Financial Management Mock Midterm Name___________________________________ 1) Which of the following organization forms accounts for the greatest number of firms? A) Limited Partnership B) "S" Corporation C) "C" Corporation D) Sole Proprietorship Section: 1.1 The Four Types of Firms 2) The person charged with running the corporation by instituting the rules and policies set by the board of directors is called A) the Company President. B) the Chief Operating Officer. C) the Chief Executive
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the change in nominal exchange rate due to the inflation difference between the U.S and the U.K. By using the nominal exchange rate‚ we converted the U.S sales value from USD to GBP. Then‚ with other assumptions about revenue and cost we could calculate the free cash flows of 1985-1989 and the terminal value. The firm value is the sum of present value (at 1984) of cash flows and the terminal value‚ GBP 510.977‚000. For the scenario (B)‚ there are more things to consider due to the change in real
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1. (TCO D) A stock just paid a dividend of D0 = $1.50. The required rate of return is rs = 10.1%‚ and the constant growth rate is g = 4.0%. What is the current stock price? (Points : 10) $23.11 $23.70 $24.31 $24.93 $25.57 2. (TCO D) If D0 = $2.25‚ g (which is constant) = 3.5%‚ and P0 = $50‚ what is the stock’s expected dividend yield for the coming year? (Points : 10) 4.42% 4.66% 4.89% 5.13% 5.39% 3. (TCO D) Rebello’s
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switch from negative to positive (or positive to negative). In addition‚ since the IRR is expressed as a percentage‚ and This can make small projects appear more attractive than large ‚ although large projects with lower IRR may be more attractive as NPV of smaller projects with IRR . The management of the IRR must be just when the project generates no interim cash flows - or when those interim cash flows really can be invested in real IRR otherwise would not be realistically analyzing the viability
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that the appropriate discount rate for these projects is 15%. a. Suppose Fuji’s cutoff payback period is two years. Which of these two projects should be chosen? b. Estimate the discounted payback period for the two projects. c. Suppose Fuji uses the NPV rule to rank these two projects. Which project should be chosen? Ross‚ Westerfield & Jaffe: 6.9 (adapted) As the treasurer of London Express‚ you are offered the following two mutually exclusive projects: Year Project A Project B 0 -$5.000 -$100.000
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automates manual intensive process. Questions: 1. Assess the economic benefits of acquiring the Vulcan Mold-Maker machine. What is the initial outlay? What are the benefits over time? What is an appropriate discount rate? Does the net present value (NPV) warrant the investment in the machine? Assume that with ordinary maintenance‚ the semi-automated equipment could be operated for two more years beyond its depreciable life. Given: Total Cost New Machine = 1‚010‚ 000 Euros Depreciated over 8
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capital budgeting project. a. True b. False ANSWER: False 3. Assuming that their NPVs based on the firm’s cost of capital are equal‚ the NPV of a project whose cash flows accrue relatively rapidly will be more sensitive to changes in the discount rate than the NPV of a project whose cash flows come in later in its life. a. True b. False ANSWER: False 4. A basic rule in capital budgeting is that if a project’s NPV exceeds its IRR‚ then the project should be accepted. a. True b. False ANSWER:
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Week 13 Solutions Chapter 19 14. WACC – Table 19.4 shows a simplified balance sheet for Rensselaer Felt. Calculate this company’s weighted-average cost of capital. The debt has just been refinanced at an interest rate of 6% (short term) and 8% (long term). The expected rate of return on the company’s shares is 15%. There are 7.46 million shares outstanding‚ and the shares are trading at $46. The tax rate is 35%. We make three adjustments to the balance sheet: Ignore deferred taxes; this is an
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| Goodweek Tires‚ Inc. | A Case Study | | | | | Table of Contents: * Case Overview * Project Information * Capital Budgeting Analytical Measures * Forecasted Sales Numbers * Depreciation Schedule * Investment Cash Flows * Recommendation & Conclusion GOODWEEK TIRES INC. Case Overview Goodweek Tires‚ Inc. recently developed a new tire‚ SuperTread. This tire was meant to be ideal for drivers who do a lot of wet weather‚ off-roading‚ and normal freeway driving
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Date: 14/11/2012 52. Annuities: You are saving for the college education of your two children. They are two years apart in age; one will begin college 15 years from today and the other will begin 17 years from today. You estimate your children’s college expenses to be $23‚000 per year per child‚ payable at the beginning of each school year. The annual interest rate is 5.5 percent. How much money must you deposit in account each year to fund your children’s education
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