(Kindly solve these mcqs) Approximately how long would it take to double my money if I invest it now at 18 a 12 years b 4 years c 6 years d Cannot be determined IKON is financed entirely with equity, and its beta is 1 31 If the current risk free rate is 6 25 and the expected market return is 12 8 , what is IKON's required rate of return on a project of average risk a 12 81 b 17 65 c 8 58 d Annuity due calculations are common when dealing with a rental contracts b cash dividends c interest payments d loan repayments Idlewild Bank has granted you a seven year loan for $50,000 If your seven annual end of the year payments are $11,660 45, what is the rate of interest Idlewild is charging a 14 b 12 6 c 23 d 11 In a large, widely held corporation, the financial manager should consider all of the following in establishing a dividend policy EXCEPT a investment opportunities b individual shareholder preferences c informational content of dividends d cash flow needs Billy Bob has decided to put $2,400 a year (at the end of each year) into an IRA over his 40 year working life and then retire What will Billy have if the account will earn 10 percent compounded annually a $1,062,223 b $810,917 c $23,470 d $394,786 Calco is a multi divisional firm with a weighted cost of capital of 14 percent and a risk adjusted discount rate for its can division of 17 percent A planned expansion in the can division requires a net investment of $170,000 and results in expected cash inflows of $42,000 a year for seven years Should Calco invest in this expansion a Yes, since NPV $10,096 b No, since NPV $9,896 c Yes, since NPV $9,896 d No, since NPV $5,276 According to the dividend policy, a firm that has more funds than it needs should pay a cash dividend to shareholders a constant payout ratio b reinvestment c passive residual d stable dollar Columbia Gas Company's (CG) current capital structure is 35 debt and 65 equity This year CG has earnings after tax of $5 31 million and is paying $1 6 million in dividends To finance a transmission pipe line, CG can borrow $2 million at a cost of 10 , the same rate that CG is currently paying on a total of $15 million long term debt CG has 1,000,000 shares outstanding, and its current market price is $31 If CG's long term growth rate of dividends is expected to be 8 , what is the weighted cost of capital for the firm Assume a marginal tax rate of 40 a 10 9 b 13 6 c 16 9 d 19 6 Calculate Bodacious Bodywear's weighted average cost of capital under the following conditions The firm has 30 debt, 10 preferred stock, and 60 equity The cost of common equity is 14 and the cost of preferred stock is 9 The firm's debt has a before tax cost of debt of 10 (including flotation costs) The firm is in the 40 tax bracket a 12 3 b 11 1 c 8 5 d 10 5 If your parents put $2,000 a year into an IRA account for you in each of your last 4 teenage years (ages 16, 17, 18, and 19), how much would the IRA account have in it at your retirement 45 years later if the account earned 12 each year (Assume end of year payments ) a $ 68,613 b $3,457,169 c $1,148,958 d $1,569,758 Finding the compound sum of $1,000 to be received at the beginning of each of the next 5 years requires calculating the a future value of an annuity b future value of an annuity due c present value of an annuity due d present value of an annuity A firm with stable earnings is usually more willing to a have a sinking fund agreement b have a higher dividend payout ratio c retain more earnings d seek aggressive growth As part of a share repurchase program by a company, a tender offer involves the a purchase of stock directly from its stockholders b private negotiation of purchases from large institutions, such as insurance companies c purchase of stock on the open market d planning for many positive NPV investments Firms with the earnings growth tend to have the dividend payout ratio a lowest highest b highest lowest c highest highest d lowest lowest If the present value of a given sum is equal to its future value, then a the discount rate must be very high b there is no inflation c the discount rate must be zero d None of these are correct DKA uses the certainty equivalent approach to deal with total project risk and is considering a project with the following Year Expec NCF Certainty Equivalent Factor 0 $60,000 1 0 1 $20,000 0 95 2 $20,000 0 90 3 $25,000 0 80 4 $30,000 0 65 What is the certainty equivalent NPV for this project if the risk free rate is 8 and the required return on the market portfolio is 15 a $15,243 b $13,233 c $3,233 d $17,743 In bond refunding analysis the is believed to be the most appropriate discount rate a after tax cost of new debt b firm's marginal cost of capital c weighted average cost of capital d All of these are correct American Biodyne (AB) is considering expanding into a new line of business The expansion will require an investment of $500,000 in new equipment This equipment, which will cost another $300,000 to install, will be depreciated on a straight line basis over an 8 year period to an estimated salvage value of zero If the expansion project is accepted, working capital will increase by $100,000 immediately Revenues for the first 3 years are forecasted at $650,000 per year and at $800,000 in years 4 8 Operating costs exclusive of depreciation are expected to be $310,000 per year for 3 years and increase to $400,000 per year for the following 5 years AB has a marginal tax rate of 40 , and its required rate of return for the project under consideration is 16 If AB assumes that the new equipment will have an actual market value of $50,000 at the end of the 8th year, should the expansion be undertaken a Yes, as NPV $272,434 b Yes, as NPV $275,114 c Yes, as NPV $265,964 d