Question 21

Use the following to answer questions 21-22

2017 Income, Retained Earnings, and Dividend Data

All measures below in thousands of dollars:

Taxable income = 1,660

Less: Taxes = 581

Net income = 1,079

Addition to retained earnings = 679

Dividends paid = 400

If the firm had 115,000 shares of stock outstanding, what were earnings per share for 2016?

$9.38

$1.70

$14.43

$3.48

$5.90

Question 22

Using the information from Problem 21, what were dividends per share for 2017?

$9.38

$1.70

$14.43

$3.48

$5.90

Question 23

ABC Corporation reported retained earnings of $1,250 on its year-end 2016 balance sheet. During 2017, the company reported $420 in net income, and it paid out a dividend of $200. What will retained earnings be for ABC's 2017 year-end balance sheet?

$ 1,370

$ 1,770

$ 1,570

$ 1,470

$ 1,670

Question 24

A firm has a total book value of equity of $300,000, a market to book ratio of .33 (one-third), and a book value per share of $8.00. What is the total market value of the firm's equity?

$ 100,000

$ 37,500

$ 112,500

$ 900,000

$1,200,000

Question 25

Susan is heading up and forming a company to transport toxic materials. She will need substantial capital to create the company. What is probably the best organizational form for her to use?

Sole Proprietorship

North Carolina Form Z Corporation

C-Class Corporation

Limited Partnership

Question 26

A firm has a debt-to-equity ratio of .5. What is its equity multiplier?

1

2.5

3

1.5

2

Question 27

You have $25,000 available for a down payment on your new home. You have determined that you can afford a monthly mortgage payment of $1,400 for principal and interest. If thirty-year terms (360 months) are available for home-financing at 4.8%, what is the highest-valued home you can afford to the nearest $1,000 (do not forget your down payment).

$292,000

$529,000

$267,000

$241,000

$242,000

Question 28

You have won the lottery! That is just great. But, what have you really won? It is a $10,000,000 lottery, with ten payments (the first one is provided today) of $1,000,000 each. If the best discount rate for these future cash flows is 8%, what is the actual value, including todays payment, of your $10 million lottery?

$6,710,081

$6,246,888

$7,246,888

$8,246,888

$7,710,081

Question 29

Timmons, Inc., has 7% bonds, with an annual coupon, on the market with 10 years left to maturity. If the yield to maturity is 8%, what is the bonds current price?

$1,055

$1,105

$933

$975

$904

Question 30

Neverwho Co. has 7 percent bonds on the market with eight years left to maturity. The bonds make annual payments and sell for $902.25. On these bonds, what is the yield to maturity?

7.22%

7.00%

8.75%

7.76%

6.32%

Question 31

When pricing bonds, if a bond's coupon rate is more than the required rate of return, then:

The bond sells at a larger premium if it has a long maturity and at a smaller premium if it has a short maturity.

The holder of the bond will realize a capital loss if the bond is held to maturity.

The bond sells at par because the required rate of return is adjusted to reflect the discrepancy.

The bond sells at a premium if it has a long maturity and at a discount if it has a short maturity.

The holder of the bond is assured of a profit regardless of when the bond is eventually sold.

Question 32

J&J Manufacturing just issued a bond with a $1,000 face value and a coupon rate of 8%. If the bond has a life of 20 years, pays annual coupons, and the yield to maturity is 7.5%, what is the total present value of the bond's maturity or face

value?

$235.41

$341.15

$1,050.97

$1,000.00

$815.56

Question 33

Joe Kernan Co. has bonds on the market with 10 years to maturity; they have an annualized YTM of 8.5%, and a current price of $1,090. The bonds make semi-annual payments (two payments per year). What must be the coupon rate on these bonds?

9.1%.

8.8%.

4.9%.

9.9%.

4.8%.

Question 34

A bond with a face value of $1,000 that sells for less than $1,000 in the market is called a:

Par bond.

Discount bond.

Premium bond.

Zero coupon bond.

Floating rate bond.

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Question 35

D&G Enterprises issues bonds with a $1,000 face value that make coupon payments of $10 every 3 months. What is the coupon rate?

1.00%

4.00%

6.00%

8.00%

12.00%

Question 36

If corporate bond yields are at 8.4% and you are in the 40% federal marginal income tax bracket, at what level of tax-free municipal bond yields would you be indifferent between owning corporate bonds or muni bonds? Ignore the impact of state and local taxes.

5.95%

5.54%

5.04%

4.67%

4.11%

Question 37

A firm has an ROA of 6%, sales of $80, and total assets of $100. What is its profit margin?

3.75%

4.25%

6.75%

7.50%

9.25%

Question 38

The monthly mortgage payment on your house is $821.69. It is a 30 year mortgage at 6.5% compounded monthly. How much interest do you pay the third year? (Recall P1 = 1, and P2 = 12 for the first year, P1 = 13, etc for the second year ...)

$8,895

$1,654

$8,450

$1,787

$8,206

Question 39

The total market value of the firm's equity is determined by ________________.

the firm's accountants

the firm's management

manipulators in the stock market

investors in the stock market

regulators at the Securities and Exchange Commission (SEC)

Question 40

You are investing $1,000 at 4% for thirty years. Over those thirty years, how much extra will you earn in compound, versus simple, interest? (Recall you are earning simple interest at 4% for 30 years, and compound interest - or interest on the interest - as well. How much "interest on the interest" do you earn over 30 years?)

$1,200

$2,200

$2,243

$1,043

$3,243

Question 41

Which of the following is a true statement concerning corporations?

The equity that can be raised by the corporation is limited to the current shareholders personal wealth.

The life of the corporation is unlimited.

The corporation has limited liability for business debts.

When dividends are paid, corporate profits are taxed once.

It is difficult to transfer ownership of corporate shares