Devry FIN515 Midterm Exam ANSWERS

FIN 515 Midterm Exam ANSWERS
Question :
(TCO A) Which of the following statements is CORRECT?
Points Received:
10 of 10
2.
Question :
(TCO G) A security analyst obtained the following information from
Prestopino Products’ financial statements:
• Retained earnings at the end of 2009 were $700,000, but retained
earnings at the end of 2010 had declined to $320,000.
• The company does not pay dividends.
• The company’s depreciation expense is its only non-cash expense; it has no
amortization charges.
• The company has no non-cash revenues.
• The company’s net cash flow (NCF) for 2010 was $150,000.
On the basis of this information, which of the following
statements is CORRECT?
Points Received:
10 of 10
3.
Question :
(TCO G) LeCompte Corp. has $312,900 of assets, and it uses only
common equity capital (zero debt). Its sales for the last year were $620,000,
and its net income after taxes was $24,655. Stockholders recently voted in a
new management team that has promised to lower costs and get the return on
equity up to 15%. What profit margin would LeCompte need in order to achieve
the 15% ROE, holding everything else constant?
Points Received:
10 of 10
4.
Question :
(TCO B) You want to buy a new sports car three years from now, and
you plan to save $4,200 per year, beginning one year from today. You will
deposit your savings in an account that pays 5.2% interest. How much will you
have just after you make the third deposit, three years from now?
Points Received:
10 of 10
5.
Question :
(TCO B) At a rate of 6.5%, what is the future value of the
following cash flow stream?
Years: 0 1 2 3 4
|——–|———–|———-|———|
CFs: $0 $75 $225 $0 $300
Points Received:
10 of 10
6.
Question :
(TCO B) Farmers Bank offers to lend you $50,000 at a nominal rate
of 5.0%, simple interest, with interest paid quarterly. Merchants Bank offers
to lend you the $50,000, but it will charge 6.0%, simple interest, with
interest paid at the end of the year. What’s the difference in the effective
annual rates charged by the two banks?
Points Received:
10 of 10
7.
Question :
(TCO D) A 15-year bond with a face value of $1,000 currently sells
for $850. Which of the following statements is CORRECT?
Points Received:
10 of 10
8.
Question :
(TCO D) Ezzell Enterprises’ noncallable bonds currently sell for
$1,165. They have a 15-year maturity, an annual coupon of $95, and a par value
of $1,000. What is their yield to maturity?
Points Received:
10 of 10
9.
Question :
(TCO C) Keys Corporation’s five-year bonds yield 7.00%, and
five-year T-bonds yield 5.15%. The real risk-free rate is r* = 3.0%, the
inflation premium for five-year bonds is %, the liquidity premium for Keys’
bonds is % versus zero for T-bonds, and the maturity risk premium for all bonds
is found with the formula MRP = (t – 1) x 0.1%, where of years to maturity.
What is the default risk premium (DRP) on Keys’ bonds?
Points Received:
10 of 10
10.
Question :
(TCO C) Assume that the risk-free rate remains constant, but the
market risk premium declines. Which of the following is most likely to occur?
Points Received:
10 of 10