1.Which of the following is legal duty between two parties where one party must act in the interest of the other party?

Agency theory

Angel investor

Fiduciary

Investment banker

2.This should be the primary objective of a firm as it may actually be the most beneficial for society in the long run.

Minimizing layoffs

Maximizing market share

Minimizing costs

Maximizing shareholder value

3.Which of the following is an example of aligning managers' personal interests with those of the owners?

Allow the managers to have as many perks as they request.

Pay the managers high salaries.

Offer the managers an equity stake in the firm.

Trust the managers' actions as they will always act in the owners' best interest.

4.Statement of Retained Earnings Use the following information to find dividends paid to common stockholders during 2008.

Balance of Retained Earnings, December 31, 2007

-$23.0 m

Plus: Net Income for 2008

72.0 m

Less: Cash Dividends Paid

Preferred Stock

$6.2 m

Common Stock

? m

Total Cash Dividends Paid

? m

Balance of Retained Earnings, December 31, 2008

$10.2 m

$32.6 million

$82.2 million

$38.8 million

$101.2 million

5.Statement of Cash Flows Ann's Flowers Inc. reported 2008 net income of $1.00 million and depreciation of $250,000. The top part Ann's Flowers, Inc.'s 2007 and 2008 balance sheets is listed below (in millions of dollars).

Current assets:

2007

2008

Current liabilities:

2007

2008

Cash and marketable securities

$3.00

$2.00

Accrued wages and taxes

$1.00

$1.00

Accounts receivable

4.00

5.00

Accounts payable

3.00

4.00

Inventory

6.00

5.00

Notes payable

9.00

7.00

Total

$13.00

$12.00

Total

$13.00

$12.00

What is the 2008 net cash flow from operating activities for Ann's Flower's, Inc.?

-$1,000,000

$1,250,000

$1,000,000

$2,250,000

6.Free Cash Flow Catering Corp. reported free cash flows for 2008 of $8.12 million and investment in operating capital of $2.12 million. Catering listed $0.97 million in depreciation expense and $2.12 million in taxes on its 2008 income statement. What was Catering's 2008 EBIT?

$7.15 million

$10.24 million

$13.33 million

$11.39 million

7.Market Value Ratios Lab R Doors' year-end price on its common stock is $42. The firm has a profit margin of 10.2%, total assets of $32 million, a total asset turnover ratio of 2.20, no preferred stock, and there are 4.2 million shares of common stock outstanding. What is the PE ratio for Lab R Doors? (Do not round intermediate steps.)

0.399

24.566

5.849

0.878

8.Market Value Ratios Lab R Doors' year-end price on its common stock is $48. The firm has total assets of $78 million, the debt ratio is 52%, no preferred stock, and there are 4.3 million shares of common stock outstanding. Calculate the market-to-book ratio for Lab R Doors.

.42

5.51

11.16

5.09

9.DuPont Analysis Last year, PJ's Ice Cream Parlors, Inc. reported an ROE = 12.7%. The firm's debt ratio was 43%, sales were $42 million, and the capital intensity ratio was .92 times. What is the net income for PJ's last year? (Do not round intermediate steps.)

$38.64 m

$5.33 m

$4.91 m

$2.80 m

10. Interest-on-Interest Consider a $2,500 deposit earning 7 percent interest per year for 4 years. How much total interest is earned on interest (excluding interest earned on the original deposit)?

$776.99

$70.00

$76.99

$700.00

11. Moving Cash Flows What is the value in year 8 of a $1,800 cash flow made in year 10 when interest rates are 10.9 percent?

$1,463.56

$639.67

$786.72

$1,603.80

12. Moving Cash Flows What is the value in year 5 of a $1,000 cash flow made in year 9 when interest rates are 8.3 percent?

$917.00

$671.21

$726.92

$487.91

13. Present Value of a Perpetuity What's the present value, when interest rates are 6.70 percent, of a $220 payment made every year forever?

$1,474.00

$3,283.58

$14.74

$2,200.00

14. Teaser Rate Mortgage A mortgage broker is offering a 30-year mortgage with a teaser rate. In the first two years of the mortgage, the borrower makes monthly payments on only a 6.2 percent APR interest rate. After the second year, the mortgage interest charged increases to 10.4 percent APR. What is the effective interest rate in the first two years? What is the effective interest rate after the second year?

