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CLASS / COURSE: Finance

QUESTION DESCRIPTION:

1.

(Points: 1)

In the calculation of rates of return on common stock, dividends are _______ and capital gains are ______.

a. guaranteed; not guaranteed

b. guaranteed; guaranteed

c. not guaranteed; not guaranteed

d. not guaranteed; guaranteed

2.

(Points: 1)

What dividend yield would be reported in the financial press for a stock that currently pays a $1 dividend per quarter and the most recent stock price was $40?

a. 2.5%

b. 4.0%

c. 10.0%

d. 15.0%

3.

(Points: 1)

If a stock's P/E ratio is 13.5 at a time when earnings are $3 per year, what is the stock's current price?

a. $4.50

b. $18.00

c. $22.22

d. $40.50

4.

(Points: 1)

The book value of a firm's equity is determined by:

a. multiplying share price by shares outstanding.

b. multiplying share price at issue by shares outstanding.

c. the difference between book values of assets and liabilities.

d. the difference between market values of assets and liabilities.

5.

(Points: 1)

What is the current price of a share of stock for a firm with $5 million in balance-sheet equity, 500,000 shares of stock outstanding, and a price/book value ratio of 4?

a. $2.50

b. $10.00

c. $20.00

d. $40.00

6.

(Points: 1)

A stock paying $5 in annual dividends sells now for $80 and has an expected return of 14%. What might investors expect to pay for the stock one year from now?

a. $82.20

b. $86.20

c. $87.20

d. $91.20

7.

(Points: 1)

How much should you pay for a share of stock that offers a constant growth rate of 10%, requires a 16% rate of return, and is expected to sell for $50 one year from now?

a. $42.00

b. $45.00

c. $45.45

d. $47.00

8.

(Points: 1)

If the dividend yield for year one is expected to be 5% based on the current price of $25, what will the year four dividend be if dividends grow at a constant 6%?

a. $1.33

b. $1.49

c. $1.58

d. $1.67

9.

(Points: 1)

What should be the price for a common stock paying $3.50 annually in dividends if the growth rate is zero and the discount rate is 8%?

a. $22.86

b. $28.00

c. $42.00

d. $43.75

10.

(Points: 1)

If next year's dividend is forecast to be $5.00, the constant growth rate is 4%, and the discount rate is 16%, then the current stock price should be:

a. $31.25

b. $40.00

c. $41.67

d. $43.33

11.

(Points: 1)

What constant growth rate in dividends is expected for a stock valued at $32.00 if next year's dividend is forecast at $2.00 and the appropriate discount rate is 13%?

a. 5.00%

b. 6.25%

c. 6.75%

d. 15.38%

12.

(Points: 1)

ABC common stock is expected to have extraordinary growth of 20% per year for two years, at which time the growth rate will settle into a constant 6%. If the discount rate is 15% and the most recent dividend was $2.50, what should be the current share price?

a. $31.16

b. $33.23

c. $37.42

d. $47.77

13.

(Points: 1)

A payout ratio of 35% for a company indicates that:

a. 35% of dividends are plowed back for growth.

b. 65% of dividends are plowed back for growth.

c. 65% of earnings are paid out as dividends.

d. 35% of earnings are paid out as dividends.

14.

(Points: 1)

What would be the expected price of a stock when dividends are expected to grow at a 25% rate for three years, then grow at a constant rate of 5%, if the stock's required return is 13% and next year's dividend will be $4.00?

a. $61.60

b. $62.08

c. $68.62

d. $79.44

15.

(Points: 1)

A company with a return on equity of 15% and a plowback ratio of 60% would expect a constant growth rate of:

a. 4%

b. 9%

c. 21%

d. 25%

16.

(Points: 1)

What is the return on equity for a firm that has a constant dividend growth rate of 7% and a dividend payout ratio of 60%?

a. 2.80%

b. 4.20%

c. 11.67%

d. 17.50%

17.

(Points: 1)

A positive value for PVGO suggests that the firm has:

a. a positive return on equity.

b. a positive plowback ratio.

c. investment opportunities with superior returns.

d. a high rate of constant growth.

18.

(Points: 1)

Which of the following describes a seasoned offering?

a. An IPO of common stock for a well known firm.

b. An IPO that is offered during the best buying season.

c. An additional equity issue from a publicly-traded firm.

d. Any shares traded in the secondary market are seasoned offerings.

19.

(Points: 1)

Which of the following best characterizes the difference between growth stocks and income stocks?

a. Growth stocks do not pay dividends.

b. Income stocks offer higher rates of return.

c. Income stocks are seasoned issues.

d. Growth stocks have greater PVGO.

20.

(Points: 1)

What is the most likely value of the PVGO for a stock with current price of $50, expected earnings of $6 per share, and a required return of 20%?

a. $10

b. $20

c. $25

d. $30

21.

(Points: 1)

Which of the following statements is correct for a project with a positive NPV?

a. IRR exceeds the cost of capital.

b. Accepting the project has an indeterminate effect on shareholders.

c. The discount rate exceeds the cost of capital.

d. The profitability index equals one.

