1. (TCO A) Which of the following does NOT always increase a company's market value? (Points : 5) Increasing the expected growth rate of sales Increasing the expected operating profitability (NOPAT/Sales) Decreasing the capital requirements (Capital/Sales)
Decreasing the weighted average cost of capital
Increasing the expected rate of return on invested capital 2. (TCO F) Which of the following statements is correct? (Points : 5) For a project with normal cash flows, any change in the WACC will change both the NPV and the IRR. To find the MIRR, we first compound cash flows at the regular IRR to find the TV, and then we discount the TV at the WACC to find the PV. The NPV and IRR methods both assume that cash flows can be reinvested at the WACC. However, the MIRR method assumes reinvestment at the MIRR itself. If two projects have the same cost, and if their NPV profiles cross in the upper right quadrant, then the project with the higher IRR probably has more of its cash flows coming in the later years. If two projects have the same cost, and if their NPV profiles cross in the upper right quadrant, then the project with the lower IRR probably has more of its cash flows coming in the later years. 3. (TCO D) The Ramirez Company's last dividend was $1.75. Its dividend growth rate is expected to be constant at 25% for 2 years, after which dividends are expected to grow at a rate of 6% forever. Its required return (rs) is 12%. What is the best estimate of the current stock price? a. $41.58 b. $42.64
c. $43.71
d. $44.80
e. $45.92(Points : 20)

4. (TCO G) The ABC Corporation's budgeted monthly sales are $4,000. In the first month, 40% of its customers pay and take the 3% discount. The remaining 60% pay in the month following the sale and don't receive a discount. ABC's bad debts are very small and are excluded from this analysis. Purchases for next month's sales are constant each month at $2,000. Other payments for wages, rent,...
...actions would lead to a recession, and that led to an increase in themarket risk premium, (rM  rRF). Under these conditions, with other things held constant, which of thefollowing statements is most correct?
(Points : 10)
The required return on all stocks would increase by the same amount.
The required return on all stocks would increase, but the increase would be greatest for stocks withbetas of less than 1.0.
Stocks' required returns would change, but so would expected returns, and the result would be nochange in stocks' prices.
The prices of all stocks would decline, but the decline would be greatest for highbeta stocks.
The prices of all stocks would increase, but the increase would be greatest for highbeta stocks.
Fi515 Midterm 2
. Question : (TCO A) Which of the following statements is CORRECT?
Student Answer: One of the disadvantages of incorporating a business is that the owners then become subject to liabilities in the event the firm goes bankrupt.
Sole proprietorships are subject to more regulations than corporations.
In any type of partnership, every partner has the same rights, privileges, and liability exposure as every other partner.
Sole proprietorships and partnerships generally have a tax advantage over many corporations, especially large ones.
Corporations of all types are subject to the corporate income tax.
Instructor Explanation: Chapter 1
Explanation: Ch 1: d is correct, all others are incorrect
a:...
...1. Question : (TCO A) Which of the following statements is CORRECT?
Student Answer: One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability.
It is generally easier to transfer one’s ownership interest in a partnership than in a corporation.
One of the advantages of the corporate form of organization is that it avoids double taxation.
One of the advantages of a corporation from a social standpoint is that every stockholder has equal voting rights, i.e., “one person, one vote.”
Corporations of all types are subject to the corporate income tax.
Instructor Explanation: Explanation: Ch 1: a is correct, all others are incorrect
a: True
b: false corporate shares provide easiest transfer of ownership
c: false the corporate form results in double taxation earnings are taxed at corporate level and dividends distributed are taxed at ownership level
d: corporations may issue classes of stock that differ in voting rights
e. Scorps can elect to be taxed as proprietorship or partnership
Points Received: 10 of 10
Comments:
2. Question : (TCO G) Smith & Constantine Inc. recently announced that their net income increased sharply from the previous year, yet their net cash flow from operations declined. Which of the following could explain this performance?
Student Answer: The company’s operating income declined.
The company’s expenditures on fixed assets declined.
The...
...Final Exam Page 1
1. (TCO A) Which of the following statements is NOT correct? (Points : 5) 
The corporate valuation model can be used both for companies that pay dividends and those that do not pay dividends.
