样题公司财务(英文版）.doc

1、样题公司财务样题公司财务( (英文版）英文版） True-False i.Recently, Hale Corporation announced the sale of 2.5 million newly issued shares of its stock at a price of $21 per share.Hale sold the stock to investment bankers, who in turn sold it to individual and institutional investors.A transaction such as this is said t

2、o be a primary market transaction. a.True b.False ii.The effective annual rate is always greater than the nominal rate as a result of compounding effects. a.True b.False iii.The coefficient of variation is a better measure of risk than the standard deviation if the expected returns of the securities

3、 being compared differ significantly. a.True b.False iv.The prices of high-coupon bonds tend to be less sensitive to a given change in interest rates than low-coupon bonds, other things equal and held constant. a.True b.False v.If two firms have the same current dividend and the same expected growth

4、 rate, their stocks must sell at the same current price or else the market will not be in equilibrium. a.True b.False vi.It is not possible for a firms use of debt to increase but its after-tax cost of debt to decline. a.True b.False vii.The main reason that the NPV method is regarded as being conce

5、ptually superior to the IRR method for evaluating mutually exclusive investments is that multiple IRRs may exist. a.True b.False viii.Any cash flow that can be classified as incremental is relevant in a capital budgeting project analysis. a.True b.False ix.Suppose two firms have the same amount of a

6、ssets, pay the same interest rate on their debt, have the same basic earning power (BEP), and have the same tax rate.However, one firm has a higher debt ratio.If BEP is greater than the interest rate on debt, the firm with the higher debt ratio will also have a higher rate of return on common equity

7、. a.True b.False Multiple Choice:Conceptual x.Which of the following actions will cause an increase in the quick ratio in the short run? a.$1,000 worth of inventory is sold, and an account receivable is created.The receivable exceeds the inventory by the amount of profit on the sale, which is added

8、to retained earnings. b.A small subsidiary which was acquired for $100,000 two years ago and which was generating profits at the rate of 10 percent is sold for $100,000 cash.(Average company profits are 15 percent of assets.) c.Marketable securities are sold at cost. d.All of the answers above. e.An

9、swers a and b above. xi.Other things held constant, which of the following would increase the NPV of a project being considered? a.Ashift from MACRS to straight-line depreciation. b.Making the initial investment in the first year rather than spreading it over the first 3 years. c.Adecrease in the di

10、scount rate associated with the project. d.The sale of the old machine in a replacement decision at a capital loss rather than at book value. e.An increase in required working capital. xii.Which of the following statements is most correct? a.The before-tax cost of preferred stock may be lower than t

11、he before-tax cost of debt, even though preferred stock is riskier than debt. b.If a companys stock price increases, this increases its cost of common stock. c.If the cost of equity capital increases, it must be due to an increase in the firms beta. d.Statements a and b are correct. e.Answers a, b,

12、and c are correct. xiii.Projects A and B have the same expected lives and initial cash outflows. However, one projects cash flows are larger in the early years, while the other project has larger cash flows in the later years.The two NPV profiles are given below: Which of the following statements is

13、 most correct? a.ProjectAhas the smaller cash flows in the later years. b.ProjectAhas the larger cash flows in the later years. c.We require information on the cost of capital in order to determine which project has larger early cash flows. d.The NPV profile graph is inconsistent with the statement

14、made in the problem. e.None of the statements above is correct. xiv.Which of the following statements is false? a.When a corporations shares are owned by a few individuals who are associated with or are the firms management, we say that the firm is closely held. b.A publicly owned corporation is sim

15、ply a company whose shares are held by the investing public, which may include other corporations and institutions as well as individuals. c.Going public establishes a true market value for the firm and ensures that a liquid market will always exist for the firms shares. d.When stock in a closely he

16、ld corporation is offered to the public for the first time the transaction is called going public and the market for such stock is called the new issue market. e.It is possible for a firm to go public, and yet not raise any additional new capital. NPV A B r xv.Assume interest rates on long-term gove

17、rnment and corporate bonds were as follows: T-bond = 7.72%A=9.64% AAA= 8.72%BBB = 10.18% The differences in rates among these issues were caused primarily by a.Tax effects. b.Default risk differences. c.Maturity risk differences. d.Inflation differences. e.Answers b and d are correct. xvi.Suppose so

18、meone offered you the choice of two equally risky annuities, each paying $10,000 per year for five years.One is an ordinary (or deferred) annuity, the other is an annuity due.Which of the following statements is most correct? a.The present value of the ordinary annuity must exceed the present value

19、of the annuity due, but the future value of an ordinary annuity may be less than the future value of the annuity due. b.The present value of the annuity due exceeds the present value of the ordinary annuity, while the future value of the annuity due is less than the future value of the ordinary annu

20、ity. c.The present value of the annuity due exceeds the present value of the ordinary annuity, and the future value of the annuity due also exceeds the future value of the ordinary annuity. d.If interest rates increase, the difference between the present value of the ordinary annuity and the present

21、 value of the annuity due remains the same. e.Answers a and d are correct. xvii.Stock A has a beta of 1.5 and Stock B has a beta of 0.5.Which of the following statements must be true about these securities?(Assume the market is in equilibrium.) a.When held in isolation, Stock Ahas greater risk than

