1. (TCO A) Which of the following is/are an advantage(s) of incorporation? (Points : 10)

Access to capital markets

Limited liability

Unlimited life

All of the above

2. 2. (TCO A) A _____ is when a rich individual or organization purchases a large fraction of the stock of a poorly performing firm, and in doing so, gets enough votes to replace the board of directors and the CEO. (Points : 10)

shareholder proposal

leveraged buyout

shareholder action

hostile takeover

Question 3. 3. (TCO A) If Company A and Company B are in the same industry and use the same production method, and Company As asset turnover is higher than that of Company B, then all else equal, we can conclude that (Points : 10)

Company A is more efficient than Company B.

Company A has a lower dollar amount of assets than Company B.

Company A has higher sales than Company B.

Company A has a lower ROE than Company B.

Question 4. 4. (TCO B) When we express the value of a cash flow or series of cash flows in terms of dollars today, we call it the _____ of the investment. If we express it in terms of dollars in the future, we call it the _____. (Points : 10)

present value; future value

future value; present value

ordinary annuity; annuity due

discount factor; discount rate

Question 5. 5. (TCO D) Which of the following statements is FALSE? (Points : 10)

Bonds are securities sold by governments and corporations to raise money from investors today in exchange for promised future payments.

By convention, the coupon rate is expressed as an effective annual rate.

Bonds typically make two types of payments to their holders.

The time remaining until the repayment date is known as the term of the bond.

Question 6. 6. (TCO D) Which of the following statements is FALSE? (Points : 10)

As firms mature, their earnings exceed their investment needs and they begin to pay dividends.

Total return equals earnings multiplied by the dividend payout rate.

Cutting the firms dividend to increase investment will raise the stock price if, and only if, the new investments have a positive NPV.

We cannot use the constant dividend growth model to value the stock of a firm with rapid or changing growth.

(TCO B) You plan on retiring in 20 years. You currently have $275,000 and think you will need $1,000,000 to retire. Assuming that you dont deposit any additional money into the account, what annual return will you need to earn to meet this goal? Show your work. (Points : 20)

Question 2. 2. (TCO B) You take out a 4-year car loan for $18,000. The loan has a 4% annual interest rate. The payments are made monthly. What are the monthly payments? Show your work. (Points : 20)

Question 3. 3. (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? Show your work. (Points : 20)

Question 4. 4. (TCO D) A bond currently sells for $887 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? Show your work. (Points : 20)

Question 5. 5. (TCO D) A stock has just paid a dividend and will pay a dividend of $3.00 in a year. The dividend will stay constant for the rest of time. The return on equity for similar stocks is 14%. What is P0? Show your work. (Points : 20)

Question 6. 6. (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? Show your work. (Points : 20)

(TCO A) If Moon Corporation has an increase in sales, what would result in no change in its EBIT margin? Explain in details. (Points : 20)