Review Test Submission: Post-test

Content
User Gwen Jean Moore
Course 201330 BAD312-O Financial Management
Test Post-test
Started 7/28/14 9:00 PM
Submitted 7/28/14 10:24 PM
Due Date 7/28/14 11:59 PM
Status Needs Grading
Attempt Score 20 out of 100 points
Time Elapsed 1 hour, 24 minutes out of 1 hour.
Instructions
Question 1
0 out of 5 points
Which of the following statements is CORRECT?

Selected Answer: 3.
If a project has normal cash flows, then its IRR must be positive.
Question 2
5 out of 5 points
You were hired as a consultant to Giambono Company, whose capital structure is 40% debt,
15% preferred stocks, and 45% common stock equity. The after-tax cost of debt is 6.00%, the
cost of preferred stocks is 7.50%, and the cost of common stock equity is 13.00%. What is its
WACC?

Selected Answer: 2.
9.38%
Question 3
0 out of 5 points
Which of the following statements is CORRECT?

Selected
Answer:
3.
An increase in the risk-free rate will normally lower the marginal costs of
both debt and equity financing.

Question 4
0 out of 5 points
You were hired as a consultant to Quigley Company, whose capital structure is 35% debt,
10% preferred stocks, and 55% common stock equity. The before-tax cost of the debt is
6.50%, the yield on the preferred stocks is 6.00%, the cost of common stock equity is 13.25%,
and the tax rate is 35%. What is Quigley's WACC?

Selected Answer: 4.
9.16%
Question 5
5 out of 5 points
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 -$800 $500 $500 $500

Selected Answer: 2.
1.60 years
Question 6
0 out of 5 points
If its yield to maturity declined by 1%, which of the following bonds would have the largest
percentage increase in value
Selected Answer: 3.
A 10-year bond with a 12% coupon.
Question 7
0 out of 5 points
Cornell Enterprises is considering a project that has the following cash flow and WACC
data. What is the project's NPV? Note that a project's projected NPV can be negative, in
which case it will be rejected.
WACC: 10.00%
Year 0 1 2 3
Cash flows -$825 $450 $460 $470

Selected Answer: 1.
$396.72
Question 8
0 out of 5 points
Inmoo Companys average age of accounts receivable is 38 days, the average age of accounts
payable is 40 days, and the average age of inventory is 69 days. Assuming a 365-day year,
what is the length of its cash conversion cycle?

Selected Answer: 5.
55 days
Question 9
0 out of 5 points
Morin Company's bonds mature in 8 years, have a par value of $1,000, and make an annual
coupon interest payment of $65. The market requires an interest rate of 7.7% on these
bonds. What is the bond's price?

Selected Answer: 1.
$1,069.79
Question 10
0 out of 5 points
Stock A's beta is 1.5 and Stock B's beta is 0.5. Which of the following statements must be
true about these securities? (Assume market equilibrium.)
Selected Answer: 3.
The expected return on Stock B should be greater than that on A.
Question 11
5 out of 5 points
Precision Aviation had a profit margin of 6.25%, a total assets turnover of 1.5, and an equity
multiplier of 1.8. What was the firm's ROE?
Selected Answer: 5.
16.88%
Question 12
0 out of 5 points
Suppose a State of New York bond will pay $1,000 ten years from now. If the going interest
rate on these 10-year bonds is 4.1%, how much is the bond worth today?
Selected Answer: 2.
$628.96
Question 13
0 out of 5 points
Bauer Software's current balance sheet shows total common equity of $5,125,000. The
company has 490,000 shares of stock outstanding, and they sell at a price of $27.50 per share.
By how much do the firm's market and book values per share differ?

Selected Answer: 2.
$18.23
Question 14
0 out of 5 points
Malko Enterprises bonds currently sell for $990. They have a 6-year maturity, an annual
coupon of $75, and a par value of $1,000. What is their current yield?
Selected Answer: 3.
9.47%
Question 15
0 out of 5 points
Molen Inc. has an outstanding issue of perpetual preferred stock with an annual dividend of
$2.50 per share. If the required return on this preferred stock is 6.5%, at what price should the
stock sell?

Selected Answer: 4.
$30.00
Question 16
0 out of 5 points
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 = 6.0%. What is the stock's
current price?
Selected Answer: 3.
$15.83
Question 17
0 out of 5 points
You plan to analyze the value of a potential investment by calculating the sum of the present
values of its expected cash flows. Which of the following would lower the calculated value of
the investment?

Selected
Answer:
1.
The cash flows are in the form of a deferred annuity, and they total to
$100,000. You learn that the annuity lasts for only 5 rather than 10 years,
hence that each payment is for $20,000 rather than for $10,000.

Question 18
0 out of 5 points
Cooley Company's stock has a beta of 1.32, the risk-free rate is 4.25%, and the market risk
premium is 5.50%. What is the firm's required rate of return?
Selected Answer: 5.
8.75%
Question 19
0 out of 5 points
Taggart Inc.'s stock has a 50% chance of producing a 21% 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?

Selected Answer: 1.
7.82%
Question 20
5 out of 5 points
Sue now has $490. How much would she have after 8 years if she leaves it invested at 8.5%
with annual compounding?
Selected Answer: 1.
$941.10
Monday, July 28, 2014 10:24:54 PM EDT