Take Home Practice Final Quiz Instructions

4/24/2014 Quiz: Take Home Practice Final
https://utah.instructure.com/courses/258318/quizzes/447983/take 1/12
Take Home Practice Final
Started: Apr 17 at 6:56pm
Quiz Instructions

1 pts
Question 1
Statement i. only
Statement ii. only
Both events are financing decisions
Neither event i. nor event ii. is a financing decisions
Which of the following events would be considered a financing decision:
i. Apple builds a factory in Taiwan.
ii. Goldman Sachs purchases 2,000 shares of Berkshire Hathaway stock.

1 pts Question 2
Project i. only
Project ii. only
Both projects
Neither project i. nor project ii.
Suppose Apple has a cost of capital of 10%. Which of the following projects should Apple undertake:
i. A project that has an IRR of 8%
ii. A project that has an IRR of 12%

1 pts Question 3
$1,000
$1,100
$1,140
$1,200
There is not enough information to answer this question
An all equity financed firm currently has market value of $1,000 and a tax rate of 35%. If the firm issues $400 in debt and uses the proceeds to retire equity, what will
be the firm's new firm value?

1 pts
Question 4
2 months
You invest $100 for one year at a 10% APR compounded annually interest rate and one year later you have $110. How long was your money in your bank account?
4 months
6 months
8 months
None of the above

1 pts Question 5
$160,000
$320,000
$4,000,000
$50,000,000
None of the above
Coach Whittingham donated $4.0 Million to the University of Utah General Scholarship Fund. The University currently earns 8% APR compounded annually on its
investments. The University of Utah does not want to deplete any of the $4.0 Million donation. How much can they offer in scholarships each year?

1 pts Question 6
27%
28%
29%
30%
None of the above
Suppose LL Cool J charges 2% per month on his loans. What is the effective annual rate on his loans? Your answer should be rounded to the nearest percent.

1 pts
Question 7
5.7%
5.9%
6.1%
6.3%
None of the above
The current nominal rate is 8% APR compounded annually and the current inflation rate is 2% APR compounded annually. What is the real rate rounded to the nearest
tenth of a percent?

1 pts Question 8
0.8%
1.8%
2.6%
3.3%
None of the above
McDonald's just paid a quarterly dividend of $0.81 and has a share price of $99.50. What is McDonald's current dividend yield rounded to the nearest tenth of a
percent?

1 pts
Question 9
YTM is greater than 8%
YTM is less than 8%
YTM is equal to 8%
None of the above
A bond with a $1,000 face value and a coupon rate of 8% currently sells for $1,020. Is this bonds yield to maturity (YTM) greater than, less than, or equal to 8%?

1 pts Question 10
$100,000
$101,000
$102,000
$103,000
None of the above
A project costs $100,000 today and pays off $221,100 in exactly one year. The cost of capital is 10%. What is this project's Net Present Value?

1 pts Question 11
Good time
Sunk cost
Overhead cost
Internal rate of return
None of the above
You just purchased a puppy! You spent $50 researching different puppies. Your research is an example of a:

1 pts
Question 12
2%
10%
13%
15%
None of the above
A stock has an expected return of 15% and the risk-free rate is 2%. What is the risk premium on this stock

1 pts
Question 13
0.2
0.4
0.6
0.8
1.0
None of the above
You invested $600 in the market and $400 in the risk-free asset. What is the beta of this portfolio?

1 pts Question 14
4%
10.12%
11.35%
12%
None of the above
A company is financed with 20% debt and 80% equity. The tax rate is 35%. This company has a cost of debt of 4% and a cost of equity of 12%. What is this firm's
Weighted Average Cost of Capital?

1 pts Question 15
250
500
750
1000
None of the above
You own 250 voting shares. There are 4 directors to be elected next month and the directors are elected by cumulative voting. What is the maximum number of votes
you can cast for one candidate?

1 pts
Question 16
$70,000
$80,000
$90,000
$100,000
None of the above
A firm has $200,000 in debt and a tax rate of 35%. The firm expects to have the same amount of debt in perpetuity. What is the present value of the interest tax
shield?

1 pts Question 17
$108
$112
$116
$120
None of the above
Suppose Chevron is trading at $116 when the market closes on April 27, 2014. Chevron is expected to pay a $4 dividend on April 30, 2014. If the ex-dividend date is
April 28,2014 and no new information enters the market between April 27, 2014 and April 28, 2014, what price would you expect Chevron to trade at when the market
opens on April 28, 2014?

1 pts Question 18
Apple
Google
Chevron
Walmart
None of the above
Which of the following stocks would you expect to be a defensive stock:

3 pts
Question 19
Suppose Coach Whittingham and his wife have taxable income of $2,000,000. The marginal tax rates are as follows:

Income Amount Tax Rate
$0-$17,000 10%
$17,000-$69,000 15%
$69,000-$139,350 25%
$139,350 -$212,300 28%
$212,300-$379,150 33%
$610,340 in total taxes and average tax rate is 30.5%
$700,000 in total taxes and average tax rate is 35%
None of the above
$379,150 and above 35%

What is the total amount of taxes they will pay? What is their average tax rate? The total taxes paid should be rounded to the nearest ten dollars. Your
average tax rate should be rounded to the nearest tenth of a percent.