Yes, as NPV $302,934 If a firm sells an asset for less than its book value, a the loss is treated as lost depreciation b there are no tax consequences c the loss may be used to offset operating income d the loss reduces depreciation expenses Cosmos Touring wishes to replace its luxury bus in 10 years by accumulating funds in a special account The new bus is expected to cost $180,000 How much must Cosmos put into the fund in equal, end of year amounts if earnings are expected to be 8 for the first 4 years and 10 thereafter a $9,901 b $12,107 c $14,727 d $11,465 Baker Company is considering an investment in a new metal lathe If the new lathe is purchased, revenues will increase by $5,000 per year and cash operating costs will decline by $10,000 per year The lathe will cost $60,000 and will be depreciated on a straight line basis over 10 years to a zero estimated salvage value Baker's marginal tax rate is 40 Determine the annual net cash flows generated by the lathe a $600 b $9,000 c $11,400 d $5,400 Concin has the following equity accounts on its balance sheet Common stock ($0 25 par, 9 million shares) $2,250,000 Contributed capital in excess of par 89,400,000 Retain earnings 67,503,189 $159,153,189 The current market price for a share of Concin's stock is $24 25 If the firm declares a 10 stock dividend and a $0 06 per share cash dividend, what will be the impact on Common stock on the above equity account a Increase of $54,000 b Increase of $21,600,000 c No change d Increase of $225,000 Determine how much you would be willing to pay for a bond that pays $60 annual interest indefinitely and never matures (i e , a perpetuity), assuming you require an 8 percent rate of return on this investment a $480 b $1,000 c $743 d $750 Determine the pure project beta of a project that has 30 debt and 70 equity The beta for the company is 1 4, and it has a tax rate of 40 a 1 05 b 1 83 c 1 11 d 1 56 If a preferred stock is callable, then the calculation of the cost of preferred stock financing is a equal to D p P n b less than D p P n c similar to that for bonds d equal to D p less flotation costs Depreciation a is not a cash outflow b does not affect profits c does not affect cash flows d is a cash inflow Easy Slider Inc sold a 15 year $1,000 face value bond with a 10 coupon rate Interest is paid annually After flotation costs, Easy Slider received $928 per bond Compute the after tax cost of debt for these bonds if the firm's marginal tax rate is 40 a 6 0 b 6 6 c 7 2 d 7 8 Basin Manufacturing (40 marginal tax rate) is considering a plant expansion project The equipment will cost $100,000 and will require an additional $10,000 for delivery and installation The expansion also will require Basin to increase immediately its net working capital by $25,000 The expansion is expected to generate revenues of $150,000 per year Calculate the project's net investment a $135,000 b $131,000 c $125,000 d $81,000 Designs Now is opening a showcase office to display and sell its computer designed poster art Designs expects cash flows to be $120,000 in the first year, $180,000 in the second year, $240,000 in the third year If Designs uses 11 percent as its discount rate, what is the present value of the cash flows a $424,820 b $429,720 c $457,620 d $456,000 Based on the Rule of 72, what interest rate do you need to earn to double your money in 6 years a 7 b 12 c 6 d 8 In a simulation analysis, a model is simulated on a computer program and run through several iterations The results of these iterations are used to a plot the coefficient of variation of the annual net cash flows b plot a required rate of return value profile c provide the decision maker with a measure of beta risk d compute a mean and a standard deviation of returns Heleveton Industries is 100 equity financed Its current beta is 1 1 The expected market risk premium is 8 5 , and the risk free rate is 4 2 If Heleveton changes its capital structure to 25 debt, it estimates its beta will increase to 1 2 If the after tax cost of debt will be 6 , should Heleveton make the capital structure change a Yes, cost of capital decreases 1 67 b Yes, cost of capital decreases by 2 52 c No, stock price would decrease due to increased risk d No, cost of capital increases by 0 85 A major problem with using the risk adjusted discount rate approach is the determination of a beta values for individual projects b the firm's weighted cost of capital c the firm's required rate of return d the beta value for the firm If Sulzer has 10 million shares outstanding, operating income (EBIT) of $42 4 million, and interest expenses of $6 8 million, what is Sulzer's dividend payout ratio, given that the dividend per share is $0 80 Assume a marginal tax rate of 40 a 31 5 b 56 3 c 37 5 d 50 4 A(n) project is one whose acceptance is dependent on the adoption of one or more other projects a perfectly correlated b contingent c mutually exclusive d independent In a simulation analysis, a model is simulated on a computer program and run through several iterations The results of these iterations are used to a plot a required rate of return value profile b compute a mean and a standard deviation of returns c plot the coefficient of variation of the annual net cash flows d provide the decision maker with a measure of beta risk Finding the discounted current value of $1,000 to be received at the end of each of the next 5 years requires calculating the a future value of an annuity b present value of an annuity c present value of an annuity due d future value of an annuity due A legal constraint that dividends must be paid out of a firm's present and past net earnings is known as the restriction a net operating earnings b earned capital c initial investment d net earnings

