Multiple choice

1. You deposit $1,000 today in a savings account that pays 3.5% interest, compounded annually. How much will your account be worth at the end of 25 years?

$2,245.08
$2,363.24
$2,481.41
$2,605.48
$2,735.75

2. A security analyst obtained the following information from Prestopino Products' financial statements:
Retained earnings at the end of 2006 were $700,000, but retained earnings at the end of 2007 had declined to $320,000. The company does not pay dividends.
The company's depreciation expense is its only non-cash expense; it has no amortization charges. The company has no non-cash revenues.
The company's net cash flow (NCF) for 2007 was $150,000.

On the basis of this information, which of the following statements is CORRECT?

a. Prestopino had negative net income in 2007.
b .Prestopino's depreciation expense in 2007 was less than $150,000.
c. Prestopino had positive net income in 2007, but its income was less than its 2006 income.
d. Prestopino's NCF in 2007 must be higher than its NCF in 2006.
e. Prestopino's cash on the balance sheet at the end of 2007 must be lower than the cash it had on the balance sheet at the end of 2006.

3. Which of the following statements is CORRECT?

a. One way to increase EVA is to achieve the same level of operating income but with more investor-supplied capital.
b. If a firm reports positive net income, its EVA must also be positive.
c. One drawback of EVA as a performance measure is that it mistakenly assumes that equity capital is free.
d. One way to increase EVA is to generate the same level of operating income but with less investor-supplied capital.
e. Actions that increase reported net income will always increase net cash flow.

4. Hunter Manufacturing Inc.'s December 31, 2006, balance sheet showed total common equity of $2,050,000 and 100,000 shares of stock outstanding. During 2007, Hunter had $250,000 of net income, and it paid out $100,000 as dividends. What was the book value per share at 12/31/07, assuming that Hunter neither issued nor retired any common stock during 2007?
Question 45 answers
$20.90
$22.00
$23.10
$24.26
$25.47

5. TSW Inc. had the following data for last year: Net income = $800; Net operating profit after taxes (NOPAT) = $700; Total assets = $3,000; and Total operating capital = $2,000. Information for the just-completed year is as follows: Net income = $1,000; Net operating profit after taxes (NOPAT) = $925; Total assets = $2,600; and Total operating capital = $2,500. How much free cash flow did the firm generate during the just-completed year?
Question 46 answers
$383
$425
$468
$514
$566

6. EP Enterprises has the following income statement. How much net operating profit after taxes (NOPAT) does the firm have?

Sales

$1,800.00

Costs

1,400.00

Depreciation

250.00

EBIT

$ 150.00

Interest expense

70.00

EBT

$ 80.00

Taxes (40%)

32.00

Net income

$ 48.00

a.$81.23
b. $85.50
c. $90.00
d. $118.00
e.$150.00

7. A 12-year bond has an annual coupon rate of 9%. The coupon rate will remain fixed until the bond matures. The bond has a yield to maturity of 7%. Which of the following statements is CORRECT?

a. If market interest rates decline, the price of the bond will also decline.
b. The bond is currently selling at a price below its par value.
c. If market interest rates remain unchanged, the bond's price one year from now will be lower than it is today.
d. The bond should currently be selling at its par value.
e. If market interest rates remain unchanged, the bond's price one year from now will be higher than it is today.

8. Which of the following statements is CORRECT?

a. 10-year, zero coupon bonds have higher reinvestment rate risk than 10-year, 10% coupon bonds.
b. A 10-year, 10% coupon bond has less reinvestment rate risk than a 10-year, 5% coupon bond (assuming all else equal).
c. The price of a 20-year, 10% bond is less sensitive to changes in interest rates than the price of a 5-year, 10% bond.
d. The total return on a bond during a given year is the sum of the coupon interest payments received during the year and the change in the value of the bond from the beginning to the end of the year.
e. A $1,000 bond with $100 annual interest payments that has 5 years to maturity and is not expected to default would sell at a discount if interest rates were below 9% and at a premium if interest rates were greater than 11%.

10. Stocks A and B each have an expected return of 12%, a beta of 1.2, and a standard deviation of 25%. The returns on the two stocks have a correlation of 0.6. Portfolio P has 50% in Stock A and 50% in Stock B. Which of the following statements is CORRECT?

a. Portfolio P has a beta that is greater than 1.2.
b. Portfolio P has a standard deviation that is greater than 25%.
c. Portfolio P has an expected return that is less than 12%.
d. Portfolio P has a standard deviation that is less than 25%.
e. Portfolio P has a beta that is less than 1.2.