1. Abaca Inc.'s manager believes that economic conditions during the next year will be strong, normal, or weak, and she thinks that the firm's returns will have the probability distribution shown below.

Economic

Conditions Prob. Return

Strong 30% 32.0%

Normal 40% 10.0%

Weak 30% -16.0%

What's the standard deviation of the estimated returns?

A. 20.52%

B. 19.55%

C. 17.69%

D. 18.62%

2. What is the after-tax cost of debt if the company paid $6,000 for annual interest when the tax rate is 30%.

A. $1,800

B. $4,200

C. $7,800

D. $2,400

3. Sue Talon is the CEO of Sports, Inc. She is considering buying a new equipment that would cost P11,300. Sue has determined that the new machine promises an internal rate of return of 12%, but Sue has misplaced the paper which tells the annual cost savings promised by the new machine. She does remember that the machine has a projected life of 10 years. Based on these data, the annual cost savings are:

A. P1,695.00

B. P1,412.50

C. P2,000.00

D. P2,500.00

4. Given 8% after-tax cost of debt (25% of total capital), 10% cost of preferred stock (35% of total capital), 15% cost of common stock, and 30% tax rate, compute for the weighted average cost of capital.

A. 19.9%

B. 10.9%

C. 20.5%

D. 11.5%

5. Use the following information and the percent-of-sales method to Answer questions. Below is the 2021 year-end balance sheet for Banner, Inc. Sales for 2021 were $1,600,000 and are expected to be $2,000,000 during 2022. In addition, we know that Banner plans to pay $90,000 in 2022 dividends and expects projected net income of 4% of sales. (For consistency with the Answer selections provided, round your forecast percentages to two decimals.)

Banner, Inc. Balance Sheet

December 31, 2021

Assets

Current assets $890,000

Net fixed assets 1,000,000

Total $1,890,000

Liabilities and Owners' Equity

Accounts payable $160,000

Accrued expenses 100,000

Notes payable 700,000

Long-term debt 300,000

Total liabilities 1,260,000

Common stock (plus paid-in capital) 360,000

Retained earnings 270,000

Common equity 630,000

Total $1,890,000

Banner's projected retained earnings for 2022 are:

A. $340,000

B. $280,000

C. $350,000

D. $260,000

6. PepsiCo generated a 1.23 total asset turnover in its latest fiscal year on assets of $2,112,077. The firm has total liabilities of $950,997. The firm's net profit margin was 10.3%. What is PepsiCo's return on equity? Round to the nearest 0.1%.

A. 18.2%

B. 12.6%

C. 23.1%

D. 5.5%

7. Flag Corporation is considering the purchase of a machine that would cost P330,000 and would last for 9 years. At the end of 9 years, the machine would have a salvage value of P79,000. By reducing labor and other operating costs, the machine would provide annual cost savings of P59,000. The company requires a minimum return of 11% on all investment projects. The net present value of the proposed project is closest to:

A. P27,570

B. -P15,650

C. P12,870

D. P63,350

Answer rating: 100% (QA)

1 The correct answer is C 1769 To calculate the standard deviation of the estimated returns we can use the formula r 2 p Where standard deviation r re... View the full answer