Finance questions that I can't understand:( need help!

• Aug 5th 2009, 01:16 PM
shifty50
Finance questions that I can't understand:( need help!
So I am terrible at finance and worried about passing this class, if anyone can help me with any of the questions that I have posted below.. I would really appreciate it.. thanks for your time!!!

1.
Compensating managers with stock options can help reduce conflicts of interest between stockholders and managers, but if the options are all exercisable on a specific date in the near future, this can motivate managers to deceive stockholders, true or false?
A) True
B) False

2.
One example of an agency relationship is the one between stockholders and managers.

A) True
B) False

3.
Potential conflicts of interest can exist between stockholders and managers and also between stockholders and bondholders, true or false?

A) True
B) False

4.
What would the future value of \$100 be after 5 years at 10% compound interest?
A) \$161.05
B) \$134.54
C) \$127.84
D) \$151.29
E) \$143.65

5.
Suppose you have \$2,000 and plan to purchase a 3-year certificate of deposit (CD) that pays 4% interest, compounded annually. How much will you have when the CD matures?
A) \$2,324.89
B) \$2,591.45
C) \$2,249.73
D) \$2,011.87
E) \$2,854.13

6.
Suppose a U.S. government bond promises to pay \$2,249.73 three years from now. If the going interest rate on 3-year government bonds is 6%, how much is the bond worth today?
A) \$2,011.87
B) \$2,591.45
C) \$2,324.89
D) \$1,888.92
E) \$2,854.13

7.
What is the PV of an annuity due with 5 payments of \$3,000 at an interest rate of 5%?
A) \$11,110.34
B) \$13,637.85
C) \$12,513.68
D) \$14,976.84
E) \$15,349.15

8.
Superior Medical System's 2005 balance sheet showed total common equity of \$2,050,000. The company had 100,000 shares of stock outstanding which sold at a price of \$57.25 per share. By how much did the firm's market value and book value per share differ?
A) \$36.75
B) \$38.25
C) \$39.50
D) \$40.25
E) \$51.00

9.
Fine Breads Inc. paid out \$26,000 common dividends during 2005, and it ended the year with \$150,000 of retained earnings. The prior year's retained earnings were \$145,000. What was the firm's 2005 net income?
A) \$30,000
B) \$31,000
C) \$32,000
D) \$33,000
E) \$34,000

10.
Use the following information for the questions 10-16.

The balance sheet and income statement shown below are for Byrd Inc, and the data are to be used for the following questions. Note that the firm has no amortization charges, it does not lease any assets, and none of its debt must be retired during the next 5 years (notes payable will be rolled over). Assume a 360-day year.

BALANCE SHEET (millions of dollars)

Cash
\$ 140.0

Accounts payable
\$ 800.0
Accts. receivable
880.0

Notes payable
600.0
Inventories
1,320.0

Accruals
400.0
Total current assets
\$2,340.0

Total current liabilities
\$1,800.0

Long-term bonds
1,000.0

Total debt
\$2,800.0

Common stock
200.0

Retained earnings
1,000.0
Net plant & equip.
1,660.0

Total common equity
\$1,200.0
Total assets
\$4,000.0

Total liabilities & equity
\$4,000.0

INCOME STATEMENT (millions of dollars)

Net sales
\$ 6,000.0
Operating costs
5,599.8
Depreciation
100.2
EBIT
\$ 300.0
Less: Interest
96.0
EBT
\$ 204.0
Less: Taxes
81.6
Net income
\$ 122.4

OTHER DATA

Shares outstanding (millions)
60.00
Common dividends (millions)
\$42.8
Interest rate on N/P and long-term bonds
6.0%
Federal plus state income tax rate
40%
Year-end stock price
\$30.60

What is the firm's current ratio?

A) 1.10
B) 1.20
C) 1.30
D) 1.40
E) 1.50

11.
What is the firm's quick ratio?
A) 0.25
B) 0.33
C) 0.41
D) 0.49
E) 0.57

12.
What is the firm's profit margin?
A) 2.04%
B) 2.16%
C) 2.28%
D) 2.40%
E) 2.52%

13.
What is the firm's cash flow per share?
A) \$3.71
B) \$3.86
C) \$4.01
D) \$4.16
E) \$4.31

14.
What is the firm's P/E ratio?
A) 10.0
B) 12.5
C) 15.0
D) 17.5
E) 20.0

15.
What is the firm's book value per share?
A) \$16.00
B) \$17.00
C) \$18.00
D) \$19.00
E) \$20.00

16.
What is the firm's market-to-book ratio?
A) 1.38
B) 1.53
C) 1.68
D) 1.83
E) 1.98

17.
Which of the following is an example of a capital market instrument?
A) Commercial paper.
B) Preferred stock.
C) U.S. Treasury bills.
D) Banker's acceptances.
E) Money market mutual funds.

