Order ID:89JHGSJE83839 | Style:APA/MLA/Harvard/Chicago | Pages:5-10 |
Instructions:
Characteristic of An Efficient Market Essay
Finance 370 Final Exam
Ch 1, 3, 4,5,9,10,12,14,15,16,18,19,20,22,23,24
There are 50 questions worth 0.2 points each for a total possible of 10 points toward your class grade. Please highlight the answer you want to give for each question in BOLD and yellow as follows:
Corporations receive money from investors with:
a. initial public offerings.
b. seasoned new issues.
c. primary market transactions.
d. a and b.
e. all of the above.
Which of the following is true regarding an initial public offering?
a. The corporation gets proceeds from the investor.
b. Investors get proceeds from other investors.
c. The security is sold for the first time to the public.
d. Both a and c.
e. All of the above.
Table 1(Use this table for questions 5-8)
Smith Company Balance Sheet
Assets:
Cash and marketable securities $300,000
Accounts receivable 2,215,000
Inventories 1,837,500
Prepaid expenses 24,000
Total current assets $3,286,500
Fixed assets 2,700,000
Less: accumulated depreciation 1,087,500
Net fixed assets $1,612,500
Total assets $4,899,000
Liabilities:
Accounts payable $240,000
Notes payable 825,000
Accrued taxes 42,500
Total current liabilities $1,107,000
Long-term debt 975,000
Owner’s equity 2,817,000
Total liabilities and owner’s equity $4,899,000
Net sales (all credit) $6,375,000
Less: Cost of goods sold 4,312,500
Selling and administrative expense 1,387,500
Depreciation expense 135,000
Interest expense 127,000
Earnings before taxes $412,500
Income taxes 225,000
Net income $187,500
Common stock dividends $97,500
Change in retained earnings $90,000
Based on the information in Table 1, the current ratio is:
a. 2.97.
b. 1.46.
c. 2.11.
d. 2.23.
Based on the information in Table 1, the debt ratio is:
a. 0.70.
b. 0.20.
c. 0.74.
d. 0.42.
7. Based on the information in Table 1, the net profit margin is:
a. 4.61%
b. 2.94%.
c. 1.97%.
d. 5.33%.
Based on the information in Table 1, the inventory turnover ratio is:
a. 0.29 times.
b. 2.35 times.
c. 0.43 times.
d. 3.47 times.
Marshall Networks, Inc. has a total asset turnover of 2.5 and a net profit margin of 3.5%. The firm has a return on equity of 17.5%. Calculate Marshall’s debt ratio.
a. 30%
b. 40%
c. 50%
d. 60%
Use the following information and the percent-of-sales method to Answer questions 10 -12.
Below is the 2004 year-end balance sheet for Banner, Inc. Sales for 2004 were $1,600,000 and are expected to be $2,000,000 during 2005. In addition, we know that Banner plans to pay $90,000 in 2005 dividends and expects projected net income of 4% of sales. (For consistency with the Answer selections provided, round your forecast percentages to two decimals.)
Banner, Inc. Balance Sheet
December 31, 2004
Assets
Current assets $890,000
Net fixed assets 1,000,000
Total $1,890,000
Liabilities and Owners’ Equity
Accounts payable $160,000
Accrued expenses 100,000
Notes payable 700,000
Long-term debt 300,000
Total liabilities 1,260,000
Common stock (plus paid-in capital) 360,000
Retained earnings 270,000
Common equity 630,000
Total $1,890,000
Banner’s projected current assets for 2005 are:
a. $1,000,000.
b. $1,120,000.
c. $1,500,000.
d. $1,260,000.
13. What is the present value of $1,000 to be received 10 years from today? Assume that the investment pays 8.5% and it is compounded monthly (round to the nearest $1).
a. $893
b. $3,106
c. $429
d. $833
What is the present value of $12,500 to be received 10 years from today? Assume a discount rate of 8% compounded annually and round to the nearest $10.
a. $5,790
b. $11,574
c. $9,210
d. $17,010
The NPV method:
a. is consistent with the goal of shareholder wealth maximization.
b. recognizes the time value of money.
c. uses cash flows.
d. all of the above.
