Question 1
1.    A stock is expected to pay a year-end dividend of $2.00, i.e., D1 = $2.00. The dividend is expected to decline at a rate of 5% a year forever (g = ?5%). If the company is in equilibrium and its expected and required rate of return is 15%, which of the following statements is CORRECT?
The constant growth model cannot be used because the growth rate is negative.
The company’s dividend yield 5 years from now is expected to be 10%.
The company’s expected stock price at the beginning of next year is $9.50.
The company’s expected capital gains yield is 5%.
The company’s current stock price is $20.
1 points
Question 2
1.    Which is the best measure of risk for a single asset held in isolation, and which is the best measure for an asset held in a diversified portfolio?
Beta; beta.
Variance; correlation coefficient.
Beta; variance.
Coefficient of variation; beta.
Standard deviation; correlation coefficient.
1 points
Question 3
1.    Assume a project has normal cash flows. All else equal, which of the following statements is CORRECT?
A project’s NPV increases as the WACC declines.
A project’s discounted payback increases as the WACC declines.
A project’s MIRR is unaffected by changes in the WACC.
A project’s IRR increases as the WACC declines.
A project’s regular payback increases as the WACC declines.
1 points
Question 4
1.    Which of the following risk types can be diversified by adding stocks to a portfolio?
Systematic Risk.
Default risk.
Non diversifiable risks.
Unique risks.
Market Risk.
1 points
Question 5
1.    Firms that make investment decisions based upon the payback rule may be biased towards rejecting projects:
with early cash inflows.
With short lives.
With long lives.
Those with negative NPVs.
None of above.
1 points
Question 6
1.    When a project’s internal rate of return equals its opportunity cost of capital, then:
The net present value will be negative.
The net present value is a linear combination of MIRR and IRR.
The net present value will be positive.
The project has no cash inflows.
The net present value will be zero.
1 points
Question 7
1.    When hard rationing exists, projects may be evaluated by the use of ?
Payback period.
borrowing rather than lending projects.
Modified payback period.
A profitability index.
1 points
Question 8
1.    Because of its age, your car costs $3000 annually in maintenence expense. You could replace it with a newer vehicle costing $6000. Both vehicles would be expected to last 4 more years. If your opportunity cost is 10% what should be the maximum annual maintenance expense be on the newer vehicle to justify the purchase ? (Hint : EAC on the new vehicle should not exceed $3000)
1 points
Question 9
1.    Taggart Inc.’s stock has a 50% chance of producing a 39% return, a 30% chance of producing a 10% return, and a 20% chance of producing a -28% return. What is the firm’s expected rate of return?
1 points
Question 10
1.    Tom O’Brien has a 2-stock portfolio with a total value of $100,000. $55,000 is invested in Stock A with a beta of 0.75 and the remainder is invested in Stock B with a beta of 1.42. What is his portfolio’s beta?
1 points
Question 11
1.    Assume that you hold a well-diversified portfolio that has an expected return of 11.0% and a beta of 1.20. You are in the process of buying 1,000 shares of Alpha Corp at $10 a share and adding it to your portfolio. Alpha has an expected return of 22.5% and a beta of 1.80. The total value of your current portfolio is $90,000. What will the expected return and beta on the portfolio be after the purchase of the Alpha stock?
14.82% and 1.25
12.15% and 1.26
13.49% and 1.11
11.18% and 1.06
10.69% and 1.03
1 points
Question 12
1.    Cooley Company’s stock has a beta of 1.60, the risk-free rate is 2.25%, and the market risk premium is 5.50%. What is the firm’s required rate of return?
1 points
Question 13
1.    Roenfeld Corp believes the following probability distribution exists for its stock. What is the coefficient of variation on the company’s stock?
State of the Economy    Probability of State Occurring    Stock’s Expected Return
Boom    0.11    25%
Normal    0.50    15%
Recession    0.39    5%
1 points
Question 14
1.    You hold a diversified $100,000 portfolio consisting of 20 stocks with $5,000 invested in each. The portfolio’s beta is 1.12. You plan to sell a stock with b = 0.90 and use the proceeds to buy a new stock with b = 1.25. What will the portfolio’s new beta be?
1 points
Question 15