18.
Money markets include

A) foreign currencies.
B) consumer automobile loans.
C) corporate stocks.
D) long-term bonds.
E) short-term debt securities such a Treasury bills.

19.
Most studies of stock market efficiency suggest that the stock market is efficient in the weak-form and efficient in the semistrong-form. Assuming these findings are correct, which of the following statements is true?
A) Information you read in The Wall Street Journal cannot be used to select stocks that are likely to produce above-average rates of return.
B) You have been tracking a stock's price over the past 6 months, and you note that this particular stock has tended to rise sharply immediately after it has fallen for three days. You can use this information to devise a trading strategy that will help you beat the market.
C) If you apply financial analysis properly, you can use information provided in companies' annual reports to earn above-average returns.
D) Even if you possess insider information, you cannot use this information to earn above-average returns because such information will already be reflected in stock prices.
E) You notice that a company's stock price always seems to swing back and forth--whenever it falls by 10% or more, it seems to recover and to eventually exceed its former high. Since its price has fallen during the past 2 months, now is a great time to buy it before it takes off again.

20.
If the Federal Reserve sells \$50 billion of short-term U.S. Treasury securities to the public, other things held constant, what would be the most likely effect on short-term securities prices and interest rates?
A) Prices and interest rates will both rise.
B) Prices will rise and interest rates will decline.
C) Prices and interest rates will both decline.
D) Prices will decline and interest rates will rise.
E) There is no reason to expect a change in either prices or interest rates.

21.
Suppose 1-year Treasury bonds yield 3.0% while 2-year T-bonds yield 4.5%. Assuming the pure expectations theory is correct and thus the maturity risk premium is zero, what should the yield be on a 1-year T-bond one year from now?
A) 5.91%
B) 6.02%
C) 6.13%
D) 6.24%
E) 6.35%

22.
The Carter Company's bonds mature in 10 years have a par value of \$1,000 and an annual coupon payment of \$80. The market interest rate for the bonds is 9%. What is the price of these bonds?
A) \$935.82
B) \$941.51
C) \$958.15
D) \$964.41
E) \$979.53

23.
Ken Williams Ventures' recently issued bonds that mature in 15 years. They have a par value of \$1,000 and an annual coupon of 6%. If the current market interest rate is 8%, at what price should the bonds sell?
A) \$801.80
B) \$814.74
C) \$828.81
D) \$830.53
E) \$847.86

24.
Brown Enterprises' bonds currently sell for \$1,025. They have a 9-year maturity, an annual coupon of \$80, and a par value of \$1,000. What is their yield to maturity?
A) 6.87%
B) 7.03%
C) 7.21%
D) 7.45%
E) 7.61%

25.
T. Martell Inc.'s stock has a 50% chance of producing a 30% return, a 35% chance of producing a 9% return, and a 15% chance of producing a 25% return. What is Martell's expected return?

A) 21.9%
B) 15.2%
C) 16.0%
D) 16.8%
E) 17.6%

26.
An investor has a 2-stock portfolio with \$50,000 invested in Palmer Manufacturing and \$50,000 in Nickles Corporation. Palmer's beta is 1.20 and Nickles' beta is 1.00. What is the portfolio's beta?
A) 0.94
B) 1.02
C) 1.10
D) 1.18
E) 1.26

27.
Magee Company's stock has a beta of 1.20, the risk-free rate is 4.50%, and the market risk premium is 5.00%. What is Magee's required return?
A) 10.25%
B) 10.50%
C) 10.75%
D) 11.00%
E) 11.25%
• Aug 5th 2009, 01:17 PM
shifty50
more Q's!
Here are some more Q's!

28.

A) True
B) False

29.
Theory would suggest that differences in firm's capital structures may be due to

A) expected costs of banruptcy
B) corporate taxes
C) Maslow's heirarchy of needs
D) (a) and (b)
E) all of the above

30.
If D0 = \$2.00, g (which is constant) = 6%, and P0 = \$40, what is the stock's expected dividend yield for the coming year?
A) 5.0%
B) 5.1%
C) 5.3%
D) 5.6%
E) 5.8%

31.
Thomson Electric Systems is considering a project that has the following cash flow and WACC data. What is the project's NPV?

