FINA435- Financial Analysis (Directed Study)

Final Examination

1. Suppose that a preferred stock is expected to pay a $0.75 dividend every quarter indefinitely. If the required rate of return is

10% with quarterly compounding, what should

be the formula on cell B3 to determine the price of this stock?

/B2/4

/B2

/(B2/4)

*4/(B2/4)

/(B3

2. What is the correct formula for cell B4 (the price of a share of stock) assuming that the last dividend payment of $1.12 is expected to grow at a constant rate of 5% per year

indefinitely? Assume a required rate of return of 12%.

/(B3-B2)

*(1+B2/B3-B2)

*1+B2/B3-B2

*(1+B2)/(B3-B2)

*(1+B3)/(B3-B2)

3. What is the correct formula to determine the stock price using the earnings model on cell B6?

*B2/B3+(B1*B2*(B4/B3-1))/(B3-B5)

/B3-(B1*(1+B2)*(B4/B3+1))/(B3+B5)

/B3+B1*(1-B2*B4/B3-1)/(B3-B5)

d. /B3+(B1*(1-B2)*(B4/B3-1))/(B3-B5)

e. /B3+(B1*(1-B3)*(B2/B3-1))/(B3-B4)

4. What is the correct formula for cell B5?

*(1-B4)+B3-B1

-B4+B1-B3

*(1-B4)+B1-B3

d. *(1-B4)-B1+B3

e. /(1-B4)*B1*B3

5. Millennium Inc. stock is selling for $20 a share based on a 15 percent rate of return. What is the correct formula for cell B4 to calculate the last annual dividend payment if the dividends are expected to grow at 3% annually?

a. *(B2-B3)/(1+B2) b. *(B2-B3)/(1+B3)

*(B2+B3)/(1-B3)

/(B2-B3)*(1+B3)

*(B2+B3)/(1-B3)

6. Moonlighting Inc. stock is selling for $10 and the last dividend annual payment was $0.75. What is the correct formula for cell B4 to calculate the required rate of return if dividends are expected to grow at 3% per year?

a. *(1-B3)/B1-B3 b. *(B2-B3)/(1+B3)

*(1+B3)/B1+B3

/(B2-B3)*(1+B3)

*(1+B3)/(B1+B3)

7. Galaxy Inc. stock is selling for $20 and the last dividend annual payment was $2.25. What is the correct formula for cell B4 to calculate the dividend growth rate if the required rate of return is 15%?

a. =(B1*B3-B2)/(B2+B1) b. =(B1*B3+B2)/(B2-B1)

=(B1/B3-B2)/(B2-B1)

=(B1*B3-B2)*(B2+B1)

=(B1*B3+B2)-(B2+B1)

8. What is the value of cell B7?

1080.50

1050.20

975.34

932.54

e. 837.11

837.11

9. What is the value of cell B4?

4.235%

4.972%

5.171% d. 5.264%

e. 5.634%

10. What is the value of cell B4?

4.235%

4.972%

c. 5.171%

5.264%

5.634%

11. What should be the formula for cell B8?

=(B4-B5)/B4/360*B6

=(B4-B5)/B4*360/B6

=(B4-B5)/B4*365/B6

/B4*360/B6

e. =(B4+B5)/B4*360/B6

12. What should be the formula for cell B8?

=(B4-B5)/B5*360/B6

=(B4-B5)/B4*360/B6

=(B4-B5)/B4*365/B6

=(B4-B5)/B5*365/B6

e. =(B4+B5)/B4*360/B6

13. What should be the correct formulas for cells B2 and B3?

/(1-B1) and /(1-B1)

/(1+B1) and /(1+B1) c. /(1+B1)^2 and /(1+B1)^2

/(1-B1)^2 and /(1-B1)^2

/(B1-1) and /(B1-1)

14. What should be the correct formulas for cell B4?

=(B1-B3)*(B3-B2)

=(B1+B3)/(B3+B2)

c. =(B1-B3)/(B3+B2)

=(B1+B3)/(B3-B2)

=(B1-B3)/(B3-B2)

15. What should be the correct formula for cell B4?

*B1+B2*(1-B3)

*B1+B2*(1+B3)

*B1-B2*(1-B3)

/B1+B2/(1-B3)

*B1-B2*(1+B3)

16. If 60% of sales are for cash, 40% of credit sales are collected during the month following the sale, and the remaining of credit sales are collected two months after the sale, what is the right formula on cell D6?

*0.6

*0.24

*0.16 d. *0.4

e. *0.4

17. If 60% of sales are for cash, 40% of credit sales are collected during the month following the sale, and the remaining credit sales are collected two months after the sale, what formula would you need to enter on cell D7 to find the value of total collections?

.6*B2+0.24*C2+0.16*D2

.6*D2+0.24*C2+0.16*B2

.6*D2+0.4*(C2+B2) d. .4*D2+0.6*(C2+B2)

e. .6*D2-0.4*(C2+B2)

18. What is the value of cell A4?

20

33

18

35

13

19. What is the value of cell A4?

-6.67

-15

10

3

-2

20. What is the value of cell A4?

-12

36

-27

12

27

21. What is the value of cell B8?

Remember that the basic syntax of the FAME_PAYBACK function is:

a. 1.80 FAME_PAYBACK (CASHFLOWS,RATE) b. 2.17

2.32

2.45

2.73

22. Which should be the right formula for cell B8?

Remember that the basic syntax of the NPV function is:

NPV(rate,value1,value2, ...) a. ($B$6,B2:B5)

($B$6,B3:B5)-B2

($B$6,B3:B5)+B2

($B$6,B2:B5)+B2

($B$6,B2:B5)-B2

23. The Modified Internal rate of Return (MIRR) in cell B8 will be ___________ the Internal Rate of Return (IRR) on cell B9.

a. less than

equal to

more than

All of the above

None of the above

24. Which is the right formula on cell B5?

{(C2:C4*B2:B4)}

*C2+B3*C3+B4*C4

{(B2:B4*C2:C4)}

All of the above

e. None of the above

25. Where the _____ technique increases the discount rate to adjust for risk, the _________ decreases the cash flow.

CE approach; IRR

RADR; CE approach

MIRR; CE approach

MIRR; RADR e; RADR; MIRR

26. Which should be the right formula for cell B4?

+B2+B3

+B2-B3

-B2+B3

-B2-B3

e. *B2/B3

27. This budget includes a list of anticipated cash inflows and cash outflows in a period.

Statement of Cash Flows

Cash Budget

Capital Budget

Flexible Budget

None of the above

This budget includes comparison of costs and benefits of long-term projects.

Statement of Cash Flows

Cash Budget

Capital Budget

Flexible Budget

None of the above

Every risky investment has the following characteristics:

Uncertainty

Loss possibility

Gain possibility

a and b

a, b, and c

All things being equal, the higher the risk, the higher the expected return.

True

False