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    Multiple choice

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    Please I need details on numbers 45- 50 but not so much on 27 -44.

    27.
    The U.S. Treasury offers to sell you a bond for $613.81. No payments will be made until the bond matures 10 years from now, at which time it will be redeemed for $1,000. What interest rate would you earn if you bought this bond at the offer price?

    5.91%
    6.71%
    7.10%
    5.59%
    5.00%

    28.
    Temple Square Inc. reported that its retained earnings for 2005 were $490,000. In its 2006 financial statements, it reported $60,000 of net income, and it ended 2006 with $510,000 of retained earnings. How much were paid as dividends to shareholders during 2006?

    $20,000
    $25,000
    $30,000
    $35,000
    $40,000

    29.
    Collins Inc's latest net income was $1 million, and it had 200,000 shares outstanding. The company wants to pay out 40% of its income. What dividend per share should the company declare?

    $1.60
    $1.70
    $1.80
    $1.90
    $2.00

    30. The Federal Reserve sells $50 billion of short-term U.S. Treasury securities to the public, other things held constant, what would be the most likely effect on short-term securities prices and interest rates?

    Prices and interest rates will both rise.
    Prices will rise and interest rates will decline.
    Prices and interest rates will both decline.
    Prices will decline and interest rates will rise.
    There is no reason to expect a change in either prices or interest rates.

    31.
    Your uncle would like to limit both his interest rate price risk (the risk that rising rates will cause the value of his bonds to decline) and his default risk, but he would still like to invest in corporate bonds. He is considering the following bonds. Which of these bonds would best meet his criteria?

    AAA bonds with 10 years to maturity.
    BBB perpetual bonds.
    BBB bonds with 10 years to maturity.
    AAA bonds with 5 years to maturity.
    BBB bonds with 5 years to maturity.

    32.
    Tom Skinner has $45,000 invested in a stock with a beta of 0.8 and another $55,000 invested in a stock with a beta of 1.4. These are the only two investments in his portfolio. What is his portfolio's beta?

    0.93
    0.98
    1.03
    1.08
    1.13

    33.
    A share of common stock has just paid a dividend of $2.00. If the expected long-run growth rate for this stock is 7%, and if investors require a(n) 11% rate of return, what is the price of the stock?

    $47.50
    $49.00
    $50.50
    $52.00
    $53.50

    34.
    Wagner Inc estimates that its average-risk projects have a WACC of 10%, its below-average risk projects have a WACC of 8%, and its above-average risk projects have a WACC of 12%. Which of the following projects (A, B, and C) should the company accept?

    Project A is of average risk and has a return of 9%.
    Project B is of below-average risk and has a return of 8.5%.
    Project C is of above-average risk and has a return of 11%.
    None of the projects should be accepted.
    All of the projects should be accepted.

    35.
    The regular payback method has a number of disadvantages. Which of the following items is NOT a disadvantage of this method?

    Lack of an objective, market-determined benchmark for making decisions.
    Ignores cash flows beyond the payback period.
    Does not directly account for the time value of money.
    Does not provide any indication regarding a project's liquidity.
    Does not directly account for differences in risk among projects.

    36.
    The relative risk of a proposed project is best accounted for by

    Adjusting the discount rate upward if the project is judged to have above average risk.
    Adjusting the discount rate downward if the project is judged to have above average risk.
    Reducing the NPV by 10% for risky projects.
    Picking a risk factor equal to the average discount rate.
    Ignoring it because project risk cannot be measured accurately.

    37.
    A firm is considering the purchase of an asset whose risk is greater than the firm's current risk, based on all methods for assessing risk. In evaluating this asset, it would be reasonable for the decision maker to

    Increase the IRR of the asset to reflect its greater risk.
    Increase the NPV of the asset to reflect the greater risk.
    Reject the asset, since its acceptance would increase the firm's risk.
    Ignore the risk differential if the project would amount to only a small fraction of the firm's total assets.
    Increase the cost of capital used to evaluate the project to reflect the project's higher risk.

    38.
    Brandi Co. has an unlevered beta of 1.10. The firm currently has no debt, but is considering changing its capital structure to be 30% debt and 70% equity. If its corporate tax rate is 40%, what is Brandi's levered beta?