3 pts
Question 20
0.10
0.25
0.40
0.50
None of the above
At the start of the year a company had inventories of $700. During the year this company had interest payments of $250 and taxes of $50. This company's cash
coverage ratio was 3.3, its profit margin was 10%, times interest earned ratio was 1.6. Assume that all costs were in the form of Cost of Goods Sold and all revenues
were in the form of sales. What is this firm's inventory turnover ratio?

3 pts Question 21
4th Generation iPad
Kindle Fire HDX
Acer C720 Chromebook
Samsung Galaxy Tab Pro 10.1
You are considering buying one of the following tablets or computers: 4th Generation iPad, Kindle Fire HDX, Acer C720 Chromebook, or a Samsung Galaxy Tab Pro
10.1. You have collected the following information:
4th Generation iPad: Purchase price = $425, Monthly cost to operate = $50, number of years of operation = 2.5 years.
Kindle Fire HDX: Purchase price = $324, Monthly cost to operate = $50, number of years of operation = 2.5 years.
Acer C720 Chromebook: Purchase price = $199, Monthly cost to operate = $54, number of years of operation = 3 years.
Samsung Galaxy Tab Pro 10.1: Purchase price = $450, Monthly cost to operate = $54, number of years of operation = 3 years.

Your cost of capital is 6% APR compounded monthly. Which product is cheaper to use?

3 pts Question 22
$487
You just purchased a home and financed $100,000 using a 30 year mortgage. The interest rate on the mortgage is 4.2% APR compounded monthly. The mortgage
requires you to make payments at the end of every month. What is your payment per month rounded to the nearest dollar?
$489
$491
$7,489
None of the above

3 pts
Question 23
$7,997
$8,197
$8,457
$8,978
None of the above
You expect to receive $450 dollars per year for ten years starting today. At the end of 20 years you expect to receive a payment of $200. If your cost of capital is 4%
APR compounded annually what is the value of these cash flows immediately after receiving the payment in 20 years? Your answer should be rounded to the nearest
dollar.

3 pts Question 24
$100
$200
$300
$400
$557.5
None of the above
Over the past year a firm had revenues of $2,500, fixed costs of $200, variable costs of $450, depreciation expense of $300, interest expense of $550, and a tax rate of
35%. The firm also reported a decrease in acccounts receivable of $150, an increase in inventories of $150, an increase in accounts payable of $150, and capital
expenditures of $900. What is this firm's cash flow from operations?

3 pts Question 25
$1,200
$1,300
$1,400
$1,500
None of the above
A firm is financed with 25% Debt and 75% Equity. This firm has a cost of debt of 5% and cost of equity of 13%. The firm has a tax rate of 35%. In one year the firm
expects to have EBIT equal to $2,000, Depreciation equal to $200, Change in NWC of $200, and CAPEXequal to $1,200. After one year the firm expects Free Cash
Flow to grow by 3% per year forever. What is the value of the firm? Your answer should be rounded to the nearest hundred dollars.

3 pts
Question 26
Expected return is 22.25% and standard deviation is 5%
None of the above
You own a portfolio composed of four stocks: Starbucks, Goldman Sachs, Popeyes Louisiana Kitchen Inc.,
and Vail Resorts. You have collected the following information:
Stock Weight Expected Return
Starbucks 0.30 30%
Goldman Sachs 0.15 18%
Popeyes 0.20 15%
Vail Resorts 0.35 26%

What is the expected return and standard deviation of your portfolio? Standard Deviation should be rounded to the nearest percent.

3 pts Question 27
$45.50
$47.25
50.00
$52.75
None of the above
Today a company had annual earnings per share of $5 and paid an annual dividend of $4.5 per share. Twelve months ago this firm had Equity of $10 per share. You
estimate that this company has a beta of 1.75, the market risk premium is 8% and the risk-free rate is 1%. What value should this firm trade at today assuming that it
continues to grow at the current rate forever? Your answer should be rounded to the nearest penny.

3 pts Question 28
$805.48
$812.21
815.74
$1,040
None of the above
A project costs $150 today. In one year this project will return $240, in two years this project will return $450, and in three years this project will return $500. If your
cost of capital is 10% per year, what is the Net Present Value of this project rounded to the nearest penny?

3 pts
Question 29
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
None of the above
One year ago you purchased a 10 year bond with a 6% coupon rate that makes semi-annual coupon payments. At that time the bond had a yield to maturity of 4.5%
APR. Today, you sold the bond when it had a yield to maturity of 5% APR. What was your rate of return on this bond? Your answer should be rounded to the nearest
percent.