6.38%, 10.91% respectively

6.09%, 10.12% respectively

6.20%, 10.40% respectively

13.79%, 15.05% respectively

15. Compound Frequency Payday loans are very short-term loans that charge very high interest rates. You can borrow $1,100 today and repay $1,287 in two weeks. What is the compound annual rate implied by this 17 percent rate charged for only two weeks?

18.45%

20.40%

5,826.97%

17.40%

16. Forecasting Interest Rates On May 23, 20XX, the existing or current (spot) one-year, two-year, three-year, and four-year zero-coupon Treasury security rates were as follows:

₁R₁ = 5.35%,

₁R₂ = 5.85%,₁R₃ = 6.35%,

₁R₄ = 6.55%

Using the unbiased expectations theory, what is the one-year forward rate on zero-coupon Treasury bonds for year four as of May 23, 20XX

7.15%

6.025%

6.55%

22.34%

17. TIPS Total Return Reconsider a 3.25% TIPS that was issued with CPI reference of 186.8. The bond is purchased at the beginning of the year (after the interest payment), when the CPI was 197.9. For the interest in the middle of the year, the CPI was 198.8. Now, at the end of the year, the CPI is 203.1 and the interest payment has been made. What is the total return of the TIPS in percentage terms for the year? (Do not round the intermediate steps. Round your final answer to 2 decimal places.)

5.90%

3.30%

1.60%

2.60%

18. Bond Quotes Consider the following three bond quotes; a Treasury note quoted at 102:30, and a corporate bond quoted at 99.45, and a municipal bond quoted at 102.45. If the Treasury and corporate bonds have a par value of $1,000 and the municipal bond has a par value of $5,000, what is the price of these three bonds in dollars? (Round your answers to 2 decimal places.)

rev: 03_05_2012

$1,002.30, $994.50, $5,012.25 respectively

$1,000, $1,000, $5,000, respectively

$1,002.30, $1,000, $1,000, respectively

$1,029.38, $994.50, $5,122.50, respectively

19. Time to Maturity A bond issued by a corporation on September 1, 1989 is scheduled to mature on September 1, 2054. If today is September 2, 2009, what is this bond's time to maturity?

20 years

54 years

65 years

45 years

20. Changes in Growth and Stock Valuation Consider a firm that had been priced using a 8 percent growth rate and a 11 percent required rate. The firm recently paid a $1.30 dividend. The firm has just announced that because of a new joint venture, it will likely grow at a 10 percent rate. How much should the stock price change (in dollars and percentage)?

$96.20, 206%

$85.80, 60%

$85.80, 167%

$96.20, 67%

21. Selling Stock with Commissions At your full-service brokerage firm, it costs $124 per stock trade. How much money do you receive after selling 100 shares of Ralph Lauren (RL), which trades at $85.17?

$8,517

$8,393

$8,641

$8,021

22. Average Return The past five monthly returns for K and Company are 4.05 percent, 4.22 percent, -1.15 percent, -.65 percent, and 8.80 percent. What is the average monthly return?

1.273%

3.054%

3.774%

1.573%

23. Portfolio Return At the beginning of the month, you owned $6,100 of Company G, $8,200 of Company S, and $1,400 of Company N. The monthly returns for Company G, Company S, and Company N were 7.45 percent, -1.52 percent, and -.21 percent. What is your portfolio return?

rev: 09_28_2016_QC_CS-63599

3.06%

5.72%

2.57%

2.10%

24. Under/Over Valued Stock A manager believes his firm will earn a 17.4 percent return next year. His firm has a beta of 1.64, the expected return on the market is 15.4 percent, and the risk-free rate is 5.4 percent. Compute the return the firm should earn given its level of risk and determine whether the manager is saying the firm is under-valued or over-valued.

26.256%, under-valued

21.8%, under-valued

26.256%, over-valued

21.8%, over-valued

25. Under/Over Valued Stock A manager believes his firm will earn a 12.55 percent return next year. His firm has a beta of 1.47, the expected return on the market is 9.7 percent, and the risk-free rate is 4.7 percent. Compute the return the firm should earn given its level of risk and determine whether the manager is saying the firm is under-valued or over-valued.

12.05%, over-valued

18.959%, over-valued

18.959%, under-valued

12.05%, under-valued