This is my 10 multiple choice questions. I only have an hour to answer this question and I need to show the work.
1. (TCO A) Which of the following statements is CORRECT? (Points : 10)
It is generally more expensive to form a proprietorship than a corporation because, with a proprietorship, extensive legal documents are required. Corporations face fewer regulations than sole proprietorships. One disadvantage of operating a business as a sole proprietorship is that the firm is subject to double taxation, at both the firm level and the owner level. One advantage of forming a corporation is that equity investors are usually exposed to less liability than in a regular partnership. If a regular partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business.
2. (TCO G) Aubey Aircraft recently announced that its net income increased sharply from the previous year, yet its net cash flow from operations declined. Which of the following could explain this performance? (Points : 10)
The company’s operating income declined. The company’s expenditures on fixed assets declined. The company’s cost of goods sold increased. The company’s depreciation and amortization expenses declined. The company’s interest expense increased.
3. (TCO G) An investor is considering starting a new business. The company would require $475,000 of assets, and it would be financed entirely with common stock. The investor will go forward only if she thinks the firm can provide a 13.5% return on the invested capital, which means that the firm must have a ROE of 13.5%. How much net income must be expected to warrant starting the business? (Points : 10)
$52,230 $54,979 $57,873 $60,919 $64,125
4. (TCO B) You deposit $1,000 today in a savings account that pays 3.5% interest, compounded annually. How much will your account be worth at the end of 25 years? (Points : 10)
$2,245.08 $2,363.24 $2,481.41 $2,605.48 $2,735.75
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? (Points : 10)
6.77% 7.13% 7.50% 7.88% 8.27%
6. (TCO B) Suppose you borrowed $12,000 at a rate of 9.0% and must repay it in four equal installments at the end of each of the next four years. How large would your payments be? (Points : 10)
$3,704.02 $3,889.23 $4,083.69 $4,287.87 $4,502.26
7. (TCO D) A 10-year bond pays an annual coupon, its YTM is 8%, and it currently trades at a premium. Which of the following statements is CORRECT? (Points : 10)
The bond’s current yield is less than 8%. If the yield to maturity remains at 8%, then the bond’s price will decline over the next year. The bond’s coupon rate is less than 8%. If the yield to maturity increases, then the bond’s price will increase. If the yield to maturity remains at 8%, then the bond’s price will remain constant over the next year.
8. (TCO D) The Morrissey Company's bonds mature in seven years, have a par value of $1,000, and make an annual coupon payment of $70. The market interest rate for the bonds is 8.5%. What is the bond's price? (Points : 10)
$923.22 $946.30 $969.96 $994.21 $1,019.06
9. (TCO C) Niendorf Corporation's five-year bonds yield 6.75%, and five-year T-bonds yield 4.80%. The real risk-free rate is r* = 2.75%, the inflation premium for five-year bonds is IP = 1.65%, the default risk premium for Niendorf's bonds is DRP = 1.20% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t - 1) x 0.1%, where t = number of years to maturity. What is the liquidity premium (LP) on Niendorf's bonds? (Points : 10)
0.49% 0.55% 0.61% 0.68% 0.75%
10. (TCO C) Assume that investors have recently become more risk averse, so the market risk premium has increased. Also, assume that the risk-free rate and expected inflation have not changed. Which of the following is most likely to occur? (Points : 10)
The required rate of return for an average stock will increase by an amount equal to the increase in the market risk premium. The required rate of return will decline for stocks whose betas are less than 1.0. The required rate of return on the market, rM, will not change as a result of these changes. The required rate of return for each individual stock in the market will increase by an amount equal to the increase in the market risk premium. The required rate of return on a riskless bond will decline.
Thanks. let me know if you need any other info.
Can you sent me the work on the problems. The break down on how you got to that answer. Please.
Thank you Linda for you help and have a nice rest of the day.
Thank again Linda for your help! I'll be contacting you soon. Have a pleasant rest of the day.
This is Paul... I'm going to need your help, I have another test due this weekend. Are you available this Saturday around 6:00 P.M.?
I'll be in school until noon. What about Sunday?
at what time tonight?
Is 7:30 PM ok?
Thank you. I see you later today.
This is Paul. Are you ready to help me?
Ok, Let me go to the other side to start the questions.