Question 1
1. (Analyzing
the cash flow Statement) Goggle, Inc. is an Internet firm that has experienced
a period of very rapid growth in revenues over the period 2007-2010. The cash
flow statements for Goggle, Inc. spanning the period are below. Choose the best
answer for the following question using the information found in these
statements:
What years did Goggle generate positive cash flow from its
operations?
Goggle
has generated positive cash flow from its operations during the years 2007 and
2008.
Goggle
has generated positive cash flow from its operations during the years 2008 and
2009.
Goggle
has generated positive cash flow from its operations during the years 2009 and
2010.
Goggle
has generated positive cash flow from its operations during the years 2008,
2009, and 2010.
2 points
Question 2
1. When
managers have little or no ownership in the firm, they are less likely to work
energetically for the company’s shareholders. We call this type of conflict
a(n) __________.
agency
problem
ownership
problem
management
problem
moral
problem
2 points
Question 3
1. (Analyzing
the cash flow Statement) Goggle, Inc. is an Internet firm that has experienced
a period of very rapid growth in revenues over the period 2008-2010. The cash
flow statements for Goggle, Inc. spanning the period are below. Choose the best
answer for the following question using the information found in these
statements:
How much did Goggle invest in new capital expenditures over
the period? (Round to the nearest integer.)
The
amount that Google invested in new capital expenditures over the period is
$15,930 million.
The
amount that Google invested in new capital expenditures over the period is
$14,710 million.
The
amount that Google invested in new capital expenditures over the period is
$16,290 million.
The
amount that Google invested in new capital expenditures over the period is
$11,030 million.
2 points
Question 4
1. (Analyzing
the cash flow Statement) Goggle, Inc. is an Internet firm that has experienced
a period of very rapid growth in revenues over the period 2008-2010. The cash
flow statements for Goggle, Inc. spanning the period are below.
Based solely on the cash flow statements for 2008 through
2010, select the statement that best describes the major activities of Goggle’s
management team over the period.
Google’s
management team has been investing heavily in working capital and financing them
with the issuance of stocks and internally generated funds.
Google’s
management team has been investing heavily in capital expenditures and
financing them with the issuance of stocks and internally generated funds.
Google’s
management team has been spending heavily in paying cash dividends and
financing them with the issuance of stocks and internally generated funds.
Google’s
management team has been investing heavily in capital expenditures and
financing them with the issuance of debt and internally generated funds.
2 points
Question 5
1. (Analyzing
the cash flow Statement) Goggle, Inc. is an Internet firm that has experienced
a period of very rapid growth in revenues over the period 2008-2010. The cash
flow statements for Goggle, Inc. spanning the period are below. Choose the best
answer for the following question using the information found in these
statements:
Describe Goggle’s main source of financing in the financial
markets over the period.
Google’s
main source of financing in the financial markets over the period was the
issuance of common stock for the amount of $985 million.
Google’s
main source of financing in the financial markets over the period was the
issuance of debt for the amount of $10 million.
Google’s
main source of financing in the financial markets over the period was the
issuance of common stock for the amount of $8,034.
Google’s
main source of financing in the financial markets over the period was the
issuance of debt for the amount of $985 million.
2 points
Question 6
1. (Expected
rate of return and risk) Syntex, Inc. is considering an investment in one of
two common stocks.
a. Given the
information in the table, what is the expected rate of return for stock B?
b. What is
the standard deviation of stock B?
c. What is
the expected rate of return for stock A?
d. Based on
the risk (as measured by the standard deviation) and return of each stock which
investment is better? (Round to 2 decimal places)
e.
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10 points
Question 7
1. (Present
value) Ronen Consulting has just realized an accounting error that has resulted
in an unfunded liability of $380,000 due in 30 years. In other words, they will
need $380,000 in 30 years. Toni Flanders, the company’s CEO, is scrambling to
discount the liability to the present to assist in valuing the firm’s stock. If
the appropriate discount rate is 9 percent, what is the present value of the
liability?
