For the following questions, please choose the correct answer.

9) A company is expected to have free cash flows of $0.75 million next year. The weighted average cost of capital is WACC = 10.5%, and the expected constant growth rate is g = 6.4%. The company has $2 million in short-term investments, $2 million in debt, and 1 million shares. What is the stock's current intrinsic stock price?

a.$18.29

b.$19.22

c.$17.39

d.$18.75

e.$17.8

10)Which of the following factors would be most likely to lead to anincreasein interest rates in the economy?

a.The Federal Reserve decides to try to stimulate the economy.

b.Most businesses decide to modernize and expand their manufacturing capacity, and to install new equipment to reduce labor costs.

c.The economy falls into a recession.

d.There is a decrease in expected inflation.

e.Households reduce their consumption and increase their savings.

11) Which of the following statements is CORRECT?

a.One advantage of the corporate form of organization is that liability of the owners of the firm is limited to their investment in the firm.

b.Managers who face the threat of hostile takeovers are less likely to pursue policies that maximize shareholder value than are managers who do not face the threat of hostile takeovers.

c.Bond covenants are an effective way to resolve conflicts between shareholders and managers.

d.Corporations generally are subject to more favorable tax treatment and fewer regulations than partnerships and sole proprietorships, which is why corporations do most of the business in the United States.

e.Because of their simplified organization, it is easier for sole proprietorships and partnerships to raise large amounts of outside capital than it is for corporations.

12) Suppose the U.S. Treasury announces plans to issue $50 billion of new bonds. Assuming the announcement was not expected, what effect, other things held constant, would that have on bond prices and interest rates?

a.Prices would decline and interest rates would rise.

b.Prices would rise and interest rates would decline.

c.Prices and interest rates would both rise.

d.Prices and interest rates would both decline.

e.There would be no changes in either prices or interest rates.

13) On 12/31/2015, Heaton Industries Inc. reported retained earnings of $675,000 on its balance sheet, and it reported that it had $172,500 of net income during the year. On its previous balance sheet, at 12/31/2014, the company had reported $555,000 of retained earnings. No shares were repurchased during 2015. How much in dividends did Heaton pay during 2015?

a.$55,125

b.$49,875

c.$52,500

d.$57,881

e.$47,381

14) Arshadi Corp.'s sales last year were $52,000, and its total assets were $22,000. What was its total assets turnover ratio (TATO)?

a.2.25

b.2.48

c.2.36

d.2.03

e.2.13

15)At the end of 10 years, which of the following investments would have thehighest future value? Assume that the effective annual rate for all investments is the same and is greater than zero.

a.Investment B pays $125 at theendof every 6-month period for the next 10 years (a total of 20 payments).

b.Investment C pays $125 at thebeginningof every 6-month period for the next 10 years (a total of 20 payments).

c.Investment E pays $250 at theendof every year for the next 10 years (a total of 10 payments).

d.Investment D pays $2,500 at theendof 10 years (just one payment).

e.Investment A pays $250 at thebeginningof every year for the next 10 years (a total of 10 payments).

16) Which of the following statements is CORRECT?

a.If some cash flows occur at the beginning of the periods while others occur at the ends, then we have what the textbook defines as avariableannuity.

b.The cash flows for an annuity due must all occur at the ends of the periods.

c.If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity.

d.The cash flows for an ordinary (or deferred) annuity all occur at the beginning of the periods.

e.The cash flows for an annuity must all be equal, and they must occur at regular intervals, such as once a year or once a month.

17) Of the following investments, which would have thelowest present value? Assume that the effective annual rate for all investments is the same and is greater than zero.

a.Investment D pays $2,500 at theendof 10 years (just one payment).

b.Investment C pays $125 at thebeginningof every 6-month period for the next 10 years (a total of 20 payments).

c.Investment B pays $125 at theendof every 6-month period for the next 10 years (a total of 20 payments).

d.Investment E pays $250 at thebeginningof every year for the next 10 years (a total of 10 payments).

e.Investment A pays $250 at theendof every year for the next 10 years (a total of 10 payments).

18) Under normal conditions, which of the following would be most likely toincreasethe coupon rate required to enable a bond to be issued at par?

a.Making the bond a first mortgage bond rather than a debenture.

b.Adding a call provision.

c.Adding a sinking fund.

d.The rating agencies change the bond's rating from Baa to Aaa.

e.Adding additional restrictive covenants that limit management's actions.

19) Which of the following statements is CORRECT?

a.All else equal, senior debt generally has a lower yield to maturity than subordinated debt.

b.The expected return on a corporate bond will generally exceed the bond's yield to maturity.

c.Under our bankruptcy laws, any firm that is in financial distress will be forced to declare bankruptcy and then be liquidated.

d.An indenture is a bond that is less risky than a mortgage bond.

e.If a bond's coupon rate exceeds its yield to maturity, then its expected return to investors exceeds the yield to maturity.