of 14 %. Which of the next statements is most appropriate?A) Challenge B has the next profitability index than Challenge A.B) Each initiatives have a optimistic web current worth (NPV).C) If the required return had been lower than 14 %, Challenge B would have the next IRR thanProject A.D) Challenge A will need to have the next NPV than mission B.17)18) We compute the profitability index of a capital budgeting proposal byA) dividing the current worth of the annual after tax money flows by the money funding in theproject.B) multiplying the money influx by the interior fee of return.C) multiplying the interior fee of return by the price of capital.D) dividing the current worth of the annual after tax money flows by the price of capital.18)19) The drawback of the IRR methodology is that:A) the IRR will at all times give the identical mission settle for/reject resolution because the NPV.B) the IRR requires lengthy, detailed money movement forecasts.C) the IRR offers equal regard to all returns inside a mission?s life.D) the IRR offers with money flows.19)20) Hire-to-Personal Tools Co. is contemplating a brand new stock system that can value $450,00Zero. Thesystem is anticipated to generate optimistic money flows over the subsequent 4 years within the quantities of$250,00Zero in yr one, $125,00Zero in yr two, $25,00Zero in yr three, and $100,00Zero in yr 4.Hire-to-Personal?s required fee of return is 10%. What’s the payback interval of this mission?A) three.50 years B) four.00 years C) 2.68 years D) 2.50 years20)321) Which of the next statements in regards to the web current worth is true?A) It produces a share outcome that’s straightforward to explain.B) It’s seemingly that there can be a couple of NPV for a mission.C) It has an insufficient reinvestment assumption.D) It might be used to pick out amongst initiatives of various sizes.21)22) Some great benefits of NPV are all the following besides:A) it permits the comparability of advantages and prices in a logical method by the usage of timevalue of cash rules.B) it supplies the quantity by which optimistic NPV initiatives will improve the worth of the agency.C) it may be used as a tough screening gadget to eradicate these initiatives whose returns do notmaterialize till later years.D) it acknowledges the timing of the advantages ensuing from the mission.22)23) The entire following are ample indications to simply accept a mission besides (assume that there’s nocapital rationing constraint, and no consideration is given to payback as a call device):A) The web current worth of an impartial mission is optimistic.B) The IRR of a mutually unique mission exceeds the required fee of return.C) The profitability index of an impartial mission exceeds one.D) The NPV of a mutually unique mission is optimistic and exceeds that of all different initiatives.23)24) Preliminary Outlay Money Move in Period1 234$four,00Zero,00Zero $1,546,170 $1,546,170 $1,546,170 $1,546,170The Inner Price of Return (to nearest entire %) is:A) 24%. B) 20%. C) 18%. D) 10%.24)25) The danger free fee of return is four% and the anticipated return in the marketplace portfolio is 12%. A agency hasa beta of 1.eight and an ordinary deviation of returns of 16%. Its marginal tax fee is 30%. Analystsexpect Starship?s web revenue to develop by eight% per yr for the subsequent 5 years. Utilizing the capital assetpricing mannequin, what’s Starship Enterprises? value of retained earnings?A) 22.2% B) 18.2% C) 18.four% D) 16.6%25)26) The ABC Firm is planning a $100 million enlargement. The enlargement is to be financed byselling $40 million in new debt and $60 million in new frequent inventory. The earlier than -tax required rateof return on debt is 10 % and the required fee of return on fairness is 15 %. If thecompany is within the 30 % tax bracket, what’s the agency?s value of capital?A) 12.9% B) 9.7% C) 10.00Zero% D) 11.eight%26)27) An organization has most well-liked inventory with a present market worth of $26.5 per share. The popular stockpays an annual dividend of four% primarily based on a par worth of $100. Flotation prices related to thesale of most well-liked inventory equal $1.50 per share. The corporate?s marginal tax fee is 40%. Due to this fact,the price of most well-liked inventory is:A) 15.09%. B) 22.22%. C) 16.00%. D) four.00%.27)428) Value of capital is:A) the common value of the agency?s belongings.B) a hurdle fee set by the board of administrators.C) the speed of return that should be earned on further funding if agency worth