21. Modos Company has deposited 2k in checks received from customers. It was written 1,400 in checks to its suppliers. The initial bank and book balance was 400. If 1,600 of its customer’s checks have been cleared but only 600 of its own, calculate the float
22. An annuity may be defined as
- A payment at a fixed interest rate
- A series of payments of unequal amount
- A series of yearly payments
- A series of consecutive payments of equal amounts
23. A home buyer signed a 20- year, 9% mortgage for $72,500. Given the following information, how much should the annual loan payments be?
- Present value of $1 PVIF = .215
- Future value of $1 FVIF = 4.661
- Present value of annuity PVIFA = 9.818
- Future value of annuity FVIFA = 45.762
- Choices for the question above are :
- A. $1,584
- B. $7,384
- C. $15,555
- D. $15,588
24. Jeff believes he will need 60K annual income during retirement. If he can achieve a 5% return during retirement and believes he will live 30 years after retirement, how much does he need to save by the time he retires?
25. A bond which has a yield to maturity greater than it’s coupon interest rate will sell for a price:
- Below par
- At par
- Above par
- What is equal to the face value of the bond plus the value of all interest payments
Second half of questions -- Part II
1 The return measure that an investor demands for giving up current use of funds, without adjusting for purchasing power changes or the real rate of return, is the:
- risk premium.
- inflation premium.
- dividend yield.
- discount rate.
2.The value of a common stock is based on its:
- past performance.
- historic dividends.
- current earnings.
- value of future benefits to the holder.
3.The coupon rate on a debt issue is 12%. If the yield to maturity on the debt is 9.33%, what is the after-tax cost of debt in the weighted average cost of capital if the firm's tax rate is 34%?
4 A firm is paying an annual dividend of $3.63 for its preferred stock which is selling for $62.70. There is a selling cost of $3.30. What is the after-tax cost of preferred stock if the firm's tax rate is 33%?
5 A finn's preferred stock pays an annual dividend of $4, and the stock sells for $80. Flotation costs for new issuances of preferred stock are 5% of the stock value. What is the after-tax cost of preferred stock if the firm's tax rate is 30%?
6.For many firms, the cheapest and most important source of equity capital is in the form of:
- common stock.
- preferred stock.
- retained earnings.
7 The Dammon Corp. has the following investment opportunities:
JVIachine A ($15.000)
JVIachine B ($22,500)
Machine C ($37,500)
Under the payback method and assuming these machines are mutually exclusive, which machine(s) would Dammon Corp. choose?
- Machine A b.
- Machine B c.
- Machine C
- Machine A and B
8 The internal rate of return and net present value methods:
- Always give the same investment decision answer.
- Never give the same investment decision answer.
- Usually give the same investment decision answer.
- Always give answers different from the payback method
9 An asset fitting into the 5-year MACRS category was purchased 2 years ago for $60,000. The book value of this asset is now:
10 A project has the following projected outcomes in dollars: $250, $350, and$500. The probabilities of their outcomes are 25%, 50%, and 25%respectively. What is the expected value of these outcomes?
11. A Monte carol simulation model uses:
- Random variables as inputs
- A point estimate
- The cost of capital
- Portfolio risk
12.A project that carries a normal amount of risk and does not affect the risk exposure of the firm should be discounted back at the
- Coefficient of variation
- Risk-free rate
- Weighted average cost of capital
13.Frisch Fish Corp expects net income next year to be $600K, inventory and accounts receivable will have to be increased by 300k to accommodate this sales level. Frisch will pay dividends of 400K. how much external financial will Frisch Fish need assuming no organically generated increased in liabilities?
- No external financing is required
14 The term structure of interest rates:
- Changes daily to reflect current competitive conditions in the money and capital markets
- Plots returns for securities of different risk
- Shows the relative interest spread between bonds whit different risk ratings as AAA, AA, A, BBB
- Depicts interest rates for T-Bills over the last year.
15. Which of the following combinations of asset structures and financing patterns is likely to create the most volatile earnings?
- Illiquid assets and heavy short-term borrowing
- Illiquid assets and heavy long-term borrowing
- Liquid assets and heavy long-term borrowing
- Liquid assets and heavy short-term borrowing
16. What is generally the largest source of short-terms credit small firms?
- Bank loans
- Commercial paper
- Installment loans
- Trade credit
A resource used in production
- An interest rate paid on Eurodollar loans in the London market
- An interest rate paid by European firms when they borrow Eurodollar deposits from US Banks
- The interest rate paid by the British government on its long term bonds
18. Holland Construction Co. has an outstanding 180-day bank loan of
$400,000 at an annual interest rate of 9.5%. The company is required to maintain a 15% compensating balance in its checking account. What is the effective interest rate on the loan? Assume the company would NOT normally maintain this average amount.
19. During the next ten years, the major threat to the dominance of the U.S. money and capital markets will come from:
- Russia's difficulty in transforming its economy into a capitalistic one
- Japan's prolonged recession and banking crisis
- The Em·o-zone countries comprising the European Monetary Union and a single currency.
- The huge Chinese economy and its billion plus people
20. The major supplier of funds for investment in the whole economy is:
- Financial institutions
21.The belief in the efficient market hypothesis would lead to the following:
- Attempting to time the market
- Increase in index funds
- Using technical analysis and trends in the market
- Investing based on the emotional climate
22. The theoretical floor value for a convertible bond is its:
- Conversion price.
- Conversion value.
- Par value.
- Pure bond value.
23 Vickrey Technology has had net income of $2,000,000 in the current fiscal year. There are 1,000,000 shares of common stock outstanding along with convertible bonds, which have a total face value of $8 million. The $8 million is represented by 8,000 different $1,000 bonds. Each $1,000 bond pays 3 percent interest. The conversion ratio is 30. The firm is in a 30 percent tax bracket. What is Vickrey's diluted earnings per share?
- None of these listed above
24. Sen Corporation warrants carry the right to buy 10 shares of Sen common stock at $3.50 per share. The common stock has a current market price of 4.25 per share. The intrinsic or minimum value of one Sen warrant is:
25. The owner of a call has:
- The right and the obligation to buy an asset at a given price.
- The right and the obligation to sell an asset at a given price.
- The right but not the obligation to buy an asset at a given price.
- The right but not the obligation to sell an asset at a given price.