Business Finance, Accounting-Quiz 2

Quiz 2

TCO A) In the United States, the most common type of business by number of businesses is the _____.

	sole proprietorship
	C corporation

 

	S corporation
	LLC

(TCO A) The one thing that makes a corporation different from the other forms of business ownership is

	legally, the corporation is the same as its owners.
	it requires all owners to share liability equally.

 

	it is a legally defined entity, completely separate from its owners.
	it protects small shareholders, allocating most of any liability to those who own more stock.

(TCO B) Which of the following would cause the future value of an annuity to decrease?

	Reducing the number of payments.
	Increasing the number of payments.

 

	Increasing the interest rate.
	Decreasing the liquidity of the payments.

 

TCO B) Which of the following is an annuity due?

	A typical car loan.
	A typical mortgage.

 

	A typical apartment rental agreement.
	A credit card balance.

 

TCO D) A bond has 5 years to maturity and has a YTM of 8%. Its par value is $5,000. Its semiannual coupons are $250. What is the bonds current market price? (Show workings)

 

 

TCO D) A bond currently sells for $887 even though it has a par of $1,000. It was issued one year ago and had a maturity of 10 years. The coupon rate is 7% and the interest payments are made semiannually. What is its YTM? (Show workings)

 

TCO A) If you were a manager of a company, which of the three right side components of the DuPont Identity would you want to increase and which would you want to decrease, other things being equal? Give a specific example for how to do that for each of the three.

 

TCO D) A stock has just paid a dividend and will pay a dividend of $3.00 in a year. The dividend will stay constant for the rest of time. The return on equity for similar stocks is 14%. What is P₀? (Show workings)

 

 

TCO D) A stock has just paid a dividend and has declared an annual dividend of $3.00 to be paid one year from today. The dividend is expected to grow at a 5% annual rate. The return on equity for similar stocks is 14%. What is P₀? (Show workings)

 

 

(TCO C) Using examples, explain the difference between systematic risk and nonsystematic risk. Explain why the distinction is important for both investors and issuers of stock.

 

 

TCO D) A company has 10 million shares outstanding trading for $7 per share. It also has $300 million in outstanding debt. If its equity cost of capital is 15%, and its debt cost of capital is 9%, and its effective corporate tax rate is 40%, what is its weighted average cost of capital? (Show workings)

 

TCO A) Name and describe the three functions of managerial finance. For each, give an example other than those used in the text and lecture.

 

 

TCO G) What is the difference between the cash cycle and the operating cycle? Under what condition would they be the same?

 

 

 

 

 

 

 

 

 

 

(TCO E) A company has the opportunity to do any of the projects for which the net cash flows per year are shown below. The company has a cost of capital of 15%. Which should the company do and why? You must use at least two capital budgeting methods. Show your work.

Year	A	B	C
0	-300	-100	-300
1	100	50	100
2	100	100	100
3	100	100	100
4	100	100	100
5	100	100	100
6	100	100	100
7	100	200	0