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Question: (Kindly solve these mcqs) Approximately how long would it take to double my money if I invest it now at 18%? a. 12 years b.

(Kindly solve these mcqs)

Approximately how long would it take to double my money if I invest it now at 18%?

12 years

4 years

6 years

Cannot be determined

IKON is financed entirely with equity, and its beta is 1.31. If the current risk-free rate is 6.25% and the expected market return is 12.8%, what is IKON's required rate of return on a project of average risk?

12.81%

17.65%

8.58%

Annuity due calculations are common when dealing with _____.

rental contracts

cash dividends

interest payments

loan repayments

Idlewild Bank has granted you a seven-year loan for $50,000. If your seven annual end-of-the-year payments are $11,660.45, what is the rate of interest Idlewild is charging?

14%

12.6%

23%

11%

In a large, widely held corporation, the financial manager should consider all of the following in establishing a dividend policy EXCEPT____.

investment opportunities

individual shareholder preferences

informational content of dividends

cash flow needs

Billy Bob has decided to put $2,400 a year (at the end of each year) into an IRA over his 40-year working life and then retire. What will Billy have if the account will earn 10 percent compounded annually?

$1,062,223

$810,917

$23,470

$394,786

Calco is a multi-divisional firm with a weighted cost of capital of 14 percent and a risk-adjusted discount rate for its can division of 17 percent. A planned expansion in the can division requires a net investment of $170,000 and results in expected cash inflows of $42,000 a year for seven years. Should Calco invest in this expansion?

Yes, since NPV = $10,096

No, since NPV = -$9,896

Yes, since NPV = $9,896

No, since NPV = -$5,276

According to the ____ dividend policy, a firm that has more funds than it needs should pay a cash dividend to shareholders.

constant payout ratio

reinvestment

passive residual

stable dollar

Columbia Gas Company's (CG) current capital structure is 35% debt and 65% equity. This year CG has earnings after tax of $5.31 million and is paying $1.6 million in dividends. To finance a transmission pipe line, CG can borrow $2 million at a cost of 10%, the same rate that CG is currently paying on a total of $15 million long-term debt. CG has 1,000,000 shares outstanding, and its current market price is $31. If CG's long-term growth rate of dividends is expected to be 8%, what is the weighted cost of capital for the firm? Assume a marginal tax rate of 40%.

