FIN 515 Week 4 Midterm Exam

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www.shoptutorial.com 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:

Fin 515 week 4 midterm exam

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