22、Stock B. b.Stock B would be a more desirable addition to a portfolio than Stock A. c.Stock Awould be a more desirable addition to a portfolio than Stock B. d.The expected return on Stock Awill be greater than that on Stock B. e.The expected return on Stock B will be greater than that on Stock A. xvi

23、ii. Which of the following statements is most correct? a.If a bonds yield to maturity exceeds its annual coupon, then the bond will be trading at a premium. b.If interest rates increase, the relative price change of a 10-year coupon bond will be greater than the relative price change of a 10-year ze

24、ro coupon bond. c.If a coupon bond is selling at par, its current yield equals its yield to maturity. d.Both a and c are correct. e. None of the answers above is correct. Multiple Choice:Problems xix.Dean Brothers Inc. recently reported net income of $1,500,000.The company has 300,000 shares of comm

25、on stock.The stock currently trades at $60 a share.The company continues to expand and anticipates that one year from now its net income will be $2,500,000.Over the next year the company also anticipates issuing an additional 100,000 shares of stock, so that one year from now the company will have 4

26、00,000 shares of common stock.Assuming the companys price/earnings ratio remains at its current level, what will be the companys stock price one year from now? a.$55 b.$60 c.$65 d.$70 e.$75 xx.Assume that r* = 2.0%; the maturity risk premium is found as MRP = 0.1%(t - 1) where t = years to maturity;

27、 the default risk premium for corporate bonds is found as DRP = 0.05%(t - 1); the liquidity premium is 1.0 percent for corporate bonds only; and inflation is expected to be 3 percent, 4 percent, and 5 percent during the next three years and then 6 percent thereafter.What is the difference in interes

28、t rates between 10-year corporate and Treasury bonds? a.0.45% b.1.45% c.2.20% d.2.75% e.3.25% xxi.Due to a number of lawsuits related to toxic wastes, a major chemical manufacturer has recently experienced a market reevaluation.The firm has a bond issue outstanding with 15 years to maturity and a co

29、upon rate of 8 percent, with interest paid semiannually.The required nominal rate on this debt has now risen to 16 percent.What is the current value of this bond? a.$1,273 b.$1,000 c.$7,783 d.$550 e.$450 xxii.A project with a 3-year life has the following probability distributions for possible end-o

30、f-year cash flows in each of the next three years: Year 1Year 2Year 3 ProbCash FlowProbCash FlowProbCash Flow 0.30$3000.15$1000.25$200 0.405000.352000.75800 0.307000.35600 0.15900 Using an interest rate of 8 percent, find the expected present value of these uncertain cash flows.(Hint: Find the expec

31、ted cash flow in each year, then evaluate those cash flows.) a.$1,204.95 b.$835.42 c.$1,519.21 d.$1,580.00 e.$1,347.61 xxiii. Assume that a new law is passed which restricts investors to holding only one asset.A risk-averse investor is considering two possible assets as the asset to be held in isola

32、tion. The assets possible returns and related probabilities (i.e., the probability distributions) are as follows: Asset XAsset Y PrPr 0.10-3%0.05-3% 0.1020.102 0.2550.305 0.2580.308 0.30100.2510 Which asset should be preferred? a.Asset X, since its expected return is higher. b.Asset Y, since its bet

33、a is probably lower. c.Either one, since the expected returns are the same. d.Asset X, since its standard deviation is lower. e.AssetY,since its coefficient of variation is lower and its expected return is higher. xxiv.Ceejay Corporations stock is currently selling at an equilibrium price of $30 per

34、 share. The firm has been experiencing a 6 percent annual growth rate. Last years earnings per share, E0, were $4.00 and the dividend payout ratio is 40 percent. The risk-free rate is 8 percent, and the market risk premium is 5 percent. If market risk (beta) increases by 50 percent, and all other fa

35、ctors remain constant, what will be the new stock price? (Use 4 decimal places in your calculations.) a.$16.59 b.$18.25 c.$21.39 d.$22.69 e.$53.48 xxv.Grateway Inc. has a weighted average cost of capital of 11.5 percent. Its target capital structure is 55 percent equity and 45 percent debt. The comp

36、any has sufficient retained earnings to fund the equity portion of its capital budget. The before-tax cost of debt is 9 percent, and the companys tax rate is 30 percent. If the expected dividend next period (D1) and current stock price are $5 and $45, respectively, what is the companys growth rate?