    1.2549
    1.3829
    1.5764
    1.6235
    1.7458

    39.
    Ridgefield Enterprises has total assets of $300 million. The company currently has no debt in its capital structure. The company's basic earning power is 15%. The company is contemplating a recapitalization where it will issue debt at 10% and use the proceeds to buy back shares of the company's common stock. If the company proceeds with the recapitalization, its operating income, total assets, and tax rate will remain the same. Which of the following will occur as a result of the recapitalization?

    The company's ROA will increase.
    The company's ROA will remain unchanged.
    The company's basic earning power will decline.
    The company's basic earning power will increase.
    The company's ROE will increase.

    40.
    You are analyzing the value of an investment by calculating the present value of its expected cash flows. Which of the following would cause the investment to look better?

    The discount rate decreases.
    The cash flows are extended over a longer period of time, but the total amount of the cash flows remains the same.
    The discount rate increases.
    The riskiness of the project's cash flows increases.
    The total amount of cash flows remains the same, but more of the cash flows are received in the later years and less are received in the earlier years.

    41.
    You are considering buying a new, $15,000 car, and you have $2,000 to put toward a down payment. If you can negotiate a nominal annual interest rate of 10% and finance the car over 60 months, what are your monthly car payments?

    $216.67
    $252.34
    $276.21
    $285.78
    $318.71

    42.
    Elizabeth has $35,000 in an investment account, but she wants the account to grow to $100,000 in 10 years without making any additional contributions to the account. What effective annual rate of interest does she need to earn on the account to meet her goal?

    9.03%
    11.07%
    10.23%
    8.65%
    12.32%

    43.
    If the CEO of a firm were filling out a fitness report on a division manager (i.e., "grading" the manager), which of the following situations would be likely to cause the manager to get a BETTER GRADE? In all cases, assume that other things are held constant.

    The division's total assets turnover ratio is below the average for other firms in the industry.
    The division's DSO (days' sales outstanding) is 40, whereas the average for competitors is 30.
    The division's inventory turnover is 6, whereas the average for competitors is 8.
    The division's debt ratio is above the average for other firms in the industry.
    The division's basic earning power ratio is above the average of other firms in the industry.

    44.
    McGwire Company's pension fund projects that most of its employees will take advantage of an early retirement program the company plans to offer in five years. Anticipating the need to fund these pensions, the firm bought zero coupon U.S. Treasury Trust Certificates maturing in five years. When these instruments were originally issued, they were 12% coupon, 30-year U.S. Treasury bonds. The stripped Treasuries are currently priced to yield 10%. Their total maturity value is $6,000,000. What is their total cost (price) to McGwire today?

    553,776
    $5,142,600
    $3,404,561
    $4,042,040
    $3,725,528

    45.
    A stock that currently trades for $40 per share is expected to pay a year-end dividend of $2 per share. The dividend is expected to grow at a constant rate over time. The stock has a beta of 1.2, the risk-free rate is 5%, and the market risk premium is 5%. What is the stock's expected price seven years from today?

    46.
    The capital budgeting director of Sparrow Corporation is evaluating a project that costs $200,000, is expected to last for 10 years and produces after-tax cash flows, including depreciation, of $44,503 per year. If the firm's WACC is 14% and its tax rate is 40%, what is the project's IRR?

    47.
    Maxvill Motors has annual sales of $15,000. Its variable costs equal 60% of its sales, and its fixed costs equal $1,000. If the company's sales increase 10%, what will be the percentage increase in the company's earnings before interest and taxes (EBIT)?

    48.
    In 1958 the average tuition for one year at an Ivy League school was $1,800. Thirty years later, in 1988, the average cost was $13,700. What was the growth rate in tuition over the 30-year period?

    49.
    Cleveland Corporation has 100,000 shares of common stock outstanding, its net income is $750,000, and its P/E is 8. What is the company's stock price?

    50.
    S. Claus & Co. is planning a zero coupon bond issue that has a par value of $1,000 and matures in 2 years. The bonds will be sold today at a price of $826.45. If the firm's marginal tax rate is 40%, what is the annual after-tax cost of debt to the company on this issue?

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