3 pts
Question 30
4.80
4.82
4.84
4.86
None of the above
A project costs $4,500 today and pays $926 each year for 20 years. Your cost of capital is 10%. What is the payback period of this investment? Your answer should
be rounded to the nearest hundredth of a year.

3 pts Question 31
12%
14%
16%
18%
None of the above
A project has the following Cash Flows:
Time: 0 1 2 3 4 5
Cash Flow -$2000 $878.59 $512.20 $219.65 $399.15 $870.20

What is the profitability index for this project if you have a 10% APR compounded annual cost of capital? Your answer should be rounded to the nearest percent.

3 pts Question 32
$61,124,877
$62,489,280
$63,246,549
$64,054,394
None of the above
Great News! You just won the Mega Millions and there were no other winners. According to the Mega Millions website the current payout is $24 million, however you
do not receive this amount as a lump sum today, instead you receive 30 payments of $0.8 million ($800,000) per year. Each payment occurs exactly one year between
each other. If the discount rate is 6% APR and the first payment comes immediately, what is the future value of the winnings in 30 years? Your answer should be
rounded up to the nearest dollar.

10 pts
Question 33
$100
$200
$300
$400
None of the above
At the start of 2012, a corporation had book equity equal to $16,000, total assets equal to $16,000, and inventory of $10,000. The corporation has a 50% tax rate. At
the end of 2012, this corporation reported the following ratios:
Daily cost of goods sold: $400
Asset Turnover: 12.5
Average Days in Inventory: 25 days
Times Interest Earned Ratio: 4.2
Plowback Ratio: 0.625

All of the corporations revenues in 2012 were in the form of sales (Revenues = Sales). The corporation calculated daily cost of goods sold using 365 days in a year.
In 2012, the corporation had a depreciation expense of $51,900. The firms only costs during 2012 were cost of goods sold. Prior to 2012, this corporation had zero
income and no tax loss carry backs or carry forwards. In 2012, this corporation made payouts to shareholders in the form of dividends and repurchases. This
corporation also issued equity in 2012. If dividends were $400 and repurchases were $200 then what was the dollar value of shares issued (issuances)?

10 pts Question 34
$50
You plan on starting a used textbook company. Your company will be financed by 20% Debt and 80% Equity (Market Values). The bonds at time of issuance will
yield 5%. Based on comparable companies, you expect your equity to have a Beta of 1.75, the market risk premium to be 8% per year, and the risk-free rate to be
2%. Your company has a 35% tax rate on any income.
In order to operate your business you will purchase a warehouse today for $300,000 and will depreciate the warehouse using straight-line depreciation over 4 years.
The warehouses salvage value is $0.00. You will be able to trace $100,000 in overhead costs to the warehouse.
Your business will incur fixed costs of $100,000 per year starting in year 1. You plan on purchasing used copies of Brealey, Myers and Allen for $100 and to be able to
sell them for $125 forever. You expect to sell 20,000 of these books per year starting in one year.
In the first year accounts receivable will be 5% of sales, inventory will be 20% of sales, and accounts payable will be 10% of total costs (fixed costs and variable costs
only; total costs excludes overhead costs and depreciation). Following the fifth year of operations, you expect operating cash flows to grow by 2% per year.
If you issue 10,000 shares today, what is the price of each share? Your answer should be rounded down to the nearest ten dollars.
$60
$70
$80
None of the above

10 pts Question 35
$6,105
$6,227
$6,354
$6,490
None of the above
Your son is going to attend college in 15 years. You would like to save enough money over the next 14 years to pay for the 4 years of college. You currently have
$4,000 in the college savings account. You will make contributions to the college account at the end of each year for the next 14 years; you will no longer make
contributions after 14 years. In fifteen years you expect college tuition to cost $50,000 and for tuition to remain constant in years 16, 17, and 18. Each tuition payment
must be made in full at the end of each year. After making the last tuition payment you will have exactly $0.00 in the college savings account. If you earn 8% APR
compounded annually on the college savings account, how much do you need to contribute per year in order to have enough money to cover all tuition payments?
Your answer should be rounded to the nearest dollar.

10 pts
Question 36
1. A firm had the following balance sheet at the end of 2013 and 2012 respectively:
2013 2012
Cash & marketable securities $100 $100
Inventories $300 $100
Total Current Assets $400 $200
Total Fixed Assets $600 $800
Total Assets $1000 $1000

Current Debt $200 $100
Total Current Liabilities $200 $100
Total Long-term Liabilities $400 $400
Shareholders Equity $400 $400

The firm reported the following financial ratios as a result of operations during 2013:

Times Interest Earned: 2
Profit Margin: 16.25%
Return on Equity: 81.25%
Cash coverage ratio: 2.55
Asset Turnover: 2

The firm calculated Net income using costs of $725 and Interest expense of $500. All revenues were in the form of sales, i.e. Sales = Revenues.

What is the value of Cash flow from operations for 2013?
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$300
$400
$500
$600

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4/24/2014 Quiz: Take Home Practice Final

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