公司理财Corporate Finance Practice Questions for the final exam

1、Corporate FinancePractice Questions for the Final ExamPart AQuestion 1: For a project with conventional cash flows, if Present Value Index is greater than 1, then the:A: IRR is equal to the firms cost of capitalB: IRR is equal to the firms required rate of returnC: NPV is greater than zeroD: Account

2、ing rate of return exceeds the IRRE: NPV is negativeQuestion 2: A invests in a property that pays him 14% annually. If A invests $325, calculate As simple interest component at the end of 24 months?A: $119B: $109C: $91D: $90E: $93Question 3: All other things being equal, the lower the coupon rate:A:

3、 the longer the time to maturityB: the higher the price C: the lower the priceD: the greater the interest rate riskE: none of the aboveQuestion 4: Calculate the NPV if the outflow is $50 000 and the inflows are:Year 1 $10 000Year 2 $20 000Year 3 $50 000Year 4 -$5 000The appropriate discount rate is

4、18%.A: $961B: $691C: $1 961D: $1 691E: $1 196Question 5: The current value of future cash flows discounted at the discount rate is: A: future valueB: future value interest factorC: present value interest factorD: compounding valueE: present valueQuestion 6: There is an inverse relationship between i

5、nterest rates and:A: coupon B: bond pricesC: term to maturityD: face valueE: both A and DQuestion 8: Assume that a project generates cash flows of $2 000 in years 1 and 2, $4 000 in the next two years, and $5 000 in the last year. The initial investment is $10 000. The discount rate is 10%. What is

6、the NPV?A: $12 313B: $10 000C: $ 2 313D: $ 2 133E: $22 313Question 9: You are interested in buying a property that will cost you $10 million. You have $2.3 million. If you earn interest at the rate of 5% per year, how long will you have to wait before you buy this property?A: 30.21 yearsB: 30.10 yea

7、rsC: 30.12 yearsD: 30.00 yearsE: 29.12 yearsQuestion 11: A Limited has just paid a dividend of $0.30 per share. The dividend grows at a steady rate of 8% per year. Based on this information what will be the dividend in five years?A: $0.144B: $0.141C: $0.444D: $0.441E: $0.044 Question 12: The next di

8、vidend for A Limited will be $0.40 per share. Investors require a 16% return on companies such as A Limited. As dividend increases by 6% every year. Based on the dividend growth model what is the value of A Limiteds shares today?A: $2.50B: $0.40C: $5.05D: $4.00E: cannot be calculatedQuestion 13: The

9、 discount rate that makes the NPV of an investment zero is known as the:A: discounted rate of returnB: average rate of returnC: required rate of returnD: internal rate of returnE: target rate of returnQuestion 15: A Limited has just issued a bond with a $100 face value and a coupon rate of 8%. If th

10、e bond has a life of 20 years, pays annual coupons and the YTM is 7.5%, what will the bond sell for?A: $102B: $105.10C: $108.70D: $116.20E: $101.50Question 16: Price/earnings ratio is defined as:A: price per share/book value per shareB: price per share/market value per shareC: price per share/earnin

11、gs per shareD: earnings per share/price per shareE: price per share/market value per shareQuestion 17: You are interested in buying a property that will cost you $10 million. You have $2.3 million. If you earn interest at the rate of 16% per year, how long will you have to wait before you buy this p

12、roperty?A: 12 yearsB: 11 yearsC: 10 yearsD: 8.96 yearsE: 9.10 yearsQuestion 18: A conventional cash flow is a cash flow where the first cash flow: A: is positive and all other cash flows are negativeB: is negative and all other cash flows are also negativeC: is negative and all other cash flows are

13、positiveD: is positive and all other cash flows are also positiveE: there is no such thing as a conventional cash flowQuestion 19: A Limited has just issued a bond with a $100 face value and a coupon rate of 8%. If the bond has a life of 20 years, pays annual coupons and the YTM is 7.5% what is the

14、present value of the bonds face value?A: $100B: $105.09C: $80.05D: $25.34E: $23.54Question 20: Total return has two components: one of them is the dividend yield and the other is: A: required returnB: current priceC: capital gains yieldD: cash dividend rateE: future dividendQuestion 21: The present