1.    Returns for the Dayton Company over the last 3 years are shown below. What’s the standard deviation of the firm’s returns? (Hint: This is a sample, not a complete population, so the sample standard deviation formula should be used.)
Year    Return
2011    21.00%
2010    -12.50%
2009    15.00%
1 points
Question 16
1.    A stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of return is r = 10.5%, and the expected constant growth rate is g = 2.8%. What is the stock’s current price?
1 points
Question 17
1.    If D = $2.25, g (which is constant) = 3.5%, and P = $40, what is the stock’s expected dividend yield for the coming year?
1 points
Question 18
1.    Bay Manufacturing is expected to pay a dividend of $1.25 per share at the end of the year (D = $1.25). The stock sells for $34.50 per share, and its required rate of return is 10.5%. The dividend is expected to grow at some constant rate, g, forever. What is the equilibrium expected growth rate?
1 points
Question 19
1.    Molen Inc. has an outstanding issue of perpetual preferred stock with an annual dividend of $8.00 per share. If the required return on this preferred stock is 6.5%, at what price should the stock sell?
1 points
Question 20
1.    The Francis Company is expected to pay a dividend of D = $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future. The company’s beta is 1.35, the market risk premium is 5.50%, and the risk-free rate is 4.00%. What is the company’s current stock price?
1 points
Question 21
1.    Nachman Industries just paid a dividend of D0 = $2.75. Analysts expect the company’s dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The required return on this low-risk stock is 9.00%. What is the best estimate of the stock’s current market value?
1 points
Question 22
1.    A company’s perpetual preferred stock currently sells for $125.00 per share, and it pays an $8.00 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 5.00% of the issue price. What is the firm’s cost of preferred stock?
1 points
Question 23
1.    You were hired as a consultant to Giambono Company, whose target capital structure is 40% debt, 15% preferred, and 45% common equity. The after-tax cost of debt is 6.00%, the cost of preferred is 7.50%, and the cost of retained earnings is 16.50%. The firm will not be issuing any new stock. What is its WACC?
1 points
Question 24
1.    Anderson Systems is considering a project that has the following cash flow and WACC data. What is the project’s NPV? Note that if a project’s projected NPV is negative, it should be rejected.
WACC:    11.75%
Year    0    1    2    3
Cash flows    -$1,000    $500    $500    $500
1 points
Question 25
1.    Daves Inc. recently hired you as a consultant to estimate the company’s WACC. You have obtained the following information. (1) The firm’s noncallable bonds mature in 20 years, have an 8.00% annual coupon, a par value of $1,000, and a market price of $1,125.00. (2) The company’s tax rate is 40%. (3) The risk-free rate is 4.50%, the market risk premium is 5.50%, and the stock’s beta is 1.20. (4) The target capital structure consists of 35% debt and the balance is common equity. The firm uses the CAPM to estimate the cost of equity, and it does not expect to issue any new common stock. What is its WACC?
1 points
Question 26
1.    Warr Company is considering a project that has the following cash flow data. What is the project’s IRR? Note that a project’s projected IRR can be less than the WACC or negative, in both cases it will be rejected.
Year    0    1    2    3    4
Cash flows    -$825    $400    $400    $400    $400
1 points
Question 27
1.    Taggart Inc. is considering a project that has the following cash flow data. What is the project’s payback?
Year    0    1    2    3
Cash flows    -$1,300    $500    $500    $500
2.60 years
1.98 years
2.76 years
3.09 years
1 points
Question 28
1.    Ehrmann Data Systems is considering a project that has the following cash flow and WACC data. What is the project’s MIRR? Note that a project’s projected MIRR can be less than the WACC (and even negative), in which case it will be rejected.
WACC:    13.50%
Year    0    1    2    3
Cash flows    -$1,000    $450    $450    $450
1 points
Question 29
1.    Fernando Designs is considering a project that has the following cash flow and WACC data. What is the project’s discounted payback?
WACC:    10.00%
Year    0    1    2    3
Cash flows    -$625    $500    $500    $500
1.41 years
1 points
Question 30
1.    Francis Inc.’s stock has a required rate of return of 10.25%, and it sells for $70.00 per share. The dividend is expected to grow at a constant rate of 6.00% per year. What is the expected year-end dividend, D ?