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10 points
Question 8
1. (Annuity
payments) Ford Motor Company’s current incentives include 5.7 percent APR
financing for 72 months or $1,100 cash back on a Mustang. Let’s assume Suzie
Student wants to buy the premium Mustang convertible, which costs $34,000, and
she has no down payment other than the cash back from Ford. If she chooses the
$1,100 cash back, Suzie can borrow from the VTech Credit Union at 7.7 percent
APR for 72 months.
a. If Suzie
chooses 5.7 percent APR financing for 72 months to buy the premium Mustang
convertible, which costs $34,000 = PMT(62.632529), what will her monthly
payment be? (Round to the nearest cent.)
b. If Suzie
chooses $1,100 cash back to buy the premium Mustang convertible and borrows
$32,900 from the VTech Credit Union at 7.7 percent APR for 72 months, how much
will her monthly payment be?
c. Which
option should Suzie Student choose?
d.
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10 points
Question 9
1. (Review
of financial statements) Prepare a balance sheet and income statement for the
Warner Company from the scrambled list of items found here in order to answer
the question below. The statements do not need to be submitted, only your
response to the question.
What can you say about the firm’s financial condition based
on the prepared financial statements?
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10 points
Question 10
1. (Bond
valuation) The 8-year $1,000 par bonds of Vail Inc. pay 12 percent interest.
The market’s required yield to maturity on a comparable-risk bond is 7 percent.
The current market price for the bond is $1,130.
a. What is
your yield to maturity on the Vail bonds given the current market price of the
bonds? (Round to two decimal places.)
b. What
should be the value of the Vail bonds given the yield to maturity on a
comparable risk bond? (Round to the nearest cent.)
c. Should
you purchase the bond at the current market price?
d.
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10 points
Question 11
1. (Cost of
debt) Sincere Stationery Corporation needs to raise $451,000 to improve its
manufacturing plant. It has decided to issue a $1,000 par value bond with an
annual coupon rate of 11.1 percent with interest paid semiannually and a
15-year maturity. Investors require a rate of return of 9.6 percent.
a. Compute
the market value of the bonds.
b. How many
bonds will the firm have to issue to receive the needed funds?
c. What is
the firm’s after-tax cost of debt if the firm’s tax rate is 34 percent?
d.
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10 points
Question 12
1. (Cost of
common equity) The common stock for the Hetterbrand Corporation sells for
$59.17, and the last dividend paid was $2.24. Five years ago the firm paid
$1.54 per share, and dividends are expected to grow at the same annual rate in
the figure as they did over the past five years.
a. What is
the estimated cost of common equity to the firm using the dividend growth
model? (Round to 2 decimal places.)
b. Hetterbrand’s
CFO has asked his financial analyst to estimate the firm’s cost of common
equity using the CAPM as a way of validating the earlier calculations. The
risk-free rate of interest is currently 4.1 percent, the market risk premium is
estimated to be 4.2 percent, and Hetterbrand’s beta is 0.78. What is your
estimate of the firm’s cost of common equity using this method? (Round to 2
decimal places.)
c.
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10 points
Question 13
1. (Individual
or component costs of capital) Your firm is considering a new investment
proposal and would like to calculate its weighted average cost of capital. To
help in this, compute the cost of capital for the firm for the following:
a. A bond
that has a $1,000 par value (face value) and a contract or coupon interest rate
of 10.9 percent that is paid semiannually: the bond is currently setting for a
price of $1,129 and will mature in 10 years. The firm’s tax rate is 34 percent.
If the firm’s bonds are not frequently traded, how would you go about
determining a cost of debt for this company?
b. A new
common stock issue that paid a $1.74 dividend last year. The par value of the
stock is $16, and the firm’s dividends per share have grown at a rate of 9.7 percent
per year. This growth rate is expected to continue into the foreseeable future.
The price of this stock is now $27.88.
c. A
preferred stock paying an 8.3 percent dividend on a $120 par value. The
preferred shares are currently setting for $153.18.
d. A bond
setting to yield 12.9 percent for the purchaser of the bond: the borrowing firm
faces a tax rate of 34 percent.
e.
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10 points
Question 14
1. (Weighted
average cost of capital) In the spring of last year, Tempe Steel learned that
the firm would need to re-evaluate the company’s weighted average cost of
capital following a significant issue of debt. The firm now has financed 33
percent of its assets using debt and 57 percent using equity. Calculate the
firm’s weighted average cost of capital where the firm’s borrowing rate on debt
is 7.9 percent, it faces a 34 percent tax rate, and the common stockholders
require a 19.7 percent rate of return.