The corporate valuation model discounts free cash flows by the required return on equity.
The corporate valuation model can be used to find the value of a division.
An important step in applying the corporate valuation model is forecasting the firm's pro forma financial statements.
Free cash flows are assumed to grow at a constant rate beyond a specified date in order to find the horizon, or terminal, value.

2. (TCO F) Which of the following statements is correct? (Points : 5) 
The MIRR and NPV decision criteria can never conflict.
The IRR method can never be subject to the multiple IRR problem, while the MIRR method can be.
One reason some people prefer the MIRR to the regular IRR is that the MIRR is based on a generally more reasonable reinvestment rate assumption.
The higher the WACC, the shorter the discounted payback period.
The MIRR method assumes that cash flows are reinvested at the crossover rate.

3. (TCO D) The Ackert Company's last dividend was $1.55. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm's required return (rs) is 12.0%. What is the...
...72 Constant Growth Valuation
Boehm Incorporated is expected to pay a $1.50 per share dividend at the end of this year (i.e., D1 = $1.50). The dividend is expected to grow at a constant rate of 7% a year. The required rate of return on the stock, rs, is 15%. What is the value per share of Boehm’s stock?
P = D1/(rs – g)
Price = $1.50 / (0.15  0.07) = $18.75
74 Preferred Stock Valuation
Nick’s Enchiladas Incorporated has preferred stock outstanding that pays a dividend of $5 at the end of each year. The preferred sells for $50 a share. What is the stock’s required rate of return?
Vps = Dps/Rps
Vps = $5/$50 = 10%
75 Nonconstant Growth Valuation
A company currently pays a dividend of $2 per share (D0 = $2). It is estimated that the company’s dividend will grow at a rate of 20% per year for the next 2 years, then at a constant rate of 7% thereafter. The company’s stock has a beta of 1.2, the risk free rate is 7.5%, and the market risk premium is 4%. What is your estimate of the stock’s current price?
Stock Return  16.50%  =0.075+1.2*(0.1150.04)  Discounted   
D1  2.40  =2*(1.2)^1  2.06  =2.40/(1+0.0165)^1 
D2  2.88  =2*(1.2)^2  2.12  =2.88/(1+0.0165)^2 
D3  3.08  =2.88*(1.07)    
P2  32.44  =(3.08)/(0.01650.07)  23.90  =32.44/(1+0.0165)^2 
Stocks Current Price   28.08   
92 AfterTax Cost of Debt
LL Incorporated’s currently outstanding 11% coupon bonds have a yield to maturity of 8%....
...Ciara Wilson
Homework Week 5
108
Truck:
NPV = $17,100 + $5,100(PVIFA14%,5)
= $17,100 + $5,100(3.4331) = $17,100 + $17,509
= $409. (Accept)
Financial calculator: Input the appropriate cash flows into the cash flow register and then solve for IRR = 14.99% ≈ 15%.
MIRR: 14.54%
Pulley System:
NPV = $22,430 + $7,500(3.4331) = $22,430 + $25,748
= $3,318. (Accept)
Financial calculator: Input the appropriate cash flows into the cash flow register and then solve for IRR = 20%.
MIRR: 17.19%.
109
Gas:
Year 1: 5000; Year 2: 5000; Year 3: 5000; Year 4: 5000; Year 5: 5000; Year 6: 5000
NPV= 17,500
4464.29
3985.97
3558.90
3177.59
2837.13
2533.16
NPVg= $3057
IRRg= 18%
Electric:
Year 1: 6290 Year 2:6290; Year 3: 6290; Year 4: 6290; Year 5: 6290 Year 6: 6290
NPV= 22,000
5616.07
5014.35
4477.10
3997.41
3569.11
3186.71
NPVe= $3860.75 or $3861
IRRe= 18%
Buy the electric forklift, because of the high NPV
112
Operating Cash Flows: t = 1
Sales revenues $10,000,000
Operating costs 7,000,000
Depreciation 2,000,000
Operating income before taxes $ 1,000,000
Taxes (40%)  400,000
Operating income after taxes $600,000
Add back depreciation...
