Question 23

A company has cost of equity of 8% and a dividend growth rate of 3%. Its dividends for next year is $2.20 per share. What should the stock's price be?

Question 23 options:

$4.40

$0.22

$44.00

$27.00

Question 24

The adequately diversify your portfolio, you need to do more than just own a variety of securities. Which of the following is a necessary component of a well-diversified portfolio that has a low variance?

Question 24 options:

The portfolio's components are in a variety of asset classes, such as commodities and derivatives.

The portfolio is reviewed and rebalanced based on updated projections and new information.

The component securities have small or negative correlation coefficients.

All of these answers.

Question 25

A portfolio is composed of 30% stock, 20% bonds, and 50% mutual funds. The stock is expected to have a 10% return, the bonds a 5% return and the mutual funds a 7% return. What is the expected return of the portfolio?

Question 25 options:

8.1%

7.3%

7%

7.5%

Question 26

A company has a risk free rate of 3% and a risk premium of 6%. Its tax rate is 35%. What is the company's cost of debt?

Question 26 options:

5.85%

2.1%

3.9%

3.15%

Question 27

A company has issued preferred stock that are valued at $75 a share. The preferred dividend is $5. The company's growth rate is 5%. What is the cost of the company's preferred stock?

Question 27 options:

1.67%

5%

11.67%

6.67%

Question 28

A company makes an initial $10,000 investment in a project. This project is projected to earn $8000 in year one, $10,000 in year 2, $12,000 in year 3, and $20,000 in year 4. If the interest rate is 5%, what is the project's present value?

Question 28 options:

$43,509

$40,000

$33,509

$37,619

Question 29

Suppose that a company has total financing where 10% comes from bonds, 10% from a loan, and 80% from shareholders equity. The bonds pay on average a 10% interest rate, the loan has a 10% interest rate, and shareholders require a 10% return. The interest payment on the loan is tax deductible and the tax rate is 20%. What is the simple average cost of capital equal to?

Question 29 options:

0.1

0.0933

0.0733

0.0333 Question 30

A company is considering a project that has a discount rate of 5%. In the first year, it will have -$100,000 in cash flows. In year 2, it will have cash flows of $100,000, and in year 3 the project will generate $200,000. What is the project's NPV?

Question 30 options:

$193,204

$190,476

$168,232

$358,708

Question 31

Under the present value concept, a lottery winner would rather receive:

Question 31 options:

$10,000 per year for the next 5 years than receive $40,000 today.

$10,000 per year for the next 5 years than receive $30,000 today.

$10,000 per year for the next 5 years than receive $50,000 today.

None of these, as the best answer depends on the interest rate that the lottery winner faces.

Question 32

Which of the following criteria is NOT taken into consideration when analyzing a possible replacement project?

Question 32 options:

The discounted cash flows from the old and potential replacement investment.

The cashflows the current project has generated in the past.

The sunk cost associated with the original project.

The depreciation associated with the old and potential replacement investment.

Question 33

A company made $10 million in revenue. It is interested in pursuing a new project that costs $2 million, but will make them $7 million in the long run. How much should the company pay in dividends under the Residual Dividend Model?

Question 33 options:

The company should not pay dividends.

$3 million

$8 million

$10 million

Question 34

Which of the following is a benefit shareholders can obtain by repurchasing its shares?

Question 34 options:

Share repurchases can deter hostile takeovers.

Shareholders have a higher percent ownership in the company at a higher per share price.

All of these answers.

Share repurchases can boost EPS, which can in turn increase management compensation.

Question 35

Which of the following accurately describes how a stock dividend differs from a stock split?

Question 35 options:

A stock dividend causes the stock's price to fall; a stock split does not.

All of these answers.

A stock dividend is paid using already issued shares; a split requires new shares to be issued.

A stock dividend increases the shareholder's percentage ownership in the company; a split does not.

Question 36

A company has $350,000 in accounts receivable, $100,000 in current inventory, and $125,000 in accounts payable. What is its working capital?

Question 36 options:

$325,000

$375,000

$450,000

$225,000

Question 37

Which of the following correctly defines one of the four main areas of variability that must be considered during working capital management?

Question 37 options:

Cash management balances having enough cash for expenses while minimizing cash holding costs.

Debtors management finds the appropriate credit policy.

Inventory management ensures uninterrupted production while minimizing investment in raw materials.

All of these answers.

Question 38

Which of the following should a company ALWAYS do with regards to its collection policy?

Question 38 options:

Demand upfront payment when the good or service is delivered.

Set up lock box banking for its customers' convenience.

Tailor its collection policy based on each customer's needs and importance.

Require a deposit from all customers for large purchases.

Question 39

A customer has 45 days from the date of invoice to pay a bill in full, but if he pays within 15 days of the invoice, he gets a 10% discount. Which of the following describes these terms of trade?

Question 39 options:

15/10, net 45.

10/15, net 45.

15/45, net 10.

10/45, net 15.

Question 40

If a company has yet to receive payment for its goods, which of the following describes a situation when it can recognize revenue from the sale?

Question 40 options:

When the goods have been delivered and the title has been transferred to the buyer.

Once the company has sustained a portion of the costs associated with providing the good or service.

All of these answers.

Once the company has performed a portion of the services to be provided.

Question 41

Which of the following correctly describes a method companies can use to analyze their collections?

Question 41 options:

All of these answers.

The account receivable days is the average number of days it takes a firm to collect on its sales.

An aging schedule categorizes accounts by the number of days they have been on the books.

The receivable turnover ratio measures the number of times, on average, receivables are collected.

Question 42

One of the most underestimated challenges encountered by companies when entering a new global region is recognition. For example, Best Buy failed in China as a direct result of not localizing their brand and product offerings. This is a failure of:

Question 42 options:

Ethics

Organizational structure

Leadership

Public relations

Question 43

A company is concerned that the value of its accounts receivable from overseas will decrease due to a shift in exchange rate. What type of exchange exposure is the company concerned about?

Question 43 options:

Short-run exposure.

Long-run exposure.

Economic exposure.

Translation exposure.

Question 44

Frank is goining on vacation to Italy, so he will have purchase some euros (e). How many euros will he get for $375 if the exchange rate is $1 =1.2769 euros?Give your answer to the nearest euro.

Question 44 options:

293 euros

478 euros

294 euros

479 euros

Question 45

You have just arrived in the US from your vacation in Switzerland.While unpacking your luggage you find you have 250 Swiss francs (CHF).How many USD are your Swiss francs worth?The exchange rate is $1 = CHF 1.5347.Give your answer to the nearest dollar.

Question 45 options:

$383

$384

$162

$163