1. True or False: If a company improves its profitability, asset management, liquidity, and market value between two consecutive years, then its total debt to total capital must have gone down. 2. True or False: Suppose a 10-year bond is callable in 6 years while its coupon rate has continued to remain lower than the prevailing interest rate since its third year. The most likely maturity of this bond is 10 years. 3. True or False: The present value of $100 received every quarter and then placed into a bank account earning 1% per year compounded quarterly for a year while the prevailing interest rates are 5% annually is less than the present value of $400 received at year-end. 4. True or False: The most secure bonds have lower yields than those with a higher risk rating because investors demand a higher return for a higher risk at a lower price. 5. True or False: According to the corporate valuation model, the market value of a company equals the market value of its operations. Cynthia is reviewing the (6) for the Winchester Pet Shop company. This financial statement shows that the pet shop has $300,000 in total assets, $200,000 in total (7) , and $100,000 in owner's equity. She notices that the company doesn't pay any taxes. Cynthia reads the notes to the financial statements and finds out that Brenna Watkins is the owner of Winchester Pet Shop. She concludes that the company is organized as a (8) . That means that Brenna Watkins has (9) liability as the owner. If the pet shop company needed to access more capital quickly to expand, Brenna would most likely secure a (10) . Cynthia is assisting Brenna with that transaction and calculates the company's (11) by adding (12) and amortization to the pre-interest earning and subtracting the changes in net operating working capital and (13) . She finds the latter back in the financial statements, specifically on the 1 (14) in the Investing Activities section. After financing the expansion, Cynthia expects that Brenna's personal taxes would go down by at least $20,000 because her taxable income, which is mainly from the pet shop, puts her in a lower Cynthia enjoys her job as a financial advisor to small business clients. A=BalancesheetB=BankloanC=Capitalexpenditures (14) in the Investing Activities section. After financing the expansion, Cynthia expects that Brenna's personal taxes would go down by at least $20,000 because her taxable income, which is mainly from the pet shop, puts her in a lower (15) . Cynthia enjoys her job as a financial advisor to small business clients. A = Balance sheet B= Bank loan 2. C = Capital expenditures D= Current assets (?) E= Depreciation (5) F=EBITDA (2) G= For-profit corporation (3) H= Free cash flow [? I = Income statement ? J= Liabilities (5) K= Limited (5) L= Non-profit corporation (2) M= Mutual fund (3) N= Partnership (2) O= Preferred stock offering [? P= Sole proprietorship (5) Q= Statement of cash flows (2) R= Statement of stockholders' equity (5) S= Tax bracket T= Unlimited 16. You are considering an investment in QUX Corporation's stock, which is expected to pay a $2.00 dividend per share at the end of the year. The risk of QUX can be measured by its beta of 1.4. The riskfree rate is 4% and the market risk premium is 5%. QUX stock is currently selling for $20 a share, and its dividend is expected to grow at some constant rate. Assuming the market is in equilibrium, what does the market believe will be the stock price at the end of 2 years? 2 17. Your manager has asked you to compare two possible 5-year projects at your organization. The first named Project Arno has an upfront investment of $100M in Year 0 but then returns level cash flows of $30M in Years 1 and 2 followed by $50M for Years 3 through 5. The second one is named Project Bello with an upfront investment of $5M returning $3M for Years 1 through 5. Your organization's weighted average cost of capital (or required rate of return on projects) equals 12%. Calculate the Net Present Value and the Internal Rate of Return for both projects. Which is the preferred project and why? 18. What's the annual fixed payment on a 20 -year loan of $100,000 with a 5.75% annual interest rate? When you add up all 20 payments, what's the total amount? What's the present value of those payments? What's the future value of those payments in year 20 at the end of the loan? 19. Please provide the yield-to-maturity, current yield, and capital gains yield on the following 10-year municipal bond. The bond has a coupon rate of 4% and a par value of $1,000 and is selling for $925 today (in Year 0). 20. Which of the following is true about the payback period and discounted payback period for the following schedule of outflows and inflows from 2020 through 2023 assuming a weighted average cost of capital of 10% ? December 31, 2020 is considered Year 0. a. The payback period and discounted payback period both occur during 2022. b. The payback period occurs during 2022 but the discounted payback period occurs in 2023. c. The payback period and discounted payback period both occur during the first half of 2022. d. The payback period and discounted payback period both occur during the first half of 2023 . e. None of the above. 21. Wazoo stock is expected to issue dividends in the future that grow at a rate of 4% per year. Yesterday Wazoo declared and distributed a dividend, and the price of the stock was $15 per share. Agatha holds 2,000 shares of Wazoo and received a dividend payment of $3,500. What's the dividend yield expected by Agatha during the coming year? a. 4.0% b. 8.5% c. 11.7% d. 12.1% e. 17.5% 22. The number of monthly payments of $500 required to pay off a $30,000 loan with an annual rate of interest of 12% is nearest to which number? a. 47 b. 60 c. 74 d. 92 e. 108 23. The following chart includes selected financial ratios for BizWiz, Inc. for 2022. What is the value of Return on Equity (ROE) for BizWiz in 2022? a. 20% b. 30% c. 40% d. 50% e. 60% 24. Which of the following would indicate an increase in working capital between 2021 and 2022 for Bev's Beverages? a. The current ratio increased from 1.5 to 2.0 . b. The quick ratio (or acid test) increased at a higher rate than the industry average. c. The current assets increased while the current liabilities remained constant. d. The current assets remained constant while the current liabilities increased. e. All of the above. 25. The Altman Z-score for Glimpy's Hot Dogs is 1.3 using current financial data. What does this mean in terms of the possibility of bankruptcy? If you were called in to assist Glimpy's Hot Dogs as a financial consultant, what immediate actions would you recommend Glimpy's leadership take that might quickly improve their financial performance and how would that be reflected in a revised Altman Z-score? In parallel, to prepare them for a potential outcome of bankruptcy leading to liquidation, list the order in which the following creditors would need to be repaid: (a) owners of Glimpy's preferred stock; (b) Glimpy's employees due payroll and benefits; (c) Glimpy's bondholders; (d) Glimpy's suppliers, such as their meat-packing providers; and ( e ) Glimpy's common stock shareholders. 26. Using the following template, compare and contrast the following 3 investments and their valuation when the prevailing interest rate in the market is 8%:(A) a perpetuity from an insurance company of $100 annually; (B) a 10-year non-callable bond with a 12%-coupon rate and $1,000 par value; (C) Ten (10) shares of common stock with expected dividend of $0.625 per share next year and constant dividend growth rate of 7.5% annually thereafter. 27. Suppose you estimate an initial investment in expansion of property, plant, and equipment (PPE) for Hester's Sporting Goods of $2 million (Year 0). You expect inflows in the next year to be $1 million, then $500,000 in following year, and $200,000 thereafter. Calculate what the Modified Internal Rate of Return (MIRR) would be if you projected the inflows out to the end of Year 5 at the company's WACC or required rate of return of 17% for investment and reinvestment purposes. What is the MIRR if you extend the terminal year of your analysis to Year 10 ? What about if you extend the terminal year of your analysis to Year 20? What does this tell you about this project, the nature of capital budgeting, and the MIRR calculation? Does this look like a beneficial project to expand PPE? Why or why not