finalterm review公司理财复习题

一、Multiple choices

1. Your grandfather placed $5,000 in a trust fund for you. In 12 years the fund will be worth $10,000. What is the rate of return on the trust fund?

A) 3.70% B) 4.16% C) 5.95% D) 6.90% E) 8.42%

2. You are supposed to receive $3,000 four years from now. At an interest rate of 8%, what is that $3,000 worth today?

A) $1,591.97 B) $1,892.43 C) $2,205.09 D) $2,497.91 E) $2,699.01

3. The company you work for will deposit $150 at the end of each month into your retirement fund. Interest is compounded monthly. You plan to retire 25 years from now and estimate that you will need $2,000 per month out of the account for the ensuing 20 years. If the account pays 10% compounded monthly, how much do you need to put into the account each month, in addition to your company's deposit, in order to meet your objective?

A) $ 0.00; the company's deposit fully funds your retirements objective B) $105.42 C) $ 6.20 D) $21.96

E) $34.33

4. Given the following information, what is the firm's weighted average cost of capital? Market value of equity = $30 million; market value of debt = $20 million; cost of equity = 15%; cost of debt = 9%; equity beta = 1.4; tax rate = 35%.

A) 11.34%

B) 12.60% C) 12.97% D) 13.32% E) 14.08%

5. What is the future value in 12 years of $800 payments received at the

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beginning of each year for the next 12 years? Assume an interest rate of 8.25%.

A) $14,259.63 B) $15,408.65 C) $16,679.86 D) $18,495.48 E) $20,782.15

6. At the end of each year for the next 8 years you will receive cash flows of $500. If the appropriate discount rate is 7.5%, how much would you pay for this annuity?

A) $4,000.00 B) $5,841.22 C) $1,259.47 D) $2,928.65 E) $3,148.30

7. Your parents agree to pay half of the purchase price of a new car when you graduate from college. You will graduate and buy the car two years from now. You have $9,000 to invest today and can earn 12% on invested funds. If your parents match the amount of money you have in two years, what is the maximum you can spend on the new car?

A) $ 7,260 B) $11,290 C) $15,000 D) $19,250 E) $22,579

8. You need $3,000 to buy a new stereo for your car. If you have $1,200 to invest at 6% compounded annually, how long will you have to wait to buy the stereo?

A) 6.58 years B) 8.42 years C) 11.60 years D) 14.58 years E) 15.73 years

9. Cornerstone Industries has a bond outstanding with an 8% coupon rate and a market price of $874.68. If the bond matures in 6 years and interest is

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paid semiannually, what is the YTM?

A) 4.9% B) 6.9% C) 8.9% D) 10.9% E) 12.9%

Use the following to answer questions 10-14:

A firm has an expected perpetual EBIT = $4,000. The unlevered cost of capital = 15% and there are 20,000 shares of stock outstanding. The firm is considering issuing bonds of $8,800 to add financial leverage to the firm. The cost of debt = 10%, and the tax rate = 34%. There are no flotation costs. 10. What is the value of the firm before the restructuring? Assume there are no taxes.

A) $15,930 B) $17,600 C) $18,519 D) $26,667 E) $30,000

11. Considering taxes, what is the value of the firm before the restructuring?

A) $15,930 B) $17,600 C) $18,519 D) $26,667 E) $30,000

12. What is the value of the firm after the restructuring? Taxes are considered.

A) $15,930 B) $17,600 C) $18,519 D) $20,592 E) $22,461

13. What is the value of the equity after the restructuring?

A) $11,792 B) $12,600 C) $12,819 D) $13,592 E) $16,461

14. What is the cost of equity after the restructuring?

A) 14.8% B) 17.5% C) 18.4% D) 20.0% E) 22.5%

Use the following to answer questions 15-17:

Rob and Laura wish to buy a new home. The price is $387,500 and they plan to pay 20% of it as down payment. New Rochelle Savings and Loan will lend them the remainder at a 9% fixed APR for 30 years, with monthly payments to begin

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in one month. (Ignore taxes.)

15. How much will their monthly payments be?

A) $2,494.33 B) $2,825.99 C) $3,512.56 D) $3,645.45 E) $3,760.45

16. What will the outstanding balance of the loan be after ten years assuming you make the first 120 payments exactly on time?