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MGMT 134



1.       The optimal dividend policy for a firm strikes a balance between payment of current dividends and retention of earnings for future growth, and results in the maximization of stock price.

a.            True

b.            False

2. The dividend irrelevance theory, proposed by Miller and Modigliani, says that as long as a firm pays a dividend, how much it pays does not affect either its cost of capital or its stock price.

a.            True

b.            False

3. MM’s dividend irrelevance theory says that dividend policy does not affect a firm’s value but can affect its cost of capital.

a.  True

b.  False

4. If investors do, in fact, prefer that firms retain most of their earnings, then firms that want to maximize stock price should hold dividend payments to low levels.

a.  True

b.  False

5. The announcement of an increase in the cash dividend always causes an increase in the price of the firm’s common stock.

a.            True

b.            False

6. If a firm adopts a residual dividend policy, dividends are determined as a residual item.  Therefore, the better the firm’s investment opportunities, the lower its dividend payments should be.

a.            True

b.            False

7. A stock dividend and a stock split should, at least conceptually, have the same effect on shareholders’ wealth.

a.            True

b.            False

8. A reverse split reduces the number of shares outstanding.

a.            True

b.            False

9. Underlying the dividend irrelevance theory proposed by Miller and Modigliani is their argument that the value of the firm is determined only by its basic earning power and its business risk.

a.            True

b.            False

10. A firm that follows a residual dividend policy must believe that the dividend irrelevance theory is correct.

a.            True

b.            False

11. How a firm splits its income between retained earnings and dividends does not affect its rate of growth, which is determined by the firm’s basic earning power.

a.            True

b.            False

12. One implication of the bird-in-the-hand theory of dividends is that a reduction in dividend yield must be offset by a more than proportionate increase in growth in order to keep a firm’s required return constant, other things held constant.

a.            True

b.            False

13. If the shape of the curve depicting a firm’s WACC versus its debt ratio is more like a sharp “V”, as opposed to a shallow “U”, the easier it will be for the firm to maintain a steady dividend in the face of varying investment opportuni¬ties from year to year.

a.            True

b.            False

14. While the DCF-based empirical tests of dividend theory have generated inconclusive results, CAPM-based tests have demonstrated that low payout ratio stocks have lower required returns because of tax considerations.

a.            True

b.            False

15. Even if a stock split has no information content, and even if the dividend per share adjusted for the split does not increase, there can still be a real benefit (i.e., a higher value for shareholders) from such a split, but any such benefit is probably small.

a.            True

b.            False

16. If the information content, or signaling, hypothesis is correct, then changes in dividend policy can be important with respect to firm value and capital costs.

a.            True

b.            False

17. Myron Gordon and John Lintner believe that the re¬quired return on equity increases as the dividend payout ratio is decreased.  Their argument is based on the assumption that

a.            Investors are indifferent between dividends and capital gains.

b.            Investors require that the dividend yield and capital gains yield equal a constant.

c.             Capital gains are taxed at a higher rate than dividends.

d.            Investors view dividends as being less risky than potential future capital gains.

e.            Investors value a dollar of expected capital gains more highly than a dollar of expected divi¬dends because of the lower tax rate on capital gains.


18. Which of the following statements is most correct?

a.            In general, stock repurchases are taxed the same way as dividends.

b.            One nice feature of dividend reinvestment plans is that they enable investors to reduce the taxes paid on their dividends.

c.             On average, companies send a negative signal to the marketplace when they announce an increase in their dividend.

d.            If a company is interested in issuing new equity capital, a new stock dividend reinvestment plan probably makes more sense than an open market dividend reinvestment plan.

e.            Statements b and d are correct.

