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What is the highest price a person should be willing to pay

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Reference no: EM133024631

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Q1. A company recently paid an annual dividend of $2. Dividend growth is expected to be 5%. What is the highest price a person should be willing to pay for one share of this company today if the person's required return remains at 12%?

A. $21.20

B. $30.00

C. $46.45

D. $55.00

Q2. A company is planning a new product release. It estimates a 50% probability for a blockbuster result that will increase the price of the stock 30%. The probability the stock will remain unchanged is 25%. There is a probability the stock will drop by 5%. What is the expected return of this new product release?

A. 14%

B. 25%

C. 35%

D. 41%

Q3. A company has a total market value of $100 million, $30 million of which is short-term debt. The cost of that short term debt was 4.5%. The company has a marginal tax rate of 40%. What is the weighted after-tax cost of short-term debt for the company?

A. 30.1%

B. 4.5%

C. 1.35%

D. 0.81%

Q4. A corporation has $125 million in assets on the balance sheet. Total liabilities are $94 million and owner's equity is currently $14 million. What is the corporation's external discretionary financing need (OFN)?

A. $14 million

B. $17 million

C. $32 million

D. $80 million

Q5. Year 2010 ending retained earnings were $5 million. Year 2011 forecasted net income is $1 million with a 10% dividend payout ratio. What are the forecasted retained earnings for year 2011?

A. $18,000

B. $20,000

C. $5.4 million

D. $5.9 million

6. Projected total assets are $1 million with projected total liabilities of $500,000 and projected owner's equity of $100,000. Which amount of discretionary financing is needed?

A. $400,000

B. $600,000

C. $1.4 million

D. $1.6 million

Q7. The financial data for a company is as follows.

Net Income $4,000,000

Sales $20,000,000

Assets $8,000,000

Dividends $2,000,000

Equity $5,000,000

Liabilities $3,000,000

What is the sustainable growth rate for this company?

A. 40%

B. 50%

C. 60%

D. 100%

Q8. A firm is evaluating a new product. If adopted, estimated sales will increase by $14,500,000 per year. Incremental variable and fixed costs are estimated to be $2,350,000. In addition, the new machine has an annual depreciation expense of $1,100,000. What is the estimated differential cash flow in year 1 if the tax rate is 40%?

A. $6,280,000

B. $6,630,000

C. $7,290,000

D. $7,730,000

Q9. A company is considering a project with the following cash flows and an discount rate of 26%.

Initial outlay ($5,000)

Year 1 $3,000

Year 2 $3,500

Year 3 $3,200

Year 4 $2,800

Year 5 $2,500

What should this firm decide based on the net present value (NPV)?

A. Reject the project since the NPV is negative

B. Accept the project since the NPV is negative

C. Reject the project since the NPV is positive

D. Accept the project since the NPV is positive

Q10. How will the value of a $1,000,000 capital budgeting investment be affected assuming the inflation rate is 2%?

A. The investment will be worth $500,000 in one year

B. The investment will be worth $1,000,000 in one year

C. The investment will be worth $1,020,000 in one year

D. The investment will be worth $1,200,000 in one year

Reference no: EM133024631

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