...FI515
Homework#1
Ashley Wright
Problems pg 79:
26
In its most recent financial statements, Newhouse Inc. reported $50 million of net income and $810 million of retained earnings. The previous retained earnings were $780 million. How much in dividends was paid to shareholders during the year?
Dividend = $780 million + $50 million  $810 million= $830 million  $810 million= $20 million
27
The Talley Corporation had a taxable income of $365,000 from operations after all operating costs but before (1) interest charges of $50,000, (2) dividends received of $15,000, (3) dividends paid of $25,000, and (4) income taxes. What are the firm’s in come tax liability and its aftertax income? What are the company’s marginal and average tax rates on taxable income?
Taxable operating income $ 365,000
Taxable interest ($ 50,000)
Taxable dividend received$ 4,500
15000*(1  0.70) Total taxable income$ 319,500
a. The marginal rate for this company is 39%
The nontaxable dividends are: $15,000 * 0.7 = $ 10,500
Tax Liability =$ 22,250 + (319,500 ± 100,000)*0.39 = $ 107,855After
Taxable income $ 319,500
Taxable ($ 107855)
b) Nontaxable dividend received 15000*(0.70) $ 10,500
Net income $ 222,145
Average tax rate = Taxable interest income / Taxable operating income= 107855 / 319500 = 0.337574 *100%= 33.7574 = 33.76 %Average tax rate is 33.8 %
29
The Shrieves Corporation has $10,000 that it plans to invest in marketable secu rities. It is...
...FI515
Week 2 Homework
3.1
Greene Sisters has a DSO of 20 days. The company’s average daily sales are $20,000.
What is the level of its accounts receivable? Assume there are 365 days in a year.
Day Sales Outstanding= Receivables / Average Sales per day
AR = 20 X $20000 = $400,000
3.2
Vigo vacations has an equity multiplier of 2.5.The company’s assets are financed assets with some combination of longterm debt and common equity. What is the company’s debt ratio?
Equity Multiplier = 2.5
Equity Ratio = 1/2.5 = 0.40
the formula is:
Debt Ratio + Equity Ratio = 1
Debt Ratio = 1  Equity Ratio = 1  0.40 = 0.60 or 60%
3.3
Winston Washer’s stock price is $75 per share .Winston has $10 billion in total assets. Its balance sheet shows $1 billion in current liabilities, $3 billion in longterm debt and $6 billion in common equity. It has 800 million shares of common stock outstanding .What is Winston’s market/ book ratio?
Market value per share = $75
common equity = 6,000,000
number of shares outstanding = 800 million shares
Markettobook ratio = market value per share/ (common equity/number of shares outstanding)
Markettobook ratio = $75/ (6,000,000/800,000,000)
markettobook ratio = $75/7.5
markettobook ratio = 10
3.4
A company has an EPS of $1.50, a cash flow per share of $3.00, and a price /cash flow ratio of 8.0.What is its P/E ratio?
First Formula:
Price /cash flow ratio = Price per share /cash flow per...
...Grade Details
1. Question : Money markets are markets for ______.
Student Answer: foreign stocks
consumer automobile loans
U.S. stocks
shortterm debt securities
longterm bonds
Points Received: 6 of 6
Comments:
2. Question : Which of the following could explain why a business might choose to organize as a corporation rather than as a sole proprietorship or a partnership?
Student Answer: A. Corporations generally face fewer regulations.
B. Corporations generally face lower taxes.
C. Corporations generally find it easier to raise capital.
D. Corporations enjoy unlimited liability.
E. Statements C and D are correct.
Instructor Explanation: The advantages of incorporation include unlimited life, easy transferability of ownership interest, limited liability, and ease of raising money in the capital markets. Regulations and double taxation are disadvantages of corporations.
Points Received: 0 of 6
Comments:
3. Question : Which of the following statements is true?
Student Answer: One of the benefits of incorporating your business is that you become entitiled to receive unlimited liability.
Sole proprietorships are subject to more regulations than corporations.
Sole proprietorships do not have to pay corporate tax.
All of the above answers are correct.
None of the above answers are correct.
Instructor...