10.9%

13.6%

16.9%

19.6%

Calculate Bodacious Bodywear's weighted average cost of capital under the following conditions:

*The firm has 30% debt, 10% preferred stock, and 60% equity.

*The cost of common equity is 14% and the cost of preferred stock is 9%.

*The firm's debt has a before-tax cost of debt of 10% (including flotation costs).

*The firm is in the 40% tax bracket.

12.3%

11.1%

8.5%

10.5%

If your parents put $2,000 a year into an IRA account for you in each of your last 4 teenage years (ages 16, 17, 18, and 19), how much would the IRA account have in it at your retirement 45 years later if the account earned 12% each year? (Assume end-of-year payments.)

$ 68,613

$3,457,169

$1,148,958

$1,569,758

Finding the compound sum of $1,000 to be received at the beginning of each of the next 5 years requires calculating the _____.

future value of an annuity

future value of an annuity due

present value of an annuity due

present value of an annuity

A firm with stable earnings is usually more willing to ____.

have a sinking fund agreement

have a higher dividend payout ratio

retain more earnings

seek aggressive growth

As part of a share repurchase program by a company, a tender offer involves the ____.

purchase of stock directly from its stockholders

private negotiation of purchases from large institutions, such as insurance companies

purchase of stock on the open market

planning for many positive-NPV investments

Firms with the ____ earnings growth tend to have the ____ dividend payout ratio.

lowest; highest

highest; lowest

highest; highest

lowest; lowest

If the present value of a given sum is equal to its future value, then ____.

the discount rate must be very high

there is no inflation

the discount rate must be zero

None of these are correct

DKA uses the certainty equivalent approach to deal with total project risk and is considering a project with the following:

Year

Expec. NCF

Certainty Equivalent Factor

-$60,000

1.0

$20,000

0.95

$20,000

0.90

$25,000

0.80

$30,000

0.65

What is the certainty equivalent NPV for this project if the risk-free rate is 8% and the required return on the market portfolio is 15%?

-$15,243

$13,233

$3,233

$17,743

In bond refunding analysis the ____ is believed to be the most appropriate discount rate.

after-tax cost of new debt

firm's marginal cost of capital

weighted average cost of capital

All of these are correct

American Biodyne (AB) is considering expanding into a new line of business. The expansion will require an investment of $500,000 in new equipment. This equipment, which will cost another $300,000 to install, will be depreciated on a straight-line basis over an 8-year period to an estimated salvage value of zero. If the expansion project is accepted, working capital will increase by $100,000 immediately. Revenues for the first 3 years are forecasted at $650,000 per year and at $800,000 in years 4-8. Operating costs exclusive of depreciation are expected to be $310,000 per year for 3 years and increase to $400,000 per year for the following 5 years. AB has a marginal tax rate of 40%, and its required rate of return for the project under consideration is 16%. If AB assumes that the new equipment will have an actual market value of $50,000 at the end of the 8th year, should the expansion be undertaken?

Yes, as NPV = $272,434

Yes, as NPV = $275,114

Yes, as NPV = $265,964

Yes, as NPV = $302,934

If a firm sells an asset for less than its book value, ____.

the loss is treated as lost depreciation

there are no tax consequences

the loss may be used to offset operating income

the loss reduces depreciation expenses

Cosmos Touring wishes to replace its luxury bus in 10 years by accumulating funds in a special account. The new bus is expected to cost $180,000. How much must Cosmos put into the fund in equal, end-of-year amounts if earnings are expected to be 8% for the first 4 years and 10% thereafter?

$9,901

$12,107

$14,727

$11,465

Baker Company is considering an investment in a new metal lathe. If the new lathe is purchased, revenues will increase by $5,000 per year and cash operating costs will decline by $10,000 per year. The lathe will cost $60,000 and will be depreciated on a straight-line basis over 10 years to a zero estimated salvage value. Baker's marginal tax rate is 40%. Determine the annual net cash flows generated by the lathe.

