1. (TCO A) In the United States, which of the following types of organization has the greatest revenue in total? (Points : 5)

Sole proprietorship C corporation S corporation Limited partnership

2. (TCO A) Sole proprietorships have all of the following advantages except (Points : 5)

easy to set up. single taxation of income. limited liability. ownership and control are not separated.

Question 3.3. (TCO B) Which of the following would cause the future value of an annuity to decrease? (Points : 5)

Reducing the number of payments. Increasing the number of payments. Increasing the interest rate. Decreasing the liquidity of the payments.

Question 4.4. (TCO B) Which of the following is an annuity due? (Points : 5)

A typical car loan. A typical mortgage. A typical apartment rental agreement. A credit card balance.

5. (TCO G) If net income, total assets, and book value of equity stayed the same, what would be the effect on the DuPont Identity of an increase in sales? (Points : 20)

6. (TCO D) A stock pays an annual dividend of $2.50 and that dividend is not expected to change. Similar stocks pay a return of 10%. What is P₀? (Points : 20)

7. (TCO D) A stock has just declared an annual dividend of $2.25 to be paid one year from today. The dividend is expected to grow at a 7% annual rate. The return on equity for similar stocks is 12%. What is P₀? (Points : 20)

8. (TCO D) A particular bond has 8 years to maturity. It has a face value of $1,000. It has a YTM of 7% and the coupons are paid semiannually at a 10% annual rate. What does the bond currently sell for? (Points : 10)

9. (TCO D) A bond currently sells for $1,030 even though it has a par of $1,000. It was issued two years ago and had a maturity of 10 years. The coupon rate is 7% and the interest payments are made semiannually. What is its YTM? (Points : 10)

10. (TCO D) Explain thoroughly how stock portfolios affect the risk to an investor. (Points : 30)

11. (TCO E) A company has 30 million shares outstanding trading for $8 per share. It also has $90 million in outstanding debt. If its equity cost of capital is 15%, and its debt cost of capital is 9%, and its effective corporate tax rate is 40%, what is its weighted average cost of capital? (Points : 30)

12. (TCO A) Relate how the job of the financial manager can be explained using the balance sheet. (Points : 25)

14. (TCO F) A company has the opportunity to do any of the projects for which the net cash flows per year are shown below. The company has a cost of capital of 12%. Which should the company do and why? You must use at least two capital budgeting methods. Show your work.

Year	A	B	C
0	-300	-100	-300
1	100	-50	100
2	100	100	100
3	100	100	100
4	100	100	100
5	100	100	100
6	100	100	100
7	-100	-200	0

(Points : 40)