Q1. The Johnson Company just paid an annual dividend of $1.85. How much would you be willing to pay for one share of Johnson Company stock if the dividend remains constant and you require a 9.5% rate of return?

Select one:

a. $19.47

b. $16.00

c. $17.78

d. $18.95

e. $16.84

Q2. Ernst's Electrical has a bond issue outstanding with ten years to maturity. These bonds have a $1,000 face value, a 5 percent coupon, and pay interest annually. The bonds are currently quoted at 105 percent of face value. What is Ernst's pre-tax cost of debt?

Select one:

a. 4.37 percent

b. 4.40 percent

c. 4.33 percent

d. 4.47 percent

e. 4.68 percent

Q3. The CRA requires that lease:

Select one:

a. agreements provide for balloon lease payments within the first year of a multi-year lease.

b. terms stipulate that the lessee gains title to the leased asset at the end of the lease term.

c. agreements have a legitimate business purpose other than tax avoidance.

d. payments exceed the normal depreciation expense on an asset during the early years of the asset's life.

e. terms extend through the entire economic life of an asset and be based on fair market value.

Q4.

A firm is worth $1.500, has a 35% tax rate, total debt of $600, an unlevered return of 15%, and a cost of debt of 8%. What is the cost of equity?

Select one:

a. 16.67%

b. 18.41%

c. 18.03%

d. 12.07%

e. 20.20%

Q5.

If investors require a 7% nominal return and the expected inflation rate is 4%, what is the expected real return?

Select one:

a. 3.00%

b. 2.88%

c. 3.88%

d. 1.04%

e. 10.21%