$600

$9,000

$11,400

$5,400

Concin has the following equity accounts on its balance sheet:

Common stock ($0.25 par, 9 million shares)

$2,250,000

Contributed capital in excess of par

89,400,000

Retain earnings

67,503,189

$159,153,189

The current market price for a share of Concin's stock is $24.25. If the firm declares a 10% stock dividend and a $0.06 per share cash dividend, what will be the impact on Common stock on the above equity account?

Increase of $54,000

Increase of $21,600,000

No change

Increase of $225,000

Determine how much you would be willing to pay for a bond that pays $60 annual interest indefinitely and never matures (i.e., a perpetuity), assuming you require an 8 percent rate of return on this investment.

$480

$1,000

$743

$750

Determine the pure project beta of a project that has 30% debt and 70% equity. The beta for the company is 1.4, and it has a tax rate of 40%.

1.05

1.83

1.11

1.56

If a preferred stock is callable, then the calculation of the cost of preferred stock financing is ____.

equal to D_p/P_n

less than D_p/P_n

similar to that for bonds

equal to D_pless flotation costs

Depreciation ____.

is not a cash outflow

does not affect profits

does not affect cash flows

is a cash inflow

Easy Slider Inc. sold a 15-year $1,000 face value bond with a 10% coupon rate. Interest is paid annually. After flotation costs, Easy Slider received $928 per bond. Compute the after-tax cost of debt for these bonds if the firm's marginal tax rate is 40%.

6.0%

6.6%

7.2%

7.8%

Basin Manufacturing (40% marginal tax rate) is considering a plant expansion project. The equipment will cost $100,000 and will require an additional $10,000 for delivery and installation. The expansion also will require Basin to increase immediately its net working capital by $25,000. The expansion is expected to generate revenues of $150,000 per year. Calculate the project's net investment.

$135,000

$131,000

$125,000

$81,000

Designs Now is opening a showcase office to display and sell its computer-designed poster art. Designs expects cash flows to be $120,000 in the first year, $180,000 in the second year, $240,000 in the third year. If Designs uses 11 percent as its discount rate, what is the present value of the cash flows?

$424,820

$429,720

$457,620

$456,000

Based on the Rule of 72, what interest rate do you need to earn to double your money in 6 years?

12%

In a simulation analysis, a model is simulated on a computer program and run through several iterations. The results of these iterations are used to _____.

plot the coefficient of variation of the annual net cash flows

plot a required rate of return value profile

provide the decision maker with a measure of beta risk

compute a mean and a standard deviation of returns

Heleveton Industries is 100% equity financed. Its current beta is 1.1. The expected market risk premium is 8.5%, and the risk-free rate is 4.2%. If Heleveton changes its capital structure to 25% debt, it estimates its beta will increase to 1.2. If the after-tax cost of debt will be 6%, should Heleveton make the capital structure change?

Yes, cost of capital decreases 1.67%

Yes, cost of capital decreases by 2.52%

No, stock price would decrease due to increased risk

No, cost of capital increases by 0.85%

A major problem with using the risk-adjusted discount rate approach is the determination of _____.

beta values for individual projects

the firm's weighted cost of capital

the firm's required rate of return

the beta value for the firm

If Sulzer has 10 million shares outstanding, operating income (EBIT) of $42.4 million, and interest expenses of $6.8 million, what is Sulzer's dividend payout ratio, given that the dividend per share is $0.80? Assume a marginal tax rate of 40%.

31.5%

56.3%

37.5%

50.4%

A(n) ____ project is one whose acceptance is dependent on the adoption of one or more other projects.

perfectly correlated

contingent

mutually exclusive

independent

In a simulation analysis, a model is simulated on a computer program and run through several iterations. The results of these iterations are used to _____.

plot a required rate of return value profile

compute a mean and a standard deviation of returns

plot the coefficient of variation of the annual net cash flows

provide the decision maker with a measure of beta risk

Finding the discounted current value of $1,000 to be received at the end of each of the next 5 years requires calculating the ____.

future value of an annuity

present value of an annuity

present value of an annuity due

future value of an annuity due

A legal constraint that dividends must be paid out of a firm's present and past net earnings is known as the ____ restriction.

net operating earnings

earned capital

initial investment

net earnings

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