A) $ 33,966 B) $ 65,990 C) $ 98,542 D) $119,072 E) $128,034
26.J&J Manufacturing just issued a bond with a $1,000 face value and a coupon rate of 8%. If the bond has a life of 20 years, pays annual coupons, and the yield to maturity is 7.5%, what is the present value of the bond's face value? A)
$ 235.41 B) $ 341.15 C) $ 815.56 D) $1,000.00E) $1,050.97
27.A stock that pays a constant dividend of $1.50 forever currently sells for $10.71. What is the required rate of return? A)
10% B) 12% C) 13% D) 14% E) 15%
28.Given the following information, what is the firm's weighted average cost of capital? Market value of equity = $30 million; market value of debt = $20 million; cost of equity = 15%; cost of debt = 9%; equity beta = 1.4; tax rate = 35%.
A) 11.34%
B) 12.60% C) 12.97% D) 13.32% E) 14.08%
Use the following to answer questions 4-5
A firm needs to purchase equipment for a new project. The total cost of the equipment is $2 million. It is estimated that the aftertax cash inflows from the project will be $210,000 annually in perpetuity. The market value debt-to-assets ratio is 40%. The firm's cost of equity is 13% and its pretax cost of debt is 8%. The tax rate is 34%. Assume the project is of similar risk to the firm's existing operations.
29.What is the weighted average cost of capital?
A) 6.09%
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B) 8.73% C) 8.95% D) 9.05% E) 9.91%
30.What is the NPV of the proposed project?
A) $ 33,966 B) $ 65,990 C) $ 98,542 D) $119,072 E) $128,034
31.You need $3,000 to buy a new stereo for your car. If you have $1,200 to invest at 6% compounded annually, how long will you have to wait to buy the stereo?
A) 6.58 years B) 8.42 years C) 11.60 years D) 14.58 years E) 15.73 years
32.An insurance company promises to pay Jane $1 million on her 65th birthday in return for a one-time payment of $125,000 today. (Jane is 30 now.) At what rate of interest would Jane be indifferent between accepting the company's offer and investing the premium on her own?
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A) 3.4% B) 4.5% C) 5.1% D) 6.1% E) 7.2%
33.An account was opened with an investment of $2,000 10 years ago. The ending balance in the account is $3,500. If interest was compounded annually, what rate was earned on the account?
A) 2.66% B) 3.22% C) 3.95% D) 4.81% E) 5.76%
34.What is the future value in 12 years of $800 payments received at the beginning of each year for the next 12 years? Assume an interest rate of 8.25%.
A) $14,259.63 B) $15,408.65 C) $16,679.86 D) $18,495.48 E) $20,782.15
35.At the end of each year for the next 8 years you will receive cash flows of
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$500. The initial investment is $2,500. What rate of return are you expecting from this investment?
A) 11.81% B) 10.27% C) 9.01% D) 8.28% E) 7.21%
36.You agree to loan your parents $32,000 to buy a new van. They agree to pay you $650 a month for 5 years. The ________________.
A) interest rate on the loan is 0.75% per month B) APR on the loan is 7.87% C) EAR on the loan is 8.08% D) APR on the loan is 8.22% E) EAR on the loan is 8.38%
37.The stock of MTY Golf World currently sells for $90 per share. The firm has a constant dividend growth rate of 6% and just paid a dividend of $5.09. If the required rate of return is 12%, what will the stock sell for one year from now?
A) $ 90.00 B) $ 93.52 C) $ 95.40 D) $ 99.80
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E) $112.78
38.Llano's stock is currently selling for $40 per share. The expected dividend one year from now is $2 per share and the required return is 13%. What is this firm's dividend growth rate assuming the constant dividend growth model is appropriate?
A) 8% B) 9% C) 10% D) 11%
39.Asset A has an expected return of 20.4% and a beta of 1.6. The expected market return is 15%. What is the risk-free rate?
A) 2% B) 4% C) 5% D) 6% E) 8%
40.The market price of a bond is $1,236.94, it has 14 years to maturity, a $1,000 face value, and pays an annual coupon of $100 in semiannual installments. What is the yield to maturity?
A) 3.18% B) 4.26% C) 5.37%
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