Grade for Arpit Shah: Week 4 Exam Numeric grade:94/100 Letter grade: Comments: Very Nice work

. Thank You. <Close Window Autograde Summary These are the automatically computed Date Taken:5/25/2010 4:35:29 PM results of your exam. Grades for essay Time Spent:3:00:27 (3:15 allowed) questions, and comments from your Points Received:94 / 100 (94%) instructor, are in the "Details" section below. Question Type: # Questions: # Correct: Multiple choice 8 7 Short 2 N/A Grade Details 1. Question:(TCO G) Which of the following statements is correct? Your Answer: One way to increase EVA is to achieve the same level of operating income but with more investor-supplied capital. If a firm reports positive net income, its EVA must also be positive One drawback of EVA as a performance measure is that it mistakenly assumes that equity capital is free. One way to increase EVA is to generate the CORREC same level of operating income but with less T investor-supplied capital. Actions that increase reported net income will always increase net cash flow.


Points10 of 10 Received: Question:(TCO D) Which one of the following statements is most correct? Your a. If a bond''s yield to maturitiy exceeds its Answer: annual coupon, then the bond will be trading at a premium. b. If interest rates increase, the reletive b. price change of a 10-year coupon bond will be greater than the relative price change of a 10-year zero coupon bond. c. If a coupon bond is selling at par, its current CORREC yield equal its yield to maturity T

None of the answers above is correct. This problem can be completed with the use of calculators.8167) = $2. Points10 of 10 Received: 5.605.05 (this is 1% compounded over 60 periods) Points10 of 10 Received: 4.500 (1.725. the 10-year zero coupon bond’s price change is greater than the 10-year coupon bond’s.000 (2. Both a and c are correct e.03 Instructor$1.922.41 $2.481.665.600. Points10 of 10 Received: 3. If a bond’s YTM > Explanation:annual coupon.08 Answer: CORREC $2.05 T $2.725.d.11 $2.80 T $2. Question:(TCO B) You deposit $1. How much will your account be worth at the end of 25 years? Your $2.735. Explanation: $1. then it will trade at a discount. Question:(TCO B) What's the future value of $1. You also plan to make four additional deposits at the .19 InstructorThis can be done with a calculator. Your first deposit of $5.80 Explanation: This is the future value of $1.48 $2.665. compounded monthly? Your $1. Your plan is to make regular deposits into a brokerage account which will earn 14 percent.11 Answer: CORREC $2. tables or excel. Question:(TCO B) You are interested in saving money for your first house.230.000 using the rate at 4% at 25 periods. I demonstrated the number with the table.342.6658) = $2. the other statements are false. InstructorStatement c is correct. compounded annually.000 today in a savings accunt that pays 4.500 after 5 years if the appropriate interest rate is 12%.000 will be made today (January 1st). table or excel.245.66 $2.0% interest. If interest rates increase.

PV = Answer:-5000. PV = -6655.17 InstructorThe answer is $44.146. Question:(TCO A) Which of the following statements is correct. and $6. N = 3.80 YEAR 3) FV = $8. FV = ? pmt = annuity due begin Year 5) I = 14%.500 at t+1. (that is your plan is to deposit $5. Your Answer: A good goal for a firm's management is maximization of expected EPS.50.240. but the liability of all investors in the other types of businesses is more limited.beginning of each of the next four years. N = 5. is conducted by corporations.095.00 TOTAL FV = $47.700 YEAR 2) FV = $7.) How much money will be in your account after five years? YourPUT IN FINANCIAL CALCULATOR Year 1) I = 14%.147. The potential exists for agency conflicts CORREC between stockholders and managers. Most business in the U. FV = ? pmt = annuity due begin RESULT YEAR 1) FV = $5.34 YEAR 4) FV = $11. FV = ? pmt = annuity due begin Year 2) I = 14%. FV = ? pmt = annuity due begin Year 4) I = 14%. T 7. N = 2. N = 1. PV = -6050. etc. Because most stock ownership is concentrated in the hands of a relatively small segment of society. PV = -5500. and corporations' popularity results primarily from their favorable tax treatment. Points10 of 10 Received: Question:(TCO A) Other things held constant.S. The student can use the numerical solution Explanation:by multiplying the annual residual amount by 14% or by the use of a calculator. Corporations and partnerships have an advantage over proprietorships because a sole proprietor is exposed to unlimited liablitiy. The use of excel is probably the most efficient method that they can use in this type of problem Points10 of 10 Received: 6.963. Your plan is to increase your deposits by 10 percent a year. N = 4.873. which of the following alternatives would increase a company's cash flow for the current year? Your Answer: Increase the number of years over which fixed assets are depreciated for tax INCORRECT .90.050 at t+2. PV = -7320. FV = ? pmt = annuity due begin Year 3) I = 14%. firms' actions to maximize their stock prices have little benefit to society.03 YEAR 5) FV = $14.

831.0. then the required return will increase for stocks that have a beta greater than 1.0. The effect of a change on the market risk premium depends on the level of the risk-free rate.353. then the required return on all stock will rise by 1%. assuming it had no amortization expense and sold none of its fixed assets? Your Answer: 8. The effect of a change in the market risk premium depends on the slope of the yield curve.purposes.00 CORREC T . Reduce the days' sales outstanding CORRECT (DSO) without affecting sales or ANSWER operating costs. Reduce the inventory turnover ratio without affecting sales or operating costs. How much was its net cash flow.750 and depreciation of $885.085. Pay workers more frequently to decrease the accrued wages balance.59 $5. Points4 of 10 Received: Question:(TCO C) Which of the following statements is correct? (Assume that the risk-free rate is a constant) Your Answer: If the market risk premium increses by 1%.31 $5.25 $5. 9. then the required return will increase by 1%. CORREC then the required return will increse by 1% T for a stock that has a beta of 1. Points10 of 10 Received: Question:(TCO C) JBS Inc. Pay down the accounts payables. recently reported net income of $4. If the market risk premium increases by 1%.635. If the market risk premium increases by 1%. $4.

0% premium Liquidity = 1. Your brother-in-law.$5.5% = 3%. That being the case we would not have several of the premiums that would not be applicable to the Government issued Treasury Bill.0% premium Maturity risk = 2.0% premium Based on this data. The only premium that would impact on the Treasury Bill would be the inflation premium which provides inflation protection for the invested dollars. Our answer would then be 8% .750 Explanation: Depreciation $ 885 Total Cash Flow $5.0% premium Default risk = 2.75 InstructorNet Income $4. a broker at Kyoto Securities. Points10 of 10 Received: 10 . a broker.635 Points10 of 10 Received: Question:(TCO C) You read in the Wall Street Journal that 30-day US Treasury Bills are currently yielding 8%. has given you the following estimates of current interest rate premiums: Inflation = 5.916. the real risk-free rate of return is: Your1) rf = (1+r*)(1+IP)-1 = r* + IP + (r* x IP) = r* + IP 8% = r* + IP(5%) Answer:r* = 3% (8%-5%) InstructorIn question one we are given that the current effective interest rate on a Explanation:short term Treasury Bill is 8%. . The first is the liquidity premium which is applied to securities that are difficult to trade which the Treasury Bill would not be. The second is the maturity risk premium which because this is a short-term investment would not apply and finally the default risk premium which the Federal government would not be subject to.

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