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You are on page 1of 8

Kindly

ensure that you number your answers correctly. Show computations for questions 37 to 45.

Send the answers via email to both rbramos@unionbankh.com and

robert_rol_ramos@dlsu.edu.ph.

1) Which of the basic financial statements is best used to answer the question, "How profitable

is the business?"

A) Balance sheet

B) Statement of shareholder's equity

C) Income statement

D) Accounts receivable aging schedule

2) Who owns the retained earnings of a public firm?

A) The IRS

B) Common stockholders

C) Bondholders

D) Preferred stockholders

3) Which of the following represents an attempt to measure the earnings of the firm's

operations over a given time period?

A) Balance sheet

B) Cash flow statement

C) Income statement

D) None of the above

4) Stock that is repurchased by the issuing company is called

A) paid in capital.

B) treasury stock.

C) retained capital.

D) par value stock.

5) Which of the basic financial statements is best used to answer the questions "Where did the

company's money come from and how was it spent over the preceding year?"

A) Balance sheet

B) Statement of shareholder's equity

C) Income statement

D) Cash flow statement

6) Which of the following parties would be interested in an analysis of the firm's financial

statements?

A) Investors

B) Creditors

C) The firm's managers

D) all of the above

7) Common size financial statements represent all figures on the financial statements

A) in inflation adjusted dollars from a base year.

B) as if all companies being compared had the same total revenue.

C) as if all companies being compared had the same total assets.

D) Inventories are sold on a credit basis.010 12) An investor will invest $1.000 C) $-990 D) $1. B) On monthly compounding loans. and round your answer to the nearest $10.000 C) $-990 D) $1. C) Inventories are sold for cash. Her cash at time period 10 is A) $10 B) $1. 10) Which of the following statements is FALSE? A) A dollar received one year from now will be worth more than a dollar received today. D) Perpetuities pay an equal payment forever. C) liquidity. B) profitability.000 at the end of the 10th year.000 B) -$1. 8) The debt ratio is a measure of a firm's A) leverage. 11) Her cash flow at time period 0 is A) $1. D) efficiency.210 .000 now and expect to receive $10 for each of the next 10 years plus $1. the annual percentage yield will be less than the nominal or quoted rate of interest. Use a discount rate of 9%. 9) Which of the following transactions does NOT affect the quick ratio? A) Land held for investment is sold for cash. C) Compounding essentially means earning interest on interest on an initial balance.250 D) $1.480 C) $1.D) as a percentage of either sales or total assets. A) $1.010 13) Which of the following is the formula for compound value? A) FVn = P(1 + i)n B) FVn = (1 + i)/P C) FVn = P/(1 + i)n D) FVn = P(1 + i)-n 14) What is the present value of $150 received at the beginning of each year for 16 years? The first payment is received today. B) Equipment is purchased and is financed by a long-term debt issue.360 B) $1.

what is the expected rate of return? A) 12% B) 13% C) 14% D) 15% 18) You are considering investing in a project with the following possible outcomes: Probability of States Occurrence State 1: Economic boom 15% State 2: Economic growth 45% State 3: Economic decline 25% State 4: Depression 15% Investment Returns 16% 12% 5% -5% Calculate the expected rate of return for this investment.8% B) 7.00% B) 12. what is your rate of return? A) 35. a 30% chance of getting a 14% return.50% C) 17.0% C) 8.3% .15 .50% D) 25.3% D) 6.20 .) A) $60 ($59) B) $65 C) $58 D) $70 17) If there is a 20% chance we will get a 16% return. a 40% chance of getting a 12% return. A) 9.30 . and a 10% chance of getting an 8% return.75 one year ago today. If you sell the stock today for $89.15) You purchased the stock of Sargent Motors at a price of $75.00% 16) You have invested in a project that has the following payoff schedule: Payoff $40 $50 $60 $70 $80 Probability of Occurrence .05 What is the expected value of the investment's payoff? (Round to the nearest $1.00.30 .

The investment had yearly arithmetic returns of -9.96% D) 8.1%.2%.7%.) five years ago. and 15.18% D) 15.63% C) 6. C) the largest market capitalization. 22) What is the arithmetic average return of Roddy Richard's investment? A) 2. treasury bills D) Government bonds.4%. Roddy Richards invested $12014. 7. large stocks.1% 23) What is the geometric average return of Roddy's Richard's investment? A) 3. B) the risk and return tradeoff. large stocks B) Large stocks. large stocks.88 in Wolverine Meat Distributors (W. D) the risk/reward paradox.78% 24) Which of the following portfolios is clearly preferred to the others? A B C Expected Return 14% 22% 18% Standard Deviation 12% 20% 16% A) Investment A B) Investment B C) Investment C D) Cannot be determined .19) Which of the following sequences is arranged in the correct order.38% B) 4. from highest long-term returns to lowest? A) Small stocks.42% B) 3. B) the highest standard deviation of returns. C) the maturity premium. 15%. D) the least sensitivity to inflation. treasury bills 20) Investments that have earned the highest rates of return over time also have A) the lowest risk.96% C) 5. -8. treasury bills.D.M. 21) The difference between returns on stocks and government bonds is known as A) the equity risk premium. small stocks C) Small stocks. government bonds.

