1. (TCO A) Which of the following statements is false? (Points : 5) In many other countries, the central conflict is between what are called controlling shareholders and minority shareholders. Controlling shareholders can make decisions that benefit them disproportionately relative to the minority shareholders, such as employing family members rather than the most talented managers or establishing contracts favorable to other family-controlled firms. As recent events and corporate scandals have shown, investor protections in the United States are generally seen as substandard when compared to the developed economies in the world. Much of the focus in the United States is on the agency conflict between shareholders, who own the majority of a firm but are dispersed group, and managers, who own little of the firm and must be monitored. 2. (TCO F) Which of the following statements is correct? (Points : 5) The MIRR and NPV decision criteria can never conflict. The IRR method can never be subject to the multiple IRR problem, although the MIRR method can be. One reason some people prefer the MIRR to the regular IRR is that the MIRR is based on a generally more reasonable reinvestment rate assumption. The higher the WACC is, the shorter the discounted payback period is. The MIRR method assumes that cash flows are reinvested at the crossover rate. Question 3.3. (TCO D) The Ramirez Company’s last dividend was $1.75. Its dividend growth rate is expected to be constant at 25% for 2 years, after which dividends are expected to grow at a rate of 6% forever. Its required return (rs) is 12%. Which is the best estimate of the current stock price? a. $41.58 b. $42.64 c. $43.71 d. $44.80 e. $45.92 (Points : 20) 4. (TCO G) Singal Inc. is preparing its cash budget. It expects to have sales of $30,000 in January, $35,000 in February, and $35,000 in March. If 20% of sales are for cash, 40% are credit sales paid in the month after the sale, and another 40% are credit sales paid 2 months after the sale, which are the expected cash receipts for March? a. $24,057 b. $26,730 c. $29,700 d. $33,000 e. $36,300 (Points : 20) 5. (TCO G) Consider the information for the following four firms. Firm Cash Debt Equity rD rE τc Eenie 0 150 150 5% 10% 40% Meenie 0 250 750 6% 12% 35% Minie 25 175 325 6% 11% 35% Moe 50 350 150 7.50% 15% 30% Which is the weighted average cost of capital for Meenie closest to? A) 10.5% B) 7.4% C) 10.0% D) 8.8% (Points : 30) 1. (TCO H) Desai Inc. has the following data, in thousands. Assuming a 365-day year, what is the firm’s cash conversion cycle? Annual sales = Annual cost of goods sold = Inventory = Accounts receivable = Accounts payable = $45,000 $30,000 $4,500 $1,800 $2,500 a. 28 days b. 32 days c. 35 days d. 39 days e. 43 days (Points : 30) 2. (TCO C) A firm buys on terms of 2/8, net 45 days, it does not take discounts, and it actually pays after 58 days. What is the effective annual percentage cost of its nonfree trade credit? (Use a 365-day year.) a. 14.34% b. 15.10% c. 15.89% d. 16.69% e. 17.52% (Points : 30) 3. (TCO E) Division Asset Beta Next Period’s Expected Free Cash Flow ($mm) Expected Growth Rate Oil Exploration 1.4 450 4.0% Oil Refining 1.1 525 2.5% Gas and Convenience Stores 0.8 600 3.0% The risk-free rate of interest is 3% and the market risk premium is 5%. Which is the cost of capital for the oil refining division closest to? A) 6.5% B) 7.0% C) 8.5% D) 10.0% (Points : 30) 4. (TCO B) You expect CCM Corporation to generate the following free cash flows over the next 5 years. Year 1 2 3 4 5 FCF ($ millions) 25 28 32 37 40 If CCM has $200 million of debt and 8 million shares of stock outstanding, then which is the share price for CCM closest to? A) $49.50 B) $12.50 C) $19.35 D) $24.50 (Points : 35) 5. (TCO D) Which is the standard deviation of the returns on Stock A from 2000 to 2009 closest to? Year End Stock A Realized Return (R – R) (R – R)2 2000 46.3% 29.85% 0.0891023 2001 26.7% 10.25% 0.0105063 2002 86.9% 70.45% 0.4963203 2003 23.1% 6.65% 0.0044223 2004 0.2% -16.25% 0.0264063 2005 -3.2% -19.65% 0.0386123 2006 -27.0% -43.45% 0.1887903 2007 27.9% 11.45% 0.0131103 2008 -5.1% -21.55% 0.0464403 2009 -11.3% -27.75% 0.0770063 A) 33.2% B) 16.4% C) 31.5% D) 11.0% (Points : 35)
1. (TCO A) Which of the following statements is false? (Points : 5)
Question 3.a. $41.58
b. $42.64
c. $43.71
d. $44.80
e. $45.92
(Points : 20)
4. (TCO G) Singal Inc. is preparing its cash budget. It expects to have sales of $30,000 in January, $35,000 in February, and $35,000 in March. If 20% of sales are for cash, 40% are credit sales paid in the month after the sale, and another 40% are credit sales paid 2 months after the sale, which are the expected cash receipts for March?a. $24,057
b. $26,730
c. $29,700
d. $33,000
e. $36,300
(Points : 20)
5. (TCO G)Consider the information for the following four firms.
Firm
Cash
Debt
Equity
rD
rE
τc
Eenie
0
150
150
5%
10%
40%
Meenie
0
250
750
6%
12%
35%
Minie
25
175
325
6%
11%
35%
Moe
50
350
150
7.50%
15%
30%
Which is the weighted average cost of capital for Meenie closest to?
A) 10.5%
B) 7.4%
C) 10.0%
D) 8.8%
(Points : 30)
1. (TCO H) Desai Inc. has the following data, in thousands. Assuming a 365-day year, what is the firm’s cash conversion cycle?
Annual sales =
Annual cost of goods sold =
Inventory =
Accounts receivable =
Accounts payable =
$45,000
$30,000
$4,500
$1,800
$2,500
a. 28 days
b. 32 days
c. 35 days
d. 39 days
e. 43 days (Points : 30)
2. (TCO C) A firm buys on terms of 2/8, net 45 days, it does not take discounts, and it actually pays after 58 days. What is the effective annual percentage cost of its nonfree trade credit? (Use a 365-day year.)a. 14.34%
b. 15.10%
c. 15.89%
d. 16.69%
e. 17.52%
(Points : 30)
3. (TCO E)
Division
Asset
Beta
Next Period’s Expected Free Cash
Flow ($mm)
Expected
Growth
Rate
Oil Exploration
1.4
450
4.0%
Oil Refining
1.1
525
2.5%
Gas and Convenience Stores
0.8
600
3.0%
The risk-free rate of interest is 3% and the market risk premium is 5%.
Which is the cost of capital for the oil refining division closest to?
A) 6.5%
B) 7.0%
C) 8.5%
D) 10.0%
(Points : 30)
4. (TCO B)You expect CCM Corporation to generate the following free cash flows over the next 5 years.
Year
1
2
3
4
5
FCF ($ millions)
25
28
32
37
40
If CCM has $200 million of debt and 8 million shares of stock outstanding, then which is the share price for CCM closest to?
A) $49.50
B) $12.50
C) $19.35
D) $24.50
(Points : 35)
5. (TCO D)Which is the standard deviation of the returns on Stock A from 2000 to 2009 closest to?