15、value index is defined as:A: initial outlay/net cash flowsB: value of net cash flows/initial outlayC: present value of net cash flows/initial outlayD: present value of cash outlays/initial outlayE: none of the above Question 22: You are considering a one-year investment. If you invest $1250 you will

16、 get back $1350. What rate is this investment paying?A: 7.5%B: 6.5%C: 8.5%D: 8.0%E: 9.0%Question 23: Alternative investment projects are known as: A: independent projectsB: mutually exclusive projectsC: positively correlated projectsD: negatively correlated projectsE: higher opportunity cost project

17、Question 24: A bank is offering 12% compounded quarterly. If you put $100 in an account, how much will you have at the end of one year?A: $115.12B: $112.15C: $112.50D: $112.55E: $126.68Question 25: The - method ignores the time value of money and cash flows beyond a specified point in time, and is l

18、argely useful only in evaluating short-term projects.A: NPVB: IRRC: ARRD: pay back E: present value index Question 27: Calculate the NPV if the outflow is $100 000 and the inflows are $40 000 for the next three years. Assuming the appropriate discount rate to be 15%, what is the NPV?A: -$8 671B: -$4

19、 032C: $8 064D: $9 075E: $15 000 Question 28: Your grandmother placed $10,000 in a fund for you so that you can withdraw $25,000 in 10 years. What is the rate of return?A: 6.9%B: 9.6%C: 9.5%D: 8.9%E: 9.4%Question 29: Which of the following cannot be calculated?A: the present value of a perpetuityB:

20、the interest rate on a perpetuity given the present value and payment amountC: the present value of an annuity dueD: the future value of an annuity dueE: the future value of a perpetuityQuestion 31: Interest earned on only the original principal amount invested is:A: present value interestB: simple

21、interestC: time value of moneyD: beginning interestE: none of the aboveQuestion 32: Assume that A contributes $2000 every year into a retirement account paying 8%. If A retires in 30 years, how much will he have?A: $212,576B: $262,576C: $226,576D: $262,567E: $226,567Question 33: A Limited currently

22、pays a cash dividend of $0.50 per share. You believe that the dividend will be increased by 4% each year indefinitely. How big will the dividend be in eight years?A: $0.86B: $0.66C: $0.65D: $0.68E: not enough information availableQuestion 34: Suppose you need $400 to buy textbooks next year. You can

23、 earn 7% on your money. How much do you have to invest today?A: $337.85B: $367.83C: $337.83D: $373.83E: cannot be calculatedQuestion 36: Peggy Greys Cookies has net income of $360. The firm pays out 40 percent of the net income to its shareholders as dividends. During the year, the company raised $8

24、0 worth of new equity. What is the cash flow to stockholders?A: $64B: $136C: $144D: $224E: $296Question 37: Bill Bailey and Sons pays no dividend at the present time. The company plans to start paying an annual dividend in the amount of $.30 a share for two years commencing two years from today. Aft

25、er that time, the company plans on paying a constant $1 a share dividend indefinitely. How much are you willing to pay to buy a share of this stock if your required return is 14 percent?A: $4.82B: $5.25C: $5.39D: $5.46E: $5.58Key:1. C2. C3. D4. B5. E6. B7. B8. C9. C10. B11. D12. D13. D14. C15. B16.

26、C17. C18. C19. E20. C21. C22. D23. B24. D25. D26. C27. A28. B29. E30. B31. B32. E33. D34. D35. B36. A37. B38. C39. D40. CPart BQuestion 1The risk-free rate of return is 4% and the market risk premium is 8%. What is the expected rate of return on a stock with a beta of 1.28?Answer: 14.24%Question 2As

27、sume that Diamond Ltds last dividend was $2 per share and the dividend is expected to grow at 7.5% indefinitely. The shares currently sell for $30. What is Diamond Ltds cost of equity capital?Answer: 14.7%Question 3Nuovo, Inc. stock has a beta of .86 and an expected return of 10.5 percent. The risk-

28、free rate of return is 3.2 percent and the market rate of return is 11.2 percent. Is this stock underpriced or overpriced? Why?Answer: Nuovo stock is underpriced.Question 8What is the market return if the expected return on asset A is 15% and the 10-year government bond rate is 6%. Beta for asset A