If investors believe that the expected rate of return on XYZ is 14%. C) Good capital budgeting decisions help a company define its core competencies. a bond can be issued at A) a discount. The company recently paid dividends of $1.08% B) 8. what is the stock's expected rate of return? A) 4. 29) The XYZ Company. 26) A negative coefficient of correlation implies that A) on average. 28) On any given day. positively correlated.92 per share and projects growth at a rate of 4%. B) a premium. C) asset return tend to move in opposite directions. B) positively correlated. D) None of the above because the coefficient of correlation cannot be negative. D) All of the above.25) An investor will get maximum risk reduction by combining assets that are A) negatively correlated. 27) The appropriate measure for risk according to the capital asset pricing model is A) the standard deviation of a firm's cash flows. C) uncorrelated.80% 31) Which of the following are typical consequences of good capital budgeting decisions? A) The firm increases in value. D) perfectly.00 dividend in the coming year. C) par. is expected to pay a $2. B) alpha. At this rate. D) probability of correlation.00% C) 12. what growth rate in dividends must be expected? A) 5% B) 14% C) 9% D) 6% 30) Green Company's common stock is currently selling at $24. B) asset returns tend to move in opposite directions.00 per share.00% D) 8. . C) beta. B) The firm gains knowledge and experience that may be useful in future decisions. whose common stock is currently selling for $40 per share. returns to such assets are negative. D) all of the above.

000(1. The risk free rate is 3.10 + $20.5% and the market portfolio which is composed of New York stock exchange .01). A) NPV = -30.5 beta.000 + $20. D) are easily reversed.000/(1.3).10 + $20.1).10 + $20. 36) Given the following annual net cash flows.000(1.000/(1.10 + $20.000/(1. 33) Which of the following factors is least important to capital budgeting decisions? A) The time value of money B) The risk-return tradeoff C) Net income based on accrual accounting principles D) Cash flows directly resulting from the decision 34) Which of the following is the correct equation to solve for the NPV of the project that has an initial outlay of $30. Compute the expected rate of return for Intel common stock which has a 1.800.000)/(1. B) decrease the firm's value.000/(1. Year 1 2 3 A) 14% B) 12% C) 8% D) 25% Net Cash Flow $1.10 D) NPV = -$30.000 + $20. D) all of the above.000. C) the present value of future cash flows will exceed the amount invested in the project.000 + $20.000 $750 $500 37.6%) = 18% 38.000 in incremental cash inflow? Assume a discount rate of 10%.000/(1.10)3 B) NPV = -$30.10)3 C) NPV = -$30.000/(1. Compute the expected rate of return for Acer common stock which has a 1. the risk free rate is 4.2 beta. determine the IRR to the nearest whole percent of a project with an initial outlay of $1.10)1 + $20.10 35) If a project has a profitability index greater than 1 A) the npv will also be positive.2 (16% .5% and the market portfolio (which is composed of the New York stock exchange stocks) has an expected rate of return 16% = + Beta = 6 % + 1. C) are diminished because the time value of money makes future cash flows less important.10)2 + $20.02).000 + (3 × 20.03). B) the irr will be higher than the required rate of return.000/(1.32) Errors in capital budgeting decisions A) tend to average out over time. followed by three years of $20.2).

Should you make the investment? Yes. The coupon interest is 8% and the market’s required yield to maturity on a comparable risk bond is 12% 40. What is the value of the bond if it paid interest semi-annually? 41. Header Motor Inc.60 g= 9. The annual coupon interest rate is 9% and the market’s required yield to maturity on a comparable risk bond is 15%. what is the value of the common stock if the investors require a 20% rate of return? 45.5%. a.75 dividend last year. At a constant growth rate of 5%. Because an annual growth of 8% would eventually . its common equity is USD 833 Mln. Gilliland Motor Inv paid a USD 3. If Pepperdine’s return on equity is 16% and management plans to retain 60% of earnings for investment purposes. If the company’s return is 24% and its retention is 25%.025 = $52.6% 42. what will be the firm’s growth rate? 43. what will be the firm’s growth rate? g= ROE x pr g= 16% x 0.32/0.stocks has an expected rate of return of 10%. what is the value of the stock for you? Investor's Value = = $1.5%-8%) = $1. The common stock of NCP paid USD 1.32/(10. If Stanford Corporation’s net income is USD 200 Mln. Calculate the value of a bond that matures in 12 years and has a USD 1000 par value. what is the value of the common stock if the investors require a 20% rate of return? 44. Calculate the value of a bond that matures in 10 years and has a USD 1000 part value.8 b. If your required rate of return is 10. and management plans to retain 70% of the firm’s earnings to finance new investments. Dividends are expected to grow at an 8% annual rate for an indefinite number of years. 39.50 dividend last year. paid SD 3.32 in dividends last year.

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