is to remainunchanged.D) the coupon fee of debt.28)29) Which of the next causes a agency?s value of capital (WACC) to vary from an investor?s requiredrate of return on the corporate?s frequent inventory?A) The market threat premium exceeds 12%.B) The truth that the danger free fee of curiosity has elevated.C) The incurrence of flotation prices when new securities are issued.D) Not one of the above — the WACC and required return are the identical29)30) Durocorp has a goal capital construction of 50% debt and 50% fairness. Durocorp is planning to investin a mission that can necessitate elevating new capital. New debt can be issued at a before-tax yieldof 15%, with a coupon fee of 10%. The fairness can be supplied by internally generated funds so nonew exterior fairness can be issued. If the required fee of return on the agency?s inventory is 20% and itsmarginal tax fee is 40%, compute the agency?s value of capital.A) 14.5% B) 17.5% C) 15.00% D) 13.68%30)31) Given the next data on S & G Inc.?s capital construction, compute the corporate?sweighted common value of capital.Kind of P.c of Earlier than-TaxCapital Capital Construction Element CostBonds 40% 10%Most well-liked Inventory 10% 15%Widespread Inventory (Inner Solely) 50% 20%The corporate?s marginal tax fee is 40%.A) 15.5% B) 10.6% C) 13.9% D) 15%31)32) A Firm has a capital construction made up of 40% debt and 60% fairness and a tax fee of 30%. Anew subject of $1,00Zero par bonds maturing in 20 years might be issued with a coupon of 9% at a worth of$1,Zero98.18 with no flotation prices. The agency has no inner fairness out there for funding at thistime, however can subject new frequent inventory at a worth of $45. The subsequent anticipated dividend on the inventory is$2.80. The dividend for Mars Co. is anticipated to develop at a continuing annual fee of 5% per yearindefinitely. Flotation prices on new fairness can be $5.00 per share. The WACC for the agency is:A) 9.76% B) 9.44% C) 9.20% D) 14%32)33) Which of the next ought to NOT be thought-about when calculating a agency?s WACC?A) After-tax value of accounts payable B) Value of newly issued most well-liked stockC) After-tax YTM on a agency?s bonds D) Value of newly issued frequent inventory33)34) Bell Corp. has a most well-liked inventory that pays a dividend of $2.40. If you’re keen to buy thestock at $11, what’s your required fee of return (spherical your reply to the closest .1% andassume that there are not any transaction prices)?A) 9.1% B) 11.Zero% C) 20.1% D) 21.eight%34)535) The price of new most well-liked inventory is the same as:A) the popular inventory dividend divided by the market worth.B) the popular inventory dividend divided by its par worth.C) most well-liked inventory dividend divided by the web promoting worth of most well-liked.D) (1 – tax fee) instances the popular inventory dividend divided by web worth.35)36) Nogrowth Company expects their dividend to remain at $Zero.50 per share annually into theforeseeable future. Due to this fact,A) The inventory can be valued at $Zero.50 instances the variety of years an investor plans to maintain it.B) The worth of the inventory might be estimated as $Zero.50 divided by an investor?s required fee ofreturn.C) The free money movement mannequin will yield the next inventory worth if free money movement is larger than $Zero.50per share.D) The worth of the inventory cannot be decided utilizing the dividend valuation mannequin as a result of thegrowth fee is zero.36)TRUE/FALSE. A. True B. False37) Most well-liked inventory and frequent inventory issued by the identical agency may have the identical required returnbecause the riskiness of the agency?s money flows is identical for each securities.37)38) Underneath majority voting a majority (>50%) shareholder will simply have the ability to elect a easy majority ofthe board of administrators.38)39) A suitable mission ought to have a web current worth higher than or equal to zero and aprofitability index higher than or equal to at least one.39)40) Shareholders, as house owners of the company, face limitless legal responsibility for the company?s money owed,whereas bondholders, as collectors, could solely lose the worth of their funding if the corporate goesbankrupt.40)41) A chance value is a related incremental value for capital budgeting choices. 41)42) If the anticipated progress fee for dividends is zero, then the worth of frequent inventory can be equal tothe present dividend.

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