FIN 515 Week
4 : Business Valuation and Stock Valuation – Exam
1.(TCO A) Which of the following statements is
CORRECT?
2.(TCO G) Smith & Constantine Inc. recently
announced that their net income increased sharply from the previous year, yet
their net cash flow from operations declined. Which of the following could
explain this performance?
3.(TCO G) Lucky Corp. has $312,900 of assets, and
it uses only common equity capital (zero debt). Its sales for the last year
were $620,000, and its net income after taxes was $24,655. Stockholders
recently voted in a new management team that has promised to lower costs and
get the return on equity up to 15%. What profit margin would Lucky Corp. need
in order to achieve the 15% ROE, holding everything else constant?
4.(TCO B) Suppose a state of Delaware bond will
pay $1,000 10 years from now. If the going interest rate on these 10-year bonds
is 5.5%, how much is the bond worth today?
5.(TCO B) Your
father paid $10,000 (CF at t = 0) for an investment that promises to pay $750
at the end of each of the next five years, then an additional lump sum payment
of $10,000 at the end of the fifth year. What is the expected rate of return on
this investment?
6. (TCO B) Suppose you
borrowed $14,000 at a rate of 10.0% and must repay it in five equal
installments at the end of each of the next five years. How much interest would
you have to pay in the first year?
7.
(TCO D) A 15-year bond with a face value of $1,000 currently sells
for $850. Which of the following statements is CORRECT?
8.(TCO D) Garvin EnterprisesΓ’ΒΒ bonds currently sell
for $1,150. They have a six-year maturity, an annual coupon of $85, and a par
value of $1,000. What is their current yield?
9. (TCO C) 5-year
Treasury bonds yield 5.5%. The inflation premium (IP) is 1.9%, and the maturity
risk premium (MRP) on five-year bonds is 0.4%. What is the real risk-free rate,
r*?
10. (TCO C) Assume that to
cool off the economy and decrease expectations for inflation, the Federal
Reserve tightened the money supply, causing an increase in the risk-free rate,
rRF. Investors also became concerned that the Fed’s actions would lead to a
recession, and that led to an increase in the market risk premium, (rM – rRF).
Under these conditions, with other things held constant, which of the following
statements is most correct?
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