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Fin 410 Exam Essay

1974 words - 8 pages


1. You have a portfolio with a beta of 3.1. What will be the new portfolio beta if you keep 85 percent of your money in the old portfolio and 15 percent in a stock with a beta of 4.5?

Ans – 3.31

2. PNB Industries has 20 million shares of common stock outstanding with a market price of $18.00 per share. The company also has outstanding preferred stock with a market value of 50 million, and $500,000 bonds outstanding, each with face value $1,000 and selling at 97% of par value. The cost of equity is 15%, the cost of preferred is 12% and the cost of debt is 8.50%. If PNB’s tax rate is 40%, what is the WACC?

Ans – 9.47%

3. A 2 – year Treasury security currently ...view middle of the document...

The firm has no preferred stock outstanding. What is the firms internal growth rate?

Ans – 6.29%

10. A firm has an ROE of 14% and a debt ratio of 40%. If the total asset turnover is 3.4, what is the firm’s profit margin?

Ans – 2.47%

11. Consider the following bond quote, A municipal bond quoted at 101.25. If the municipal bond has a par value of $5,000, what is the price of the bond in dollars?

Ans - $5,062.50

12. A firm has an ROA of 12% and an ROE of 52%. What is the firms equity multiplier?

Ans – 4.33

13. Dividend yield is defined as

Ans – The last four quarters of dividend income expressed as a percentage of the current stock price.

14. WC Inc. has a $10 million (face value), 10-year bond issue selling for 99 percent of par that pays an annual coupon of 9 percent. What would be WC’s before tax component cost of debt?

Ans – 9.16%

15. If the price of copper in Europe is €2.72 per ounce, what is the expected price of copper in the United States if the spot exchange rate is $1 = €0.8623?

Ans - $3.15

16. Convert each of the following indirect quotes to dollar direct quotes:

* $1 = 3.05 Saudi Arabian Riyal
* $1 = 41.45 Phillipine Peso
* $1 = 0.52 Latvian Lat

Ans - .33 Riyal, .02 Peso, 1.92 Lat

17. Which of the following statements is correct?

Ans – Most common stocks are positively correlated with each other because they are impacted by the economic factors.

18. A project has normal cash flows. Its IRR is 15% and its cost of capital is 10%. Which of the following statements is incorrect?

Ans – The project’s NPV > 0

19. Compute the amount of each foreign currency that can be purchased for $5,000:

a. 1 Danish Krone = $0.18
b. 1 Indian Rupee = $0.15
c. 1 Israeli Shekel = $0.37

$5,000 equals:

Ans - 27,777.78 Krone; 33,333.33 Rupee; 13,531.51 Shekel

20. Dakota Corporation 15-year bonds have an equilibrium rate of return of 9%. For all securities, the inflation risk premium is 1.95% and the real interest rate is 3.65%. The securities liquidty risk premium is 0.35% and maturity risk premium is 0.95%. The security has no special covenants. Calculate the bond’s default risk premium.

Ans – 2.10%

21. Universal Forests current stock price is $154.00 and it is likely to pay a $5.23 dividend next year. Since analysts estimate Universal Forest will have a 13.0% growth rate what is the required return?

Ans – 16.40%

22. Suppose that Hanna Nails, Inc capital structure features 45 percent equity, 55 percent debt, and that it’s before tax cost of debt is 5%, while its cost of equity is 9 percent. If the appropriate weighted average tax rate is 40 percent, What will be Hanna Nails’ WACC?

Ans – 5.70%

23. Ivy has preferred stock selling for 98 percent of par that pays a 7 percent annual coupon. What would Ivy’s component cost of preferred stock ?

Ans – 7.14%

24. What is the taxable equivalent yield on a municipal bond with a yield to maturity of 4% for an...

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