If the IRR is greater than the required rate of return, the:
a. present value of all the cash inflows will be greater than the initial outlay.
b. payback will be less than the life of the investment.
c. project should be rejected.
d. both a and b.
ABC Service can purchase a new assembler for $15,052 that will provide an annual net cash flow of $6,000 per year for five years. Calculate the NPV of the assembler if the required rate of return is 12%. (Round your answer to the nearest $1.)
a. $1,056
b. $4,568
c. $7,621
d. $6,577
Suppose you determine that the NPV of a project is $1,525,855. What does that mean?
a. In all cases, investing in this project would be better than investing in a project that has an NPV of $850,000.
b. The project would add value to the firm.
c. Under all conditions, the project’s payback would be less than the profitability index.
d. The project’s IRR would have to be less that the firm’s discount rate.
19. The IRR is:
a. the discount rate that makes the NPV positive.
b. the discount rate that equates the present value of the cash inflows with the cost of the project.
c. the discount rate that makes the NPV negative and the profitability index greater than one.
d. the rate of return that makes the NPV positive.
Crawfish Kitchen Inc. is planning to invest in one of three mutually exclusive projects. Projected cash flows for these ventures are as follows:
Which project is the most profitable according to the NPV Criteria if the discount rate for the firm is 14%?
a. Plan A
b. Plan B
c. Plan C
You are in charge of one division of Bigfella Conglomerate Inc. Your division is subject to capital rationing. Your division has four indivisible projects available, detailed as follows:
Project Initial Outlay IRR NPV
1 2 million 18% 2,500,000
3 1 million 10% 600,000
2 1 million 15% 950,000
4 3 million 9% 2,000,000
If you must select projects subject to a budget constraint of 5 million dollars, which set of projects should be accepted so as to maximize firm value?
a. Projects 1, 2, and 3
b. Project 1 only
c. Projects 1 and 4
d. Projects 2, 3, and 4
J & B, Inc. has $5 million of debt outstanding with a coupon rate of 12%. Currently, the yield to maturity on these bonds is 14%. If the firm’s tax rate is 40%, what is the cost of debt to J & B?
a. 12.0%
b. 14.0%
c. 8.4%
d. 5.6%
23. Shawhan Supply plans to maintain its optimal capital structure of 30% debt, 20% preferred stock, and 50% common stock far into the future. The required return on each component is: debt–10%; preferred stock–11%; and common stock–18%. Assuming a 40% marginal tax rate, what after-tax rate of return must Shawhan Supply earn on its investments if the value of the firm is to remain unchanged?
a. 18.0%
b. 13.0%
c. 10.0%
d. 14.2%
24. Bender and Co. is issuing a $1,000 par value bond that pays 9% interest annually. Investors are expected to pay $918 for the 10-year bond. Bender will have to pay $33 per bond in flotation costs. What is the cost of debt if the firm is in the 34% tax bracket?
a. 7.23%
b. 9.01%
c. 9.23%
d. 11.95%
The _______ is the federal agency primarily responsible for regulating the securities industry.
a. FTC
b. SEC
c. FRB
d. SCC
28. A firm’s business risk is influenced by the:
a. competitive position of the firm within the industry.
b. demand characteristics of the firm’s products.
c. financing structure of the firm.
d. both a and b.
e. all of the above.
Cost of capital is:
a. the coupon rate of debt.
b. a hurdle rate set by the board of directors.
c. the rate of return that must be earned on additional investment if firm value is to remain unchanged.
d. the average cost of the firm’s assets.
Given the following information, determine the risk-free rate.
Cost of equity = 12%
Beta = 1.50
Market risk premium = 3%
a. 8.0%
b. 7.5%
c. 7.0%
d. 6.5%
31. Which of the following relationships is true, regarding the costs of issuing the below securities?
a. Common stock > bonds > preferred stock
b. Preferred stock > common stock > bonds
c. Bonds > common stock > preferred stock
d. Common stock > preferred stock > bonds
Table 1 (Use this for questions 32-36)
Average selling price per unit $16.00
Variable cost per unit $11.00
Units sold 200,000
Fixed costs $800,000
Interest expense $ 50,000
32. Based on the data in Table 1, what is the break-even point in units produced and sold?
a. $130,000
b. $140,000
c. $150,000
d. $160,000
33. Based on the data contained in Table 1, what is the degree of operating leverage?
a. 1.00 times
b. 2.00 times
c. 3.00 times
d. 4.00 times
e. 5.00 times
38. A toy manufacturer following the hedging principle will generally finance seasonal inventory build-up prior to the Christmas season with:
a. common stock.
b. selling equipment.
c. trade credit.
d. preferred stock.
