I-Metals Corporation's ROE is 17%. Their dividend payout ratio is 20%. The last dividend was S2.58. if dividends are expected to grow by the company's sustainable growth rate indefinitely, what is the cuurent value of Metal common stock if its required return is 18%? A. $47.67 B. $14.33 C. $66.61 D. $18.27 2. The issuance of bonds to raise capital for a coiporation: A. increases risk to the stockholders B. magnifies the returns to the stockholders C. is a cheaper form of capital than the issuance of common stock D. all of the above 3. Marbel Corp. has $2,575,000 of debt, $550,000 of preferred stock, and $18,125,000 of common equity. Marbel Corp.'s after tax cost of debt is 5.25%, preferred stock has a cost of 6.35%, and newly issued common stock has a cost of 14.05%. What is Marbel Corp.'s weighted average cost of capital? A. 12.87% B. 6.56% C. 10.84% D. 8.32% 4. The GAP's recent EPS were $1.75. Analysts forecast next year's EPS at $1.88. if the appropriate P/E ratio is 15, a share of GAP stock should be valued at A. $26.25 B. $8.57 C. $27.23 D. $28.20 Browning Cookware, Inc. sold an issue of 30-year, $1,000 par value bonds to the public. The bonds carry a 10.85% coupon rate and pay interest semiannually. It is now 12 years later. The current market rate of interest on the Browning Cookware, Inc. bonds is 8.45%. What is the current market price (intrinsic value) ofthe bonds? Round off to the nearest $1 5. A. $976 B. $751 C. $1,220 D. $1,177 6- A bond has a coupon rate of 10% and yield to maturity of 12%. Which ofthe following must be true? A. The bond is selling at a discount B. The bond is selling at a premium C. The bond's curent yield is less than the coupon rate D. Both A and C 7. Pace Corp. has a $1,000 par value, 30-year bond outstanding that was issued 20 years ago at an annual coupon rate of 10%, paid semiannually. Market interest rates on similar bonds are 7%. Calculate the bond's pnce. A. $956.42 B. $1,000.00 C. $1,168.31 D. $1,213.19 Based on current market values, Helmuth Inc.'s capital structure is 30% debt, 20 preferred stock, and 50% common stock. When using book values, capital structure is 25% debt, 10% preferred stock, and 65% common stock. The required return on each component is debt-10%, preferred stock-11%, and common stock-18%-The marginal tax rate is 40%. What rate of return must Helmuth Inc. earn on its investments if the value of the fim 1s to remain nchanged! 8. A.10% B. 14.3% C. 13% D. 18% Common stockholders are essentially: A. Creditors of the fim B. Owners of the firm C. Managers of the firm D. All of the above 9. 10. The CAPM approach is used to determine the cost of A. preferred stock B. debt C. common equity D long tem funds 11. Marshall Networks, Inc.'s retum on equity is 17% and management retains 75% of earnings for investment puuposes. Based on this information, what will be the firm's growth rate? A. 4.25% B. 22.67% C. 12.75% D. 44.12% 12. Government bonds have lower yield to matuurity than do corporate bonds of the same maturity because the )premium is lower for govemment bonds. A. default B. matuity C. interest rate risk D. inflation 13. Which of the following investors incurs the least risk? B. preterred stockholders C. common stockholders D. all of the above bear equal risk 14. Smith Coporation is undertaking a capital budgeting analysis. The rate on 10-year U.S. Treasury bonds is 3.6%, and the return on the S&P 500 index is 1 1.6%, ifthe cost of Smith Corporation's common equity is 19.6%, calculate their beta. A. 2.0 B. 1.38 C. 5.4 D. 1.69 15. Snort and Smiley Incorporated is undertaking a capital budgeting analysis. The firm's beta is 1.5. The rate on six-month-T-bills is 5%, and the return on the S&P 500 index is 12%. What is the appropriate cost of common equity in detemming the fim's cost of capital? A. 13.1% B. 15.5% C. 19.9% 16. Loma Dome, Inc. is a young company that does not yet pay a dividend. You believe that the company will begin to pay dividends 5 years firom now, and that the company will then be worth $50 per share. If your required rate of return on this risky stock is 20%, what is the stock worth today? A.$40 B. $0 C. $20.09 D. $10 17. Sputter Motors just sold an issue of 30-year bonds for $1,107.2. Investors require a rate of return onthese bonds of 7.75%. The bonds pay interest semiannually. What is the coupon rate of the bonds? A. 11.072% B. 7.75% C. 8.675% D. 9.375% 18. A stock currently sells for $63 per share, and the required return on the stock is 10%. Assuming a growth rate of 5%, calculate the stock's last dividend paid. A. $5 C. $7 D. $3 19. Urbana Coip. just paid a dividend of $1.65 on its common stock. This companys's dividends are expected to grow at a constant rate of 3% indefinitely. Ifthe required rate of return on tis stock is 1 196, compute the curent value ofper share of Urbana Corp. stock? A. $20.63 B. $15 C. $21.24 D. $55 20. Ifthe market price A. The coupon B. The yield to matunty increases C. The yield to matuuity decreases D. None of the above of a bond increases., rate increases then 21. A decrease in the) will cause an increase in common stock value. A. Growth rate B. Last paid dividend C. Required rate of retuurn D. Both B and C 22. A firm's common stock is curently selling for $40 per share, is expected to pay a $2 dividend in the coming year. If investors believe that the expected rate of return on this firm is 14%, what growth in dividends must be expected? A. 14% B. 5% C.9% D. 6% 23. BP, Inc. has $5 million of debt outstanding with a coupon rate of 12%. Currently, the yield to maturity on these bonds is 14%. If the firm's tax rate is 40%, what is the after-tax cost of debt to BP, Inc.? A. 14% B. 12% C. 5.6% D. 8.4% 24. If a company has a return on equity of 25% and wants to a growth rate of 10%, how much of ROE should be retained? A. 50% B.40% C.70% D. 60% 25. Bondholders have a priority claim on assets ahead of: A. common stockholders C. both A and B D. none of the above