Reference no: EM13394359

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1. Ronaldo Inc. has a capital budget of $1,000,000, but it wants to maintain a target capital structure of 50% debt and 50% equity. The company forecasts this year’s net income to be $1,000,000. If the company follows a residual dividend policy, what will be its dividend payout ratio?
a.    30%
b.    50%
c.    20%
d.    40%

2. ABC Communications recently completed a 5-for-4 stock split. Prior to the split, its stock price was $70 per share. The firm's total market value increased by 20% as a result of the split. What was the price of the company’s stock following the stock split?
a.    $50.4
b.    $61.6
c.    $46.2
d.    $67.2

3. Brandi Co. has an unlevered beta of 1.30. The firm currently has no debt, but is considering changing its capital structure to be 30% debt and 70% equity. If its corporate tax rate is 40%, what is Brandi's levered beta?
a.    1.26
b.    1.38
c.    1.51
d.    1.63
e.    1.75

4. Brandi Co. has a levered beta of 1.30. The firm currently has 30% debt, but is considering changing its capital structure to be 0% debt and 100% equity. If its corporate tax rate is 40%, what is Brandi's unlevered beta?
a.    0.80
b.    0.88
c.    0.95
d.    1.03
e.    2.0

5.Brandi Co. has a beta of 1.00. The firm currently has 30% debt, but is considering changing its capital structure to be 20% debt and 80% equity. If its corporate tax rate is 40%, what is Brandi's levered beta at 20% debt level?
a.    1.19
b.    0.91
c.    1.01
d.    1.75
e.    1.10

6. On average, a firm purchases $2,000,000 in merchandise a month. It has inventories equal to two month purchases on hand at all times. If the firm analyzes its accounts using a 360-day year, what is the firm’s inventory conversion period?IC = Inv/Avg. daily purchases
a.    120 days
b.    30.0 days
c.    60 days
d.    15.0 days
e.    7.5 days

7. Helena Furnishings wants to sharply reduce its cash conversion cycle. Which of the following steps would reduce its cash conversion cycle?
a.Everything else being same, the company decreases its average inventory.
b.Everything else being same, the company increases the credit period provided to customers.
c.Everything else being same, the company pays faster to its suppliers.
d.All of the statements above are correct.
e.None of the statements above are correct.

8.The Danser Company expects to have sales of $40,000 in January, $40,000 in February, and $40,000 in March. If 25 percent of sales are for cash and get a 10 percent discount, 50 percent are credit sales paid in the month following the sale, and 25 percent are credit sales paid 2 months following the sale, what are the cash receipts from sales in March?
a.    $44,000
b.    $40,000
c.    $36,000
d.    $39,000
e.    $30,000

9. The president of Lowell Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer's price is $60,000, and it falls into the MACRS 3-year class (33% in year 1, 45% in year 2, 15% in year 3, and 7% in year 4). Purchase of the computer would require an increase in net operating working capital of $2,000. The computer would increase the firm's before-tax revenues by $20,000 per year but would also increase operating costs by $5,000 per year. The computer is expected to be used for 4 years and then be sold for $25,000. The firm's marginal tax rate is 40 percent, and the project's cost of capital is 14 percent. What is the net investment required at t = 0?
a.    -$42,000
b.    -$62,000
c.    -$38,600
d.    -$37,600
e.    -$36,600

10, The president of Lowell Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer's price is $60,000, and it falls into the MACRS 3-year class (33% in year 1, 45% in year 2, 15% in year 3, and 7% in year 4). Purchase of the computer would require an increase in net operating working capital of $2,000. The computer would increase the firm's before-tax revenues by $20,000 per year but would also increase operating costs by $5,000 per year. The computer is expected to be used for 4 years and then be sold for $25,000. The firm's marginal tax rate is 40 percent, and the project's cost of capital is 14 percent. What is the operating cash flow in Year 2?
a.    $19,800
b.    $10,240
c.    $11,687
d.    $13,453
e.    $162000
  
11. The president of Lowell Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer's price is $60,000, and it falls into the MACRS 3-year class (33% in year 1, 45% in year 2, 15% in year 3, and 7% in year 4). Purchase of the computer would require an increase in net operating working capital of $2,000. The computer would increase the firm's before-tax revenues by $20,000 per year but would also increase operating costs by $5,000 per year. The computer is expected to be used for 4 years and then be sold for $25,000. The firm's marginal tax rate is 40 percent, and the project's cost of capital is 14 percent. What is the total value of the terminal year non-operating cash flows (after-tax salvage value + working capital recovered) at the end of Year 4?
a.    $17,000
b.    $18,680
c.    $21,000
d.    $25,000
e.    $27,000

12. The president of Lowell Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer's price is $60,000, and it falls into the MACRS 3-year class (33% in year 1, 45% in year 2, 15% in year 3, and 7% in year 4). Purchase of the computer would require an increase in net operating working capital of $2,000. The computer would increase the firm's before-tax revenues by $20,000 per year but would also increase operating costs by $5,000 per year. The computer is expected to be used for 4 years and then be sold for $25,000. The firm's marginal tax rate is 40 percent, and the project's cost of capital is 14 percent. What is the project's NPV?
a.    $2,622
b.    $2,803
c.    $2,917
d.    -$7,029
e.    -$10,809