Test 2

Topics: Time value of money, Net present value, Rate of return, Bond, Interest, Internal rate of return / Pages: 8 (1906 words) / Published: Jul 2nd, 2015
Finance 3715
Test 2 Practice Test
1. K.I. Airlines paid an annual divided of $1.18 a share last month. The company is planning on paying $1.50, $1.75, and $1.80 over the next three years, respectively. After that, the dividend will be constant at $1.50 per share per year. What is the market price of this stock if the market rate of return is 10.5 percent?
a) $13.98
b) $14.07
c) $14.71
d) $18.10
e) $17.16
2. Callander Enterprises stock is listed on NASDAQ. The firm is planning to issue some new equity shares for sale to the general public. This sale will occur in which one of the following markets?
a) Private
b) Exchange floor
c) Primary
d) Auction
e) secondary
3. Global communications has a 7 percent, semiannual coupon bond outstanding with a current market price of $1023.46. the bond has a par value of $1000 and a yield to maturity of 6.72 percent. How many years is it till this bond matures?
a) 12.26 years
b) 12.53 years
c) 25.05 years
d) 24.37 years
e) 18.49 years
4. Net present value:
a) Is less useful than the profitability index when comparing mutually exclusive projects
b) Is less useful than the internal rate of return when comparing different sized projects
c) Is very similar in its methodology to the average accounting return
d) Is the easiest method of evaluation for non-financial managers to use
e) Is the best method of analyzing mutually exclusive projects
5. Kelly’s baskets make handmade baskets for distribution to upscale retail outlets. The firm is currently considering making handmade wreaths as well. Which one of the following is the best example of incremental operating cash flow related to the wreath project?
a) Storing supplies in the same space currently used for materials storage
b) Planning on lower interest expense by assuming the proceeds of the wreath sales will be used to reduce the firms currently outstanding debt
c) Utilizing the basket manager to oversee wreath production
d) Hiring additional employees to

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