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17. The asset and liabilities of a corporation are 100M and 20M, respectively. There are 10M shares outstanding whose market price is $10 per share.

17. The asset and liabilities of a corporation are 100M and 20M, respectively. There are 10M shares outstanding whose market price is $10 per share. EPS for the year is $2. The book ROE for this corporation is ____ and the market ROE is ____.

  • A. 25% / 20%
  • B. 15% / 20%
  • C. 20% / 25%
  • D. 20% / 20%
  • E. 25% / 15%

18. Rearden Metal has borrowed $4 million for three months at a stated annual rate of 8%, using inventory stored in a field warehouse as collateral. The warehouse charges a $10,000 fee, payable at the end of the month. The effect annual rate on this loan is closest to:

  • A. D. 17.1%
  • B. B. 11.3%
  • C. C. 15.2%
  • D. A. 9.3%

19. Luther Industries is offered a $1 million dollar loan for four months at an APR of 9%. If this loan has an origination fee of 1%, (assume Luther only get $990,000 after the fee) then the effective annual rate (EAR) for this loan is closest to:

  • A. 12.0%
  • B. 13.8%
  • C. 4.1%
  • D. 12.6%

20. A firm with high debt tends to have ___ PE ratio and ____ beta than similar firms (producing similar product) with low debt.

  • A. higher; lower
  • B. higher; higher
  • C. lower; higher
  • D. lower; lower
  • E. same; higher

21. The price of a 15% coupon bond with 3 years to maturity is ______ when the required return is 13%.

  • A. 987
  • B. 1047
  • C. 995
  • D. 1078
  • E. 1058

22. Enterprise Value Ratio is a ______ ratio for the _____.

  • A. valuation; stock only
  • B. valuation; debt
  • C. performance; stock only
  • D. performance; entire firm
  • E. valuation; entire firm

The data below are stats for ABC this year. Net Income = $10m Sales = $200m Dividend = $2m Asset = $100m Equity = $50m Under the constant growth model, the growth rate for ABC is:

  • A. 16%
  • B. 12%
  • C. 20%
  • D. 4%
  • E. 8%

24. Which is the right order from the highest to the lowest:

  • A. Cost of debt-WACC- cost of equity
  • B. WACC-cost of equity cost of debt
  • C. Cost of equity- cost of debt- WACC
  • D. Cost of equity-WACC cost of debt
  • E. WACC-cost of debt cost of equity

25. Assume the risk free rate is 1% and the expected market return is 12%. What is the required return for stock if the stock beta is 1.5?

  • A. 15.5%
  • B. 17.5%
  • C. 12.5%
  • D. 14.5%
  • E. 10.5%

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