| Question 1. 1. (TCO D) A bond has 5 years to maturity and has a YTM of 8%. Its par value is $1,000. Its semiannual coupons are $50. What is the bonds current market price? (Show workings) |
| Question 2. 2. (TCO D) A bond currently sells for $887 even though it has a par of $1,000. It was issued two years ago and had a maturity of 10 years. The coupon rate is 7% and the interest payments are made semiannually. What is its YTM? (Show workings) |
| Question 3. 3. (TCO A) If you were a manager of a company, which of the three right side components of the DuPont Identity would you want to increase and which would you want to decrease, other things being equal? Give a specific example for how to do that for each of the three. |
| Question 4. 4. (TCO D) A stock pays an annual dividend of $2.50 and that dividend is not expected to change. Similar stocks pay a return of 10%. What is P0? (Show workings) |
| Question 5. 5. (TCO D) A stock has just declared an annual dividend of $2.25 to be paid one year from today. The dividend is expected to grow at a 7% annual rate. The return on equity for similar stocks is 12%. What is P0? (Show workings) |
| Question 6. 6. (TCO C) What is and why is it important to investors and issuers of stock? Describe the behavior of stocks with s of greater than one, less than one, and less than zero. |
| Question 7. 7. (TCO D) A company has 30 million shares outstanding trading for $8 per share. It also has $90 million in outstanding debt. If its equity cost of capital is 15%, and its debt cost of capital is 9%, and its effective corporate tax rate is 40%, what is its weighted average cost of capital? (Show workings) |
| Question 8. 8. (TCO A) Name and describe the three functions of managerial finance. For each, give an example other than those used in the text and lecture. |
| Question 9. 9. (TCO G) What is the Cash Conversion Cycle (CCC)? Name the components of the CCC and explain why the CCC is important to business. |
Question 10. 10. (TCO E) A company has the opportunity to do any of the projects for which the net cash flows per year are shown below. The company has a cost of capital of 12%. Which should the company do and why? You must use at least two capital budgeting methods. Show your work. | Year | A | B | C | | 0 | -300 | -100 | -300 | | 1 | 100 | -50 | 100 | | 2 | 100 | 100 | 100 | | 3 | 100 | 100 | 100 | | 4 | 100 | 100 | 100 | | 5 | 100 | 100 | 100 | | 6 | 100 | 100 | 100 | | 7 | -100 | -200 | 0 | |
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