19. In the real world, we find that dividends

a.            Usually exhibit greater stability than earnings.

b.            Fluctuate more widely than earnings.

c.             Tend to be a lower percentage of earnings for mature firms.

d.            Are usually changed every year to reflect earnings changes.

e.            Are usually set as a fixed percentage of earnings.


20. A decrease in a firm’s willingness to pay dividends is likely to result from an increase in its

a.            Earnings stability.

b.            Access to capital markets.

c.             Profitable investment opportunities.

d.            Collection of accounts receivable.

e.            Stock price.

21. Which of the following statements best describes the theories of investors’ preferences for dividends?

a.            Modigliani and Miller argue that investors prefer dividends to capital gains.

b.            The bird-in-hand theory suggests that a company can reduce its cost of equity capital by reducing its dividend payout ratio.

c.             The tax preference theory suggests that a company can increase its stock price by increasing its dividend payout ratio.

d.            One key advantage of a residual dividend policy is that it enables a company to follow a stable dividend policy.

e.            The clientele effect suggests that companies should follow a stable dividend policy.


22. Which of the following statements is most correct?

a.            The bird-in-the-hand theory implies that a company can reduce its WACC by reducing its dividend payout.

b.            The bird-in-the-hand theory implies that a company can increase its stock price by reducing its dividend payout.

c.             One problem with following a residual dividend policy is that it can lead to erratic dividend payouts which may prevent the firm from establishing a reliable clientele of investors who prefer a particular dividend policy.

d.            Statements a and c are correct.

e.            All of the statements above are correct.


23. Which of the following would not have an influence on the optimal dividend policy?

a.            The possibility of accelerating or delaying investment projects.

b.            A strong shareholders’ preference for current income versus capital gains.

c.             Bond indenture constraints.

d.            The costs associated with selling new common stock.

e.            All of the statements above can have an effect on dividend policy.

24. A stock split will cause a change in the total dollar amounts shown in which of the following balance sheet accounts?

a.            Cash.

b.            Common stock.

c.             Paid-in capital.

d.            Retained earnings.

e.            None of the above.