A) $ 99,610 B) $135,467 C) $277,232 D) $239,144 E) $170,509

17. Suppose Rob wants to pay off the loan in 15 years. How much extra must he pay each month to do so?

A) $311.25 B) $501.19 C) $649.90 D) $811.35 E) $914.47

18. Given the following cash flows, what is the present value if the discount rate is 8%?

YearCash Flow1$4002$2503$9004$1925

A) $1,415.07 B) $2,714.09 C) $2,865.70 D) $3,058.96 E)

$3,222.62

19. King Noodles' bonds have a 9% coupon rate. Interest is paid quarterly and the bonds have a maturity of 10 years. If the appropriate discount rate is 10% on similar bonds, what is the price of King Noodles' bonds?

A) $937.24 B) $938.55 C) $971.27 D) $989.63 E) $991.27

20. The bonds of Microhard, Inc. carry a 12% annual coupon, have a $1,000 face value, and mature in 5 years. Bonds of equivalent risk yield 9%. What is the market value of Microhard's bonds?

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A) $1,011.20 B) $1,087.25 C) $1,095.66 D) $1,116.69 E) $1,160.25

21. A firm's stock has a required return of 12%. The stock's dividend yield is 5%. What dividend did the firm just pay if the current stock price is $50?

A) $2.18 B) $2.34 C) $2.50 D) $2.87 E) $3.60

22. Etling Inc.'s dividend is expected to grow at 5% for the next 2 years and then at 3% forever. If the current dividend is $2 and the required return is 14%, what is the price of the stock?

A) $19.43 B) $23.82

C) $25.15

D) $27.58

E) $29.70

23. Asset A has an expected return of 10%. The expected market return is 14% and the risk-free rate is 5%. What is asset A's beta?

A) 0.33

B) 0.56 C) 0.67 D) 0.88 E) 1.15

Use the following to answer questions 24-25

A firm needs to purchase equipment for a new project. The total cost of the equipment is $2 million. It is estimated that the aftertax cash inflows from the project will be $210,000 annually in perpetuity. The market value debt-to-assets ratio is 40%. The firm's cost of equity is 13% and its pretax cost of debt is 8%. The tax rate is 34%. Assume the project is of similar risk to the firm's existing operations.

24. What is the weighted average cost of capital?

A) 6.09% B) 8.73% C) 8.95% D) 9.05% E) 9.91%

25. What is the NPV of the proposed project?

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A) $ 33,966 B) $ 65,990 C) $ 98,542 D) $119,072 E) $128,034

26.J&J Manufacturing just issued a bond with a $1,000 face value and a coupon rate of 8%. If the bond has a life of 20 years, pays annual coupons, and the yield to maturity is 7.5%, what is the present value of the bond's face value? A)

$ 235.41 B) $ 341.15 C) $ 815.56 D) $1,000.00E) $1,050.97

27.A stock that pays a constant dividend of $1.50 forever currently sells for $10.71. What is the required rate of return? A)

10% B) 12% C) 13% D) 14% E) 15%

28.Given the following information, what is the firm's weighted average cost of capital? Market value of equity = $30 million; market value of debt = $20 million; cost of equity = 15%; cost of debt = 9%; equity beta = 1.4; tax rate = 35%.

A) 11.34%

B) 12.60% C) 12.97% D) 13.32% E) 14.08%

Use the following to answer questions 4-5

A firm needs to purchase equipment for a new project. The total cost of the equipment is $2 million. It is estimated that the aftertax cash inflows from the project will be $210,000 annually in perpetuity. The market value debt-to-assets ratio is 40%. The firm's cost of equity is 13% and its pretax cost of debt is 8%. The tax rate is 34%. Assume the project is of similar risk to the firm's existing operations.

29.What is the weighted average cost of capital?

A) 6.09%

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B) 8.73% C) 8.95% D) 9.05% E) 9.91%

30.What is the NPV of the proposed project?

A) $ 33,966 B) $ 65,990 C) $ 98,542 D) $119,072 E) $128,034

31.You need $3,000 to buy a new stereo for your car. If you have $1,200 to invest at 6% compounded annually, how long will you have to wait to buy the stereo?

A) 6.58 years B) 8.42 years C) 11.60 years D) 14.58 years E) 15.73 years

32.An insurance company promises to pay Jane $1 million on her 65th birthday in return for a one-time payment of $125,000 today. (Jane is 30 now.) At what rate of interest would Jane be indifferent between accepting the company's offer and investing the premium on her own?

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A) 3.4% B) 4.5% C) 5.1% D) 6.1% E) 7.2%

33.An account was opened with an investment of $2,000 10 years ago. The ending balance in the account is $3,500. If interest was compounded annually, what rate was earned on the account?

A) 2.66% B) 3.22% C) 3.95% D) 4.81% E) 5.76%

34.What is the future value in 12 years of $800 payments received at the beginning of each year for the next 12 years? Assume an interest rate of 8.25%.

