Question
1) In Finance, which of the following is NOT considered the GOAL of the firm? A. Maximization of earnings per share C. Maximization of stockholder
1) In Finance, which of the following is NOT considered the GOAL of the firm?
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| A. Maximization of earnings per share | |
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| C. Maximization of stockholder wealth | |
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| D. Maximization of the value of the firm | |
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| E. All of the above are correct | |
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| F. None of the above is correct |
2) TVM. You wish to retire 40 years from today. You currently have $100,000 in your retirement portfolio which earns, on average, 8.4% per year. You wish to accumulate $2,000,000 in your portfolio at the time of retirement. Based on your current portfolio value, would you be needing to make any new contributions between now and retirement in order to attain your retirement goal? Use MONTHLY compounding.
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| A. No, the future value of current portfolio value is $2,845,416.63. | |
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| B. No, the future value of current portfolio value is $1,123,000.46 | |
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| C. Yes, the future value of current portfolio value is less than $2 million | |
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| D. Yes, the future value of current portfolio value is 1,899,555.01
5) RATIO. A firm's return on equity (ROE) is typically defined as
B) Net income divided by the book value of common equity C) Net income divided by total assets D) Net income divided by sales E) Common equity divided by total assets F) None of the above 7) M&A. For this and the next 2 questions: Magiclean Corporation is considering an acquisition of Dustvac Company. Dustvac has a capital structure consisting of $5 million (market value) in 11% bonds and $10 million (market value) of common stock. Dustvac's pre-merger beta is 1.36. Magiclean's beta is 1.02 and both it and Dustvac face a 40 percent tax rate. Magiclean's capital structure is 40% debt and 60% equity. The free cash flows from Dustvac are estimated to be $3.0 million for each of the next four years and a horizon value of $10.0 million in Year 4. Tax savings are estimated to be $1 million for each of the next 4 years and a horizon value of $5 million in Year 4. Additionally, new debt would be issued to finance the acquisition and retire the old debt, and this new debt would have an interest rate of 8%. Currently, the risk-free rate is 6% and the market risk premium is 4%. Dustvac's pre-merger WACC is 9.83%. 7) Under the APV approach, calculate unlevered cost of equity using the following formula: wdrd + wErEL.
A) 10.01% C) 11.29% D) 11.44% E) 13.49% |
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Ecological Money And Finance
Authors: Thomas Lagoarde-Segot
1st Edition
3031142314, 978-3031142314