WACC = 10%

Cash Flows
Year
-1000
0
500
1
500
2
500
3

A) \$243.43
B) \$251.23
C) \$268.91
D) \$272.46
E) \$289.53

32.
Blanchford Enterprises is considering a project that has the following cash flow data. What is the project's IRR?

Cash Flows
Year
-1000
0
40
1
40
2
40
3
1040
4

A) 10%
B) 40%
C) 20%
D) 4%
E) 8%

33.
Currently, in the spot market \$1 = 106.5 Japanese yen, 1 Japanese yen = 0.0096 euro, and 1 euro = 10.1 Mexican pesos. What is the exchange rate between the U.S. dollar and the Mexican peso?
A) 10.326 pesos/\$
B) 10.693 pesos/\$
C) 10.910 pesos/\$
D) 11.158 pesos/\$
E) 11.448 pesos/\$

34.
A television set sells for \$1,000 U.S. dollars. In the spot market, \$1 = 110 Japanese yen. If purchasing power parity holds, what should be the price (in yen) of the same television set in Japan?
A) 80,000 yen
B) 90,000 yen
C) 100,000 yen
D) 110,000 yen
E) 120,000 yen

35.
According to the internal rate of return method, a firm that uses both debt and equity financing should accept a project if the ____________________.

A) internal rate of return is less than the cost of capital
B) internal rate of return exceeds the cost of capital
C) cost of capital exceeds the internal rate of return
D) internal rate of return exceeds the firm's cost of debt
E) internal rate of return exceeds the firm's cost of equity

36.
According to the net present value technique, a project is considered acceptable if
A) the sum of all cash inflows and outflows is positive.
B) the difference between all discounted cash inflows and outflows exceeds zero.
C) it lowers costs below an acceptable hurdle rate.
D) its rate of return is greater than the firm's cost of capital.
E) it returns the initial investment faster than competing projects.

37.
Analysts at Tabby Fur Storage predict that the net present value of a proposed new \$10 million warehouse is \$1. How should these findings be interpreted?
A) Although NPV is positive, its value is too low for such a large expenditure and as a result, the project should be rejected.
B) The project should be rejected because the NPV is less than the cost of the warehouse.
C) The project should be accepted because it will add value to the firm.
D) More information such as the payback period should be evaluated since the reliance on only one capital budgeting technique should be discouraged.
E) The project does not meet the acceptance criteria of the NPV method and should be rejected.

38.
The internal rate of return may be defined as the
A) percentage increase in the value of an investment over its useful life.
B) the minimum return required by investors to hold a firm's securities.
C) the discount rate at which a project's NPV is negative.
D) the discount rate at which a project's NPV equals zero.
E) the maximum rate of return expected from a project.

39.
If the ___________ is greater than or equal to the ___________, the project should be accepted.
A) IRR; NPV
B) cost of capital; IRR
C) IRR; cost of capital
D) NPV; IRR
E) None of the above.

40.
Two projects each require a current cash expenditure of \$10,000. Project A will generate cash inflows of \$2,000 per year for the next twelve years. Project B is expected to return \$6,000 in 1 year, \$4,000 at the end of year 2, and \$3,000 in 3 years. Which project should be selected if funds are available to finance only one of these projects and capital costs are 6%?

A) Project B because it has a shorter payback period.
B) Project B because it has a higher IRR
C) Project A because it has a higher IRR
D) Project A because it has a higher NPV
E) Project B because it has a higher NPV

41.
The dividend just paid on Thompson Industry stock was \$2 per share and it is expected to grow 8% each year. If the stock is currently selling at \$30 per share, what is Thompson's cost of equity (r)?
A) 12%
B) 15%
C) 18%
D) 21%
E) 13%

42.
What is the weighted average cost of capital after taxes for Moss Diet Centers if the target weights are 25% equity and 75% debt, and the costs of equity and after-tax debt are 15% and 12% respectively?
A) 11.0%
B) 12.8%
C) 13.5%
D) 14.0%
E) 12.5%

43.
What is the weighted average cost of capital after taxes if the desired capital structure is 40% debt and 60% equity and investors require a 10% pre-tax return from debt and 25% from equity and the tax rate is 30%?
A) 19%
B) 18%
C) 20%
D) 15%
E) 11%

44.
Bond A from CIR has a coupon rate of 8%, what should be the current price of the bond? CIR Inc. coupon bonds have a maturity of 2 years. The bonds make semi-annual payments. The YTM on these bonds is 6.0 percent. Face Value is \$1000.
A) \$756
B) \$1231
C) \$961
D) \$1037

45.
Suppose that Ben Bernake increases the federal funds rate unexpectedly tomorrow from the current rate of 2.0% to 3.50%, according to interest rate parity the dollar should
A) Appreciate
B) Depreciate
C) Unaffected
D) All of the above

46.
A depreciating dollar tends to
A) Encourage imports
B) Encourage exports
C) Have no impact on exports or imports
D) Increase the supply of gold

47.
Suppose the after-tax cost of debt is 8% and the cost of equity is 12%, assuming a project is financed by 50% debt and 50% equity, the weighted average cost of capital is:

A) 8%
B) 12%
C) 10%
D) 20%

48.
Theory would suggest that a firm's dividend policy may be irrelevant because investors can create dividends on their own.