22.

(Points: 1)

What is the NPV of a project that costs $100,000 and returns $50,000 annually for three years if the opportunity cost of capital is 14%?

a. $3,397.57

b. $4,473.44

c. $16,085.00

d. $35,000.00

23.

(Points: 1)

The decision rule for net present value is to:

a. accept all projects with cash inflows exceeding initial cost.

b. reject all projects with rates of return exceeding the opportunity cost of capital.

c. accept all projects with positive net present values.

d. reject all projects lasting longer than 10 years.

24.

(Points: 1)

What should occur when a project's net present value is determined to be negative?

a. The discount rate should be decreased.

b. The profitability index should be calculated.

c. The present value of the project cost should be determined.

d. The project should be rejected.

25.

(Points: 1)

Which of the following changes will increase the NPV of a project?

a. A decrease in the discount rate

b. A decrease in the size of the cash inflows

c. An increase in the initial cost of the project

d. A decrease in the number of cash inflows

26.

(Points: 1)

What is the maximum that should be invested in a project at time zero if the inflows are estimated at $50,000 annually for three years, and the cost of capital is 9%?

a. $101,251.79

b. $109,200.00

c. $126,565.00

d. $130,800.00

27.

(Points: 1)

What is the approximate maximum amount that a firm should consider paying for a project that will return $15,000 annually for 5 years if the opportunity cost is 10%?

a. $33,520

b. $56,860

c. $62,540

d. $75,000

28.

(Points: 1)

If the opportunity cost of capital for a project exceeds the project's IRR, then the project has a(n):

a. positive NPV.

b. negative NPV.

c. acceptable payback period.

d. positive profitability index.

29.

(Points: 1)

When a project's internal rate of return equals its opportunity cost of capital, then:

a. the project should be rejected.

b. the project has no cash inflows.

c. the net present value will be positive.

d. the net present value will be zero.

30.

(Points: 1)

What is the approximate IRR for a project that costs $100,000 and provides cash inflows of $30,000 for 6 years?

a. 19.9%

b. 30.0%

c. 32.3%

d. 80.0%

31.

(Points: 1)

What is the IRR of a project that costs $100,000 and provides cash inflows of $17,000 annually for six years?

a. 0.57%

b. 2.00%

c. 5.69%

d. 56.87%

32.

(Points: 1)

Which of the following statements is most likely correct for a project costing $50,000 and returning $14,000 per year for five years?

a. NPV = $3,071.01.

b. NPV = $20,000.

c. IRR = 2.8%.

d. IRR is greater than 10%.

33.

(Points: 1)

If the IRR for a project is 15%, then the project's NPV would be:

a. negative at a discount rate of 10%.

b. positive at a discount rate of 20%.

c. negative at a discount rate of 20%.

d. positive at a discount rate of 15%.

34.

(Points: 1)

What is the NPV for the following project cash flows at a discount rate of 15%? CF0 = ($1,000), CF1 = $700, CF2 = $700.

a. ($308.70)

b. ($138.00)

c. $138.00

d. $308.70

35.

(Points: 1)

Evaluate the following project using an IRR criterion, based on an opportunity cost of 10%: CF0 = -6,000, CF1 = +3,300, CF2 = +3,300.

a. Accept, since IRR exceeds opportunity cost.

b. Reject, since opportunity cost exceeds IRR.

c. Accept, since opportunity cost exceeds IRR.

d. Reject, since IRR exceeds opportunity cost.

36.

(Points: 1)

When projects are mutually exclusive, selection should be made according to the project with the:

a. longer life.

b. larger initial size.

c. highest IRR.

d. highest NPV.

37.

(Points: 1)

The reason why the IRR criterion can give conflicting signals with mutually exclusive projects is:

a. The NPVs of these projects cross over at some discount rate.

b. Discounted cash flow is not considered with mutually exclusive projects.

c. IRR performs better with accounting returns than with cash flows.

d. Mutually exclusive projects have multiple IRRs.

38.

(Points: 1)

When mutually exclusive projects have different lives, the project which should be selected will have the:

a. highest IRR.

b. longest life.

c. lowest equivalent annual cost.

d. highest NPV, discounted at the opportunity cost of capital.

39.

(Points: 1)

If a project has a cost of $50,000 and a profitability index of 0.4, then:

a. its cash inflows are $70,000.

b. the present value of its cash inflows is $30,000.

c. its IRR is 20%.

d. its NPV is $20,000.

40.

(Points: 1)

When hard capital rationing exists, projects may be accurately evaluated by use of:

a. payback period.

b. mutually exclusive IRRs.

c. a profitability index.

d. borrowing, rather than lending, projects.

SOLUTION DESCRIPTION:
Completed Solution is attached. Click on Buy button and then download file to get full solution.

SUBJECTS / CATEGORIES:

1. Finance

2. Financial Management

3. Corporate Finance

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