39. Accounts receivable and inventory self-liquidate through the __________ cycle.
a. spontaneous account
b. net working capital
c. cash conversion
d. sales-to-receivables collection
40. Given that short-term interest rates typically fluctuate more than long-term rates, interest rate risk is least for:
a. Treasury bills.
b. common stock.
c. long-term government bonds.
d. medium-term corporate bonds.
Use the following information to answer questions 46-47. Below is an excerpt from Table 22-1, The Globalization of Product and Financial Markets, that appears in your text. Values are foreign exchange rates reported in The Wall Street Journal.
U.S. $ equivalent Currency per U.S. $
Country Mon. Mon.
India (Rupee) 0.03137 31.88
Britain (Pound) 1.5615
30-day Forward 1.5609
90-day Forward 1.5605
180-day Forward 1.5603
Canada (Dollar) 0.7265 1.3765
30-day Forward 0.7256 1.3782
90-day Forward 0.7236 1.3820
180-day Forward 0.7196 1.3896
Sweden (Koruna) 0.18848 5.3055
30-day Forward 0.18829 5.3110
90-day Forward 0.18809 5.3167
180-day Forward 0.18795 5.3205
48. Which of the following statements about a financial lease is generally true?
a. The entire lease payment is used as an income tax deduction.
b. Only the portion of the lease payment that reduces the principal may be used as an income tax deduction.
c. It has no income tax deductibility.
d. Only the portion of the lease payment that is applied to interest is tax-deductible.
49. Which of the following most likely would cause a lease to be classified as a capital lease?
a. The lease is for five or more years.
b. The lease is for $1 million or more.
c. The lease permits the lessee to purchase the equipment at the end of the lease for its fair market value.
d. The present value of the lease payments, calculated at the lessee’s typical rate of interest for a similar purchase loan, is more than the original purchase price of the equipment.
50. What price must a company typically pay to buy another company? The price will:
a. include some premium over the current market value of the target’s equity.
b. be the market value of the target’s equity.
c. be the book value of the target’s equity.
d. include some discount relative to the current market value of the target’s equity.
Characteristic of An Efficient Market Essay
RUBRIC |
||||||
Excellent Quality 95-100%
|
Introduction
45-41 points The background and significance of the problem and a clear statement of the research purpose is provided. The search history is mentioned. |
Literature Support 91-84 points The background and significance of the problem and a clear statement of the research purpose is provided. The search history is mentioned. |
Methodology 58-53 points Content is well-organized with headings for each slide and bulleted lists to group related material as needed. Use of font, color, graphics, effects, etc. to enhance readability and presentation content is excellent. Length requirements of 10 slides/pages or less is met. |
|||
Average Score 50-85% |
40-38 points More depth/detail for the background and significance is needed, or the research detail is not clear. No search history information is provided. |
83-76 points Review of relevant theoretical literature is evident, but there is little integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are included. Summary of information presented is included. Conclusion may not contain a biblical integration. |
52-49 points Content is somewhat organized, but no structure is apparent. The use of font, color, graphics, effects, etc. is occasionally detracting to the presentation content. Length requirements may not be met. |
|||
Poor Quality 0-45% |
37-1 points The background and/or significance are missing. No search history information is provided. |
75-1 points Review of relevant theoretical literature is evident, but there is no integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are not included in the summary of information presented. Conclusion does not contain a biblical integration. |
48-1 points There is no clear or logical organizational structure. No logical sequence is apparent. The use of font, color, graphics, effects etc. is often detracting to the presentation content. Length requirements may not be met |
|||
You Can Also Place the Order at www.collegepaper.us/orders/ordernow or www.crucialessay.com/orders/ordernow
Characteristic of An Efficient Market Essay |
Characteristic of An Efficient Market Essay