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1. [14 pts] A fully amortizing CPM for $100,000 is made at 8% MEY for 20 years a. [2] Calculate the monthly payment. b. [2] Assume the loan is repaid at the end of 8 years. What is the outstanding balance? c. [4] Produce an amortization sheet, annotate it. See instructions above. d. The borrower chooses to curtail the loan by $5,000 at the end of year 5. i. [3] What will be the new loan maturity, assuming the payments do not change? ii. [3] Assume the loan maturity will not change. What are the new payments? 2. [9 pts] John wants to buy a property for $105,000 and wants an 80% loan. The lender indicates that a fully amortizing loan can be obtained for 30 years at 12% MEY, with loan origination fees of $3,500. a. [1] How much will the lender actually disburse? b. [3] What is the effective interest cost to the borrower, assuming that the mortgage is paid off after 30 years? c. [1] What is the annual percentage rate (APR) that the lender must disclose to the borrower? (APRs are rounded to the nearest 1/8th of a percent) d. [2] If John pays off the loan after 5 years, what is the effective interest charge? Why is it different from the APR in c? e. [2] Assume the lender also imposes a prepayment penalty of 2% of the outstanding balance if the loan is repaid within the first 8 years of closing. What is the effective cost of the loan if John repays after 5 years? 3. [6] A borrower is faced with choosing between two loans. Loan A is available for $75,000 at 10% MEY for 30 years, with 6 points included in the closing costs. Loan B would be made for the same amount, but for 11% MEY for 30 years, with 2 points included in the closing costs. Both loans would be fully amortizing. a. [4] If the loan is to be repaid after 15 years, which is the better choice? b. [2] If the loan is repaid after 5 years, which is the better choice? 4. [12] A reverse annuity mortgage is made with a balance not to exceed $300,000 on a property now valued at $700,000. The loan calls for monthly payments to be made to the borrower for 120 months at an interest rate of 11% MEY. a. [3] What will the monthly payments be? b. [3] What will the RAM balance be at the end of year 3? c. [4] Assume that the borrower must have monthly draws of $2,000 for the first 50 months of the loan. The remaining draws from months 51 to 120 must be determined so that the $300,000 maximum is not exceeded in month 120. What will the draws by the borrower be during months 51 to 120? d. [2] Suppose property experiences a 1% appreciation (MEY, starting today), and the borrower has a balance of $300,000 at year 10 (by receiving payments computed in a). No payments are made thereafter. How many years from loan closing will the loan balance begin to exceed the house value? 5. [5] Refer to question 4, part d. The fact that healthy borrowers with longer expected lives, or individuals that do not expect to move, are more attracted to RMs than the opposite type of individuals is called “adverse selection” (the lender will tend to get the “worst kind” of borrower, from her point of view). Go to www.ssrn.com, under “Search,” look for terms “Reverse Mortgage” with author “Davidoff.” Download the paper on selection and moral hazard. The authors have found that in the last 15 years, lenders have experienced “positive selection” (the opposite of adverse selection), in that RM borrowers have tended to leave their homes faster than the population average. What is their proposed explanation for this puzzling result, and can you think of an alternative one? 6. [5] Download the paper “Measuring Housing Affordability…,” by Davidson and Levin which was posted along with this HW document on BB. Discuss why the authors disagree with the NAR about the affordability of homeownership as of the date of the article.
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Which of the following statements best describes the revenue cycle?

a. It focuses on cash management.
b. It focuses on inventory management.
c. It focuses on receivables management.
d. It focuses on cash, inventory, and receivables management.
e. It focuses on all activities associated with billing and collecting for services.

Answer: _____


2. The revenue cycle is composed of:

a. Before service activities
b. At-service activities
c. After-service activities
d. Monitoring and reporting activities
e. All of the above activities

Answer: _____


3. True or False: Two important keys to successful revenue cycle management are information technology and electronic claims processing.

a. True
b. False

Answer: _____


4. Which of the following techniques are used to monitor a business’s receivables?

a. Average collection period
b. Aging schedule
c. Collections budget
d. Both a. and b. above
e. a., b., and c. above

Answer: _____


5. True or False: Float is the difference between the balance shown on the bank’s books and the balance on the business’s own checkbook.

a. True
b. False

Answer: _____


6. True or False: A business’s float is maximized by accelerating disbursements and slowing receipts.

a. True
b. False

Answer: _____


7. Businesses hold short-term securities for which of the following reasons?

a. As a substitute for cash
b. As a temporary repository for cash being accumulated for a specific purpose
c. As a buffer against bad debt losses.
d. Both a. and b. above
e. a., b., and c. above

Answer: _____


8. True or False: In general, short-term securities are chosen on the basis of safety; that is, protection of principal takes precedence over amount of return.

a. True
b. False

Answer: _____


9. True or False: The goal of inventory management is to ensure that the stock-out rate is less than 10 percent, which means that the business runs out of less than 10 percent of its inventory items in any given year.

a. True
b. False

Answer: _____


10. Which of the following inventory management techniques are currently being used by healthcare providers?

a. Just-in-time systems
b. Stockless systems
c. Consigned inventory systems
d. Both a. and b. above
e. a., b., and c. above

Answer: _____


11. Which of the following operating metrics is used to monitor labor productivity?

a. Profit per discharge
b. Length of stay (LOS)
c. FTEs per occupied bed
d. Medicare percentage
e. Outpatient revenue percentage

Answer: _____


12. Which of the following techniques are used to help interpret operating metrics?

a. Trend analysis
b. Comparative analysis
c. Scale analysis
d. Both a. and b. above
e. a., b., and c. above

