Bad-312 Fin. Mgt Post Test

Review Test Submission: Post-test Content

User Gwen Jean Moore Course 201330 BAD312-O Financial Management

Test Post-test Started 7/28/14 9:00 PM

Submitted 7/28/14 10:24 PM Due Date 7/28/14 11:59 PM

Status Needs Grading Attempt Score 20 out of 100 points Time Elapsed 1 hour, 24 minutes out of 1 hour. Instructions

Question 1 0 out of 5 pointsWhich of the following statements is CORRECT?

Selected Answer: 3. If a project has “normal” cash flows, then its IRR must be positive.

Question 2 5 out of 5 pointsYou were hired as a consultant to Giambono Company, whose capital structure is 40% debt, 15% preferred stocks, and 45% common stock equity. The after-tax cost of debt is 6.00%, the cost of preferred stocks is 7.50%, and the cost of common stock equity is 13.00%. What is its WACC?

Selected Answer: 2. 9.38%

Question 3 0 out of 5 pointsWhich of the following statements is CORRECT?

Selected Answer:

3. An increase in the risk-free rate will normally lower the marginal costs of both debt and equity financing.

Question 4 0 out of 5 pointsYou were hired as a consultant to Quigley Company, whose capital structure is 35% debt, 10% preferred stocks, and 55% common stock equity. The before-tax cost of the debt is 6.50%, the yield on the preferred stocks is 6.00%, the cost of common stock equity is 13.25%, and the tax rate is 35%. What is Quigley's WACC?


Question 5 5 out of 5 points

Taggart Inc. is considering a project that has the following cash flow data. What is the project's payback?

Year 0 1 2 3Cash flows -$800 $500 $500 $500

Selected Answer: 2. 1.60 years

Question 6 0 out of 5 pointsIf its yield to maturity declined by 1%, which of the following bonds would have the largest percentage increase in value

Selected Answer: 3. A 10-year bond with a 12% coupon.

Question 7 0 out of 5 pointsCornell Enterprises is considering a project that has the following cash flow and WACC data. What is the project's NPV? Note that a project's projected NPV can be negative, in which case it will be rejected.

WACC: 10.00% Year 0 1 2 3

Cash flows -$825 $450 $460 $470

Selected Answer: 1. $396.72

Question 8 0 out of 5 pointsInmoo Company’s average age of accounts receivable is 38 days, the average age of accounts payable is 40 days, and the average age of inventory is 69 days. Assuming a 365-day year, what is the length of its cash conversion cycle?

Selected Answer: 5. 55 days

Question 9 0 out of 5 pointsMorin Company's bonds mature in 8 years, have a par value of $1,000, and make an annual coupon interest payment of $65. The market requires an interest rate of 7.7% on these bonds. What is the bond's price?

Selected Answer: 1. $1,069.79

Question 10 0 out of 5 pointsStock A's beta is 1.5 and Stock B's beta is 0.5. Which of the following statements must be true about these securities? (Assume market equilibrium.)

Selected Answer: 3. The expected return on Stock B should be greater than that on A.

Question 11 5 out of 5 pointsPrecision Aviation had a profit margin of 6.25%, a total assets turnover of 1.5, and an equity multiplier of 1.8. What was the firm's ROE?


Question 12 0 out of 5 pointsSuppose a State of New York bond will pay $1,000 ten years from now. If the going interest rate on these 10-year bonds is 4.1%, how much is the bond worth today?


Question 13 0 out of 5 pointsBauer Software's current balance sheet shows total common equity of $5,125,000. The company has 490,000 shares of stock outstanding, and they sell at a price of $27.50 per share. By how much do the firm's market and book values per share differ?


Question 14 0 out of 5 pointsMalko Enterprises’ bonds currently sell for $990. They have a 6-year maturity, an annual coupon of $75, and a par value of $1,000. What is their current yield?


Question 15 0 out of 5 pointsMolen Inc. has an outstanding issue of perpetual preferred stock with an annual dividend of $2.50 per share. If the required return on this preferred stock is 6.5%, at what price should the stock sell?


Question 16 0 out of 5 pointsA stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of

return is r = 10.5%, and the expected constant growth rate is g = 6.0%. What is the stock's current price?


Question 17 0 out of 5 pointsYou plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would lower the calculated value of the investment?

Selected Answer:

1. The cash flows are in the form of a deferred annuity, and they total to $100,000. You learn that the annuity lasts for only 5 rather than 10 years, hence that each payment is for $20,000 rather than for $10,000.

Question 18 0 out of 5 pointsCooley Company's stock has a beta of 1.32, the risk-free rate is 4.25%, and the market risk premium is 5.50%. What is the firm's required rate of return?


Question 19 0 out of 5 pointsTaggart Inc.'s stock has a 50% chance of producing a 21% return, a 30% chance of producing a 10% return, and a 20% chance of producing a -28% return. What is the firm's expected rate of return?


Question 20 5 out of 5 pointsSue now has $490. How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?


Monday, July 28, 2014 10:24:54 PM EDT

Bad-312 Fin. Mgt Post Test

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