A) True
B) False

49.
Everything else being equal, a __________ bond's price will __________ as the bond approaches maturity.
A) discount; decrease
B) discount; increase
C) discount; remain the same

50.
If D0 = \$2.00, g (which is constant) = 10%, and P0 = \$22, what is the stock's expected dividend yield for the coming year?
A) 5.0%
B) 9.7%
C) 10.0%
D) 12.0%
E) 15.6%
F) 15.8%

51.
A stock is expected to pay a dividend of \$2 next year. The required rate of return is rs = 30%, and the constant growth rate is 5%. What is the current stock price?
A) \$8.00
B) \$18.00
C) \$20.00
D) \$12.00
E) \$2.00

52.
The return on the market is 12%. A firm's beta is 2, and the risk-free rate is 6%. Estimate the required rate of return.
A) 13.0%
B) 14.7%
C) 5.0%
D) 18.0%
E) None of the above.

53.
A Bond from CIR has an annual coupon rate of 8%, what should be the current price of the bond? The bond has a maturity of 2 years. The bond makes annual payments. The YTM on these bonds is 6%. Face Value is \$1000.
A) above \$1,000
B) below \$1,000
C) \$1,000
D) None of the above

54.
The expected return on an asset is 13% and the required return is 12%. You should

B) sell the asset now.

55.
Suppose you are concerned that the value of your stock portfolio (consisting of the same stocks as the S&P500) may fall, to reduce your risk you should

A) buy put options on the S&P500
B) buy call options on the S&P500
C) buy futures on the S&P500
D) buy option on futures on the S&P500
E) all of the above

56.
Carol plans to visit Japan next week and wishes to convert \$1,000 U.S. into yen to cover her travel expenses. If her travel agent quotes her an exchange rate of 115¥/\$, how many yen will she obtain?
A) 5.0
B) 8.7
C) 115,000
D) 150,000
E) 110,000

57.
Forward transactions
A) are widely used to reduce exchange rate risk.
B) typically only enable the buyer of the forward contract to benefit from favorable exchange rate changes, but not the seller.
C) are executed in spot markets.
D) seldom benefit manufacturing firms.
E) are processed by dealers, but seldom by money-center banks.

58.
If the dollar appreciates against the Euro
A) U.S. price of Euroland goods will rise.
B) then the Euro also appreciates against the U.S. dollar.
C) Euroland exports to the U.S. should decline.
D) U.S. exports to Euroland will fall.
E) the U.S. inflation rate will have a tendency to rise.

59.
What is the maximum net profit to a speculator with \$1 million if interest rates on 1-year Treasuries are 6% in Country X and 4% in the U.S. and the exchange rate is expected to remain the same at today's rate of 2 Country X/\$ over the next 1 year?
A) \$40,000
B) \$30,000
C) \$20,000
D) \$80,000
E) \$1,005,683

60.
Futures contracts may help firms hedge against exchange rate risk by
A) paying the holder of the contract in the event of a loss - much like an insurance policy.
B) giving the owner of the contract the right to swap one currency for another at a later date.
C) giving the holder of the contract the ability to purchase foreign currencies at a predetermined exchange rate at a future date.
D) enabling the hedger to offset foreign currency losses by profiting from the sale of the futures contract.
E) providing riskless arbitrage opportunities.
• Aug 5th 2009, 04:13 PM
Wilmer
Are you serious?
• Aug 6th 2009, 10:52 AM
jonah
Quote:

Originally Posted by Wilmer
Are you serious?

Good stuff. My sentiments exactly. I don' think I could have said it better.
I'm sure it's the red wine talking but I'm almost certain that shifty50's "little problems" would have given me a few laughs even if I was sober. I've seen some lazy posts but this post by shifty50 is pure gold, comedywise that is.

To shifty50:
How about adding a few more Q's on top of the ones that you already added?(Wink) I'm sure I'm not the only one around here who needs a few laughs every now and then.