37、a.2.68% b.3.44% c.4.64% d.6.75% e.8.16% xxvi.Shannon Industries is considering a project which has the following cash flows: YearCash Flow 0? 1$2,000 23,000 33,000 41,500 The project has a payback of 2.5 years.The firms cost of capital is 12 percent.What is the projects net present value NPV? a.$577

38、.68 b.$765.91 c.$1,049.80 d.$2,761.32 e.$3,765.91 i.Stock market transactionsAnswer: aDiff: E ii.Effective and nominal ratesAnswer: bDiff: M iii.Risk comparisonsAnswer: aDiff: E iv.Prices and interest ratesAnswer: aDiff: M v.Stock priceAnswer: bDiff: M vi.After-tax cost of debtAnswer: bDiff: M vii.N

39、PV versus IRRAnswer: bDiff: M viii. Relevant cash flowsAnswer: aDiff: E ix.BEP and ROEAnswer: aDiff: M x.Quick ratioAnswer: eDiff: M xi.NPV and depreciationAnswer: cDiff: E xii.Miscellaneous conceptsAnswer: aDiff: M Statementaiscorrect.Mostpreferredstockisownedby corporations which receive a 70 perc

40、ent exclusion of dividends. Consequently, the before-tax coupons on preferred stock are often lower than the before-tax coupons on debt, despite the fact that preferred stock is riskier than debt.All the other statements are false. xiii. NPV profilesAnswer: bDiff: E xiv.Ownership and going publicAns

41、wer: cDiff: M xv.Interest ratesAnswer: bDiff: M xvi.AnnuitiesAnswer: cDiff: M By definition, an annuity due is received at the beginning of the year while an ordinary annuity is received at the end of the year. Because the payments are received earlier, both the present and future values of the annu

42、ity due are greater than those of the ordinary annuity. xvii. Beta coefficientAnswer: dDiff: E xviii.Bond conceptsAnswer: cDiff: E Statement c is correct; the other statements are false.If a bonds YTM annual coupon, then it will trade at a discount.If interest rates increase, the 10-year zero coupon

43、 bonds price change is greater than the 10-year coupon bonds. xix.P/E ratio and stock priceAnswer: eDiff: M The current EPS is $1,500,000/300,000 shares or $5.The current P/E ratio is then $60/$5 = 12.The new number of shares outstanding will be 400,000.Thus, the new EPS = $2,500,000/400,000 = $6.25

44、. If the shares are selling for 12 times EPS, then they must be selling for $6.25(12) = $75. xx.Expected interest ratesAnswer: bDiff: M r* = 2%; MRP = 0.1%(t - 1); DRP = 0.05%(t - 1); LP = 1% corporate only. I1= 3%; I2= 4%; I3= 5%; I4and after = 6%.C10- T10= ? IP10= 10 6%(7)+5%+4%+3% = 10 54% = 5.4%

45、. r* +IP+ LP +DRP+MRP C10= 2% + 5.4% + 1% + 0.05%(9) + 0.1%(9) = 9.75%. T10= 2% + 5.4% + 0% + 0%+ 0.9% = 8.30%. C10- T10= 9.75% - 8.30% = 1.45%. xxi.Bond value - semiannual paymentAnswer: dDiff: M Time Line: 0 8%1230 6-month | |贩 |Periods PMT = 404040 VB = ?FV = 1,000 Numerical solution: VB= $40(PVI

46、FA8%,30) + $1,000(PVIF8%,30) = $40(1-1/1.0230)/0.02) + $1,000(1/1.0230) = $40(11.2578) + $1,000(0.0994) = $549.71 $550. Financial calculator solution: Inputs: N = 30; I = 8; PMT = 40; FV = 1,000. Output: PV = -$549.69; VB= $549.69 $550. xxii. PV of uncertain cash flowsAnswer: eDiff: M Time Line: 0 8

47、% 123Years | 0E(CF1)E(CF2)E(CF3) Calculate expected cash flows E(CF1) = (0.30)($300) + (0.40)($500) + (0.30)($700) = $500. E(CF2) =(0.15)($100)+(0.35)($200)+(0.35)($600)+ (0.15)($900)=$430. E(CF3) = (0.25)($200) + (0.75)($800) = $650. Numerical solution: PV = $500(1/1.081) + $430(1/1.082) + $650(1/1

48、.082) = $500(0.9259) + $430(0.8573) + $650(0.7938) = $462.95 + $368.64 + $515.97 = $1,347.56. Financial calculator solution: Using cash flows, Inputs: CF0= 0; CF1= 500; CF2= 430; CF3= 650; I = 8. Output: NPV = $1,347.61. xxiii.Expected returnAnswer: eDiff: M r= 0.10(-3%) + 0.10(2%) + 0.25(5%) + 0.25

49、(8%) + 0.30(10%) = 6.15%. rY = 0.05(-3%) + 0.10(2%) + 0.30(5%) + 0.30(8%) + 0.25(10%) = 6.45%. 2 X = 0.10(-3% - 6.15%)2+ 0.10(2% - 6.15%)2+ 0.25(5% - 6.15%)2 + 0.25(8% - 6.15%)2+ 0.30(10% - 6.15%)2 = 15.73; X = 3.97. CVX= 3.97/6.15 = 0.645. 2 Y = 0.05(-3% - 6.45%)2+ 0.10(2% - 6.45%)2+ 0.30(5% - 6.45

50、%)2 + 0.30(8% - 6.45%)2+ 0.25(10% - 6.45%)2 = 10.95; Y = 3.31. CVY= 3.31/6.45 = 0.513. Therefore, Asset Y has a higher expected return and lower coefficient of variation and hence it would be preferred. xxiv. Changing beta and the equilibrium stock priceAnswer: dDiff: M a. Solve for D1:D0= 0.40 E0=