1. Net income is 85 million. The retained earnings balance is 50,000,000. Previous retained earnings balance was 40,000,000. 45 million was paid in dividends.
True
False

2. The most recent share price is $25 and a recent dividend of $1.25, so the dividend yield is 20%.
True
False

3. A company is analyzing a potential additional project that would result in $1,000,000 additional net income. If an additional $1,000,000 in income is earned, the average tax rate is 30%and the marginal tax rate is 34% an additional $300,000 in taxes will be paid.
True
False

4. Stock F’s last dividend was $1.60 per share and is expected to grow at a rate of 5%.
a. Using the constant growth valuation formula, what is the value of the stock if my required return is 12%?
b. If the stock is selling at $23.50 should I purchase the stock?

5. Nedo Enterprises originally sold bonds in 2011 with a 10-year maturity, $1000 par, 6% coupon paying annual interest. It is now 2016 and 5 years later. Bonds of similar risk selling at par now have a 5% coupon rate.
1. What price would bond investors be willing to pay for a Nedo Enterprise bond today?
2. Is this at a premium or discount?
3. What price would bond investors be willing to pay for a Nedo bond if the current market coupon rate was 9%?

6. Project A’s data is below:

If there is:                      Expected return    Probability of occurrence
Strong demand             20%                         .20
Normal demand          12%                         .60
Weak demand             4%                            .20

a. What is the expected return for the project?
b. If the required rate of return is 13%, should they proceed with the project?
c. You are analyzing Project B against Project A. Project B has a range of 19, which is considered more risky A or B?
d. Does this mean Project B is automatically eliminated from consideration?

7. Security A has a 9% expected return, 40% standard deviation. Security B has a 7% return, 30% standard deviation.
1. Using standard deviation data alone, which security is considered riskier?
2. Using co-efficient of variation as your sole analysis, which is the best choice of Security?
3. How would you explain the co-efficient of variation?

8.    The goal is $2,000,000 in retirement savings 20 years from now. The expected return is 6%. There is $500,000 in the account now. How much needs to be invested every year to achieve the goal? How does the annual investment change if the return is 5.5% instead? How does the annual investment change if the return is 6.5% instead.

9. ABC Co. has $12,000,000 in sales, COGS 50% of sales, operating costs of $1,200,000 plus interest expense of $80,000 and depreciation expense of $40,000. The tax rate is 40%. What is the effect on cash due to the depreciation expense taken? (state in $)

10. ABC Co. has $12,000,000 in sales, COGS 50% of sales, operating costs of $1,200,000 plus interest expense of $80,000 and depreciation expense of $40,000. The tax rate is 40%. What is their net income? If they have 1 million shares of common stock outstanding what is their EPS?

11. ABC Co. has $12,000,000 in sales, COGS 50% of sales, operating costs of $1,200,000 plus interest expense of $80,000 and depreciation expense of $40,000. Tax rate is 40%. If they retained 80% and paid 20% in dividends, what is their dividend payout?

12. ABC Co. has $12,000,000 in sales, COGS 50% of sales, operating costs of $1,200,000 plus interest expense of $80,000 and depreciation expense of $40,000. Tax rate is 40%. If they retained 80% and paid 20% in dividends, what is their dividend yield if the current stock price is $26?

13. The expected return for Project A with the below data is...
Strong demand    .30 probability 40% return
Normal demand .50 probability 12% return
Weak demand    .20 probability    4% return

- 18.67%
- 18.8%
- 12%
- 12.8%

14. I would be willing to pay .... for a bond with quarterly interest with 15 years to maturity, 6% coupon, $1000 par with current market rates of similar risk investments yielding 5%.
- 1000.00
- 1103.80
- 1034.00
- 1105.09

15. NUM has a beta of .8. Risk-free rate is 4%, RPm is 6%. Growth is 5%. 1. What is the required return? 2. If the current dividend was $2, what is the stock value?
- 5.9%, 70
- 8.8%, 52.63
- 8.8%, 55.26
- 8.8%, 22.73

16. Investment X has a beta of 1.0. The risk-free rate is 2% and the current market return is 8%. What is the required return?
- 10%
- 6%
- 2%
- 8%

17. Investment X has a beta of 1.0. The risk-free rate is 2% and the current market return is 8%. When should I purchase this investment...when the expected return is?
- 8.1%
- 7%
- 6%
- 2%

18. Investment X has been reanalyzed and now shows a beta of .8. The risk free rate is 2% and current market return is 8%. What is the required return?
- 10%
- 8%
- 6.8%
- 8.4%

19. Your sister turned 35 today and is putting together a financial retirement plan. She will save $7200 per year, has $100,000 in savings now and expects a 7% return. She plans to retire in 30 years at age 65. She plans to live for 25 years after retirement. At retirement, she will shift her investments to funds that yield 6%. Under these assumptions how much can she spend each year for the 25 years of retirement and have a 0 balance at the end of year 25?
- 114,968
- 112,751
- 104,112
- 57,653

1. Net income is 85 million. The retained earnings balance is 50,00...