A) $14,259.63 B) $15,408.65 C) $16,679.86 D) $18,495.48 E) $20,782.15

35.At the end of each year for the next 8 years you will receive cash flows of

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$500. The initial investment is $2,500. What rate of return are you expecting from this investment?

A) 11.81% B) 10.27% C) 9.01% D) 8.28% E) 7.21%

36.You agree to loan your parents $32,000 to buy a new van. They agree to pay you $650 a month for 5 years. The ________________.

A) interest rate on the loan is 0.75% per month B) APR on the loan is 7.87% C) EAR on the loan is 8.08% D) APR on the loan is 8.22% E) EAR on the loan is 8.38%

37.The stock of MTY Golf World currently sells for $90 per share. The firm has a constant dividend growth rate of 6% and just paid a dividend of $5.09. If the required rate of return is 12%, what will the stock sell for one year from now?

A) $ 90.00 B) $ 93.52 C) $ 95.40 D) $ 99.80

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E) $112.78

38.Llano's stock is currently selling for $40 per share. The expected dividend one year from now is $2 per share and the required return is 13%. What is this firm's dividend growth rate assuming the constant dividend growth model is appropriate?

A) 8% B) 9% C) 10% D) 11%

39.Asset A has an expected return of 20.4% and a beta of 1.6. The expected market return is 15%. What is the risk-free rate?

A) 2% B) 4% C) 5% D) 6% E) 8%

40.The market price of a bond is $1,236.94, it has 14 years to maturity, a $1,000 face value, and pays an annual coupon of $100 in semiannual installments. What is the yield to maturity?

A) 3.18% B) 4.26% C) 5.37%

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D) 6.11% E) 7.27%

41.King Noodles' bonds have a 9% coupon rate. Interest is paid quarterly and the bonds have a maturity of 10 years. If the appropriate discount rate is 10% on similar bonds, what is the price of King Noodles' bonds?

A) $937.24 B) $938.55 C) $971.27 D) $989.63 E) $991.27

Use the following to answer questions 17-19:

Rob and Laura wish to buy a new home. The price is $387,500 and they plan to pay 20% of it as down payment. New Rochelle Savings and Loan will lend them the remainder at a 9% fixed APR for 30 years, with monthly payments to begin in one month. (Ignore taxes.)

42.How much will their monthly payments be?

A) $2,494.33 B) $2,825.99 C) $3,512.56 D) $3,645.45 E) $3,760.45

43.What will the outstanding balance of the loan be after ten years

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assuming you make the first 120 payments exactly on time?

A) $ 99,610 B) $135,467 C) $277,232 D) $239,144 E) $170,509

44.Suppose Rob wants to pay off the loan in 15 years. How much extra must he pay each month to do so?

A) $311.25 B) $501.19 C) $649.90 D) $811.35 E) $914.47 45.Etling Inc.'s dividend is expected to grow at 5% for the next 2 years and then at 3% forever. If the current dividend is $2 and the required return is 14%, what is the price of the stock?

A) $19.43 B) $23.82

C) $25.15

D) $27.58

E) $29.70

46.Given the following cash flows, what is the present value if the discount rate is 8%?

YearCash Flow1$4002$2503$9004$1925

A) $1,415.07 B) $2,714.09 C) $2,865.70 D) $3,058.96 E) $3,222.62

47.If the following bonds are identical except for coupon, what is the price

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of bond B?

Face valueSemiannual CouponYears to maturityPriceBond A$1,000$5025$1,150.00Bond B$1,000$4025?

A) $944.58 B) $ 975.31 C) $1,037.86 D) $1,150.00 E) $1,279.47

48.You have $100,000 to invest. Your bank offers one-year certificates of deposit with a stated rate of 3.50% compounded quarterly. What rate compounded semiannually would provide you with the same amount of money at the end of one year?

A) 3.485% B) 3.500% C) 3.505% D) 3.510% E) 3.515%

49.Fast Eddie's Used Cars will sell you a Mazda Miata for $5,000. You agree to make weekly payments of $60 for 2 years, beginning one week after you buy the car. What is the EAR of this loan?

A) 20.04% B) 22.85%

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C) 25.61% D) 32.34% E) 43.01%

50.Bonds will be issued for a new project. Bonds in the same risk class issued by another firm are currently priced at $1,068.55, have 15 years remaining to maturity, and pay coupons of $90 every year. If this firm's marginal tax rate is 35%, what is the project's pretax cost of debt?

A) 8.19% B) 7.47% C) 5.32% D) 6.12% E) 9.00%

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