Answer: _____


13. Suppose that a clinic has third-party payer revenues of $10,000 a day. On average, it takes the clinic 50 days to collect from its payers. What will be the steady state receivables balance?

a. $ 10,000
b. $ 50,000
c. $250,000
d. $500,000
e. $750,000

Answer: _____


14. Suppose a hospital writes checks of $100,000 per day and it takes, on average, 7 days for those to be received and clear the banking system. Furthermore, the hospital receives $120,000 in checks daily that take 4 days to be deposited and credited. What is the hospital’s float?

a. $100,000
b. $120,000
c. $220,000
d. $240,000
e. $440,000

Answer: _____

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Home>Business & Finance homework help

. Tony’s Beach T-Shirts has fixed annual operating costs of $75,000. Tony retails his T-shirts for $14.99 each and the variable cost per T-shirt is $4.99. Based on this information, the breakeven sales level in units is?

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Practice Question 30

Under which of the following discounting methods will the present value of an investment be the highest, assuming the same annual interest rate?

[removed] Quarterly.



[removed] Monthly.


[removed] Continuous.


[removed] Yearly.
Practice Question 34

Which of the following is a similar concept to the compound growth rate of money?

[removed] The yield on a bond.


[removed] The discount rate on a capital budgeting project.


[removed] All of these.


[removed] The internal rate of return on an investment.
Practice Question 29

The future value of an annuity is typically used when analyzing

[removed] loan amortization schedules.


[removed] retirement plans.


[removed] the price of common stock.


[removed] alternative capital budgeting proposals.

What is the value of this 20 year lease? The first payment, due one year from today is $2,000 and each annual payment will increase by 4%. The discount rate used to evaluate similar leases is 9%. (Round to the nearest dollar.)

[removed] $ 24,361


[removed] $ 68,000


[removed] $ 39,856


[removed] $ 40,000









Multiple Choice Question 87


Time to attain goal: Elegant Designers have generated sales of $625,000 for the current year. If they can grow their sales at a rate of 12 percent every year, how long will they take to triple their sales? (Round off to the nearest year.)

[removed] 8 years


[removed] 9 years


[removed] 7 years


[removed] 10 years
Practice Question 6

You plan to buy a new car. The price is $30,000 and you will make a down payment of $4,000. Your annual interest rate is 10% and you intend to pay for the car over five years. What will be your monthly payment?

[removed] $552.42


[removed] $637.41


[removed] $566.67


[removed] $433.33


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Home>Business & Finance homework help
Question #2 in the attachment Please look at the problem before deciding to work it. I need it worked out step by step please. It is due today
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Chapter 14 : Application Questions 1, 2, 3 and 4 on page 305


  1. Although both immediate and variable annuities can provide lifetime income to annuitants, they differ in important ways. Compare and contrast (1) an immediate annuity with (2) a variable annuity with respect to each of the following:
    1. Determining how the premiums are invested
    2. Stability of income payments after retirement
    3. Death benefits if the annuitant dies before
  2. A fixed indexed annuity and a variable annuity are both similar and different in many respects.
    1. Explain the major similarities between an fixed-
      indexed annuity and a variable annuity.
    2. Identify the major differences between a fixed
      indexed annuity and a variable annuity.
  3. Mario, age 65, purchased an immediate annuity for $120,000 that pays a lifetime monthly income of $1,000. The annuity has no refund feature. Based on the IRS actuarial table, Mario has a life expectancy of 20 years. If Mario receives 12 monthly payments of $1,000 the first year, how much taxable income must he report on his tax return?
  4. Travis, age 25, graduated from college and obtained a position as a tax accountant. He is ineligible to participate in his employer’s retirement plan for one year.
    a. Assume that Travis has a starting salary of$60,000 for 2018 and does not participate in the employer’s retirement plan. Is Travis eligible to establish a traditional tax-deductible IRA? Explain your answer.
    b. Assume the same facts in (a). Is Travis eligible to establish a Roth IRA? Explain your answer.
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