29、is .9.Answer: 16%Question 9What is the portfolio variance if 30 percent is invested in stock S and 70 percent is invested in stock T?State of Probability ofReturns if State OccursEconomyState of Economy Stock S Stock TBoom 40% 12% 20%Normal 60% 6% 4%Answer: 0.004056Question 12You recently purchased

30、a stock that is expected to earn 12 % in a booming economy, 8 % in a normal economy and lose 5 % in a recessionary economy. There is a 15 % probability of a boom, a 75 % chance of a normal economy, and a 10 % chance of a recession. What is your expected rate of return on this stock?Answer: 7.30 %Que

31、stion 13Shares are currently selling for $4.4625. At the beginning of the year you bought them for $4.25 and during the year a dividend of 21.25 cents per share was paid. What is the return?Answer: 10%Question 14Which one of the following stocks is correctly priced if the risk-free rate of return is

32、 2.5 percent and the market risk premium is 8 percent?StockBetaExpected ReturnA .68 8.2%B1.42 13.9%C1.23 11.8%D1.31 12.6%E .94 9.7%Answer:BQuestion 17Zelo, Inc. stock has a beta of 1.23. The risk-free rate of return is 4.5 % and the market rate of return is 10 %. What is the amount of the risk premi

33、um on Zelo stock?Answer: 6.77 %Question 18If the economy booms, RTF Inc. stock is expected to return 10 %. If the economy goes into a recessionary period, then RTF is expected to only return 4 %. The probability of a boom is 60 % while the probability of a recession is 40 %. What is the variance and

34、 standard deviation of the returns on RTF Inc. stock? Answer: 0.000864, 2.9%Question 22Rosies Grill has a beta of 1.2, a stock price of $26 and an expected annual dividend of $1.30. The dividend growth rate is 4 %. The market has a 10 % rate of return and a risk premium of 6 %. What is the average e

35、xpected cost of equity for Rosies Grill?Answer:10.10 %Question 23What are the arithmetic and geometric average returns for a stock with annual returns of 21 %, 8 %, -32 %, 41 %, and 5 %?Answer: AM 8.6 %; GM 5.6 %Question 26Toms Ventures has a zero coupon bond issue outstanding that matures in thirte

36、en years. The bonds are selling at 48 % of par value. The companys tax rate is 34 %. What is the companys after-tax cost of debt?Answer: 3.83 %Question 27Suppose that your firm has a cost of equity of 18% and a cost of debt of 8%. If the target D/E is 0.60 and the tax rate is 35%, what is the firms

37、WACC?Answer: 13.2%Question 30A company has preferred stock outstanding which pays a dividend of $6 per share a year. The current stock price is $75 per share. What is the cost of preferred stock?Answer: 8%Question 32Douglass Enterprises has a capital structure which is based on 40 percent debt, 10 p

38、ercent preferred stock, and 50 percent common stock. The after-tax cost of debt is 6 percent, the cost of preferred is 7 percent, and the cost of common stock is 9 percent. The company is considering a project that is equally as risky as the overall firm. This project has initial costs of $125,000 a

39、nd cash inflows of $76,000 a year for two years. What is the projected net present value? Should this project be accepted or rejected?Answer: $11,275.07, yesQuestion 37Calculate the expected return of the portfolio:AssetWealth investedE(Ri)A20015%B10020%C50010%Answer: 12.5%Question 38ABC limited hav

40、e 50 000 shares outstanding that sell in the market for $17.50 each. Shares beta coefficient is 1.2. The market risk premium is 8% and the risk-free rate is 5%. What is ABC limiteds cost of equity capital and the market value of equity?Answer: 14.6%, $875 000Question 41Shirleys and Son have a debt-e

41、quity ratio of .60 and a tax rate of 35 %. The firm does not issue preferred stock. The cost of equity is 10 % and the cost of debt is 8 %. What is Shirleys weighted average cost of capital?Answer: 8.2 %Question 43Today, you sold 200 shares of SLG Inc. stock. Your total return on these shares is 12.

42、5 percent. You purchased the shares one year ago at a price of $28.50 a share. You have received a total of $280 in dividends over the course of the year. What is your capital gains yield on this investment?Answer: 7.59 %Question 46Jacks Construction Co. has 80,000 bonds outstanding that are selling at par value. Bonds with similar characteristics are yielding 8.5 %. Face value of a bond is $1000. The company also has 4 million shares of common stock outsta