Which of the following statements is CORRECT?
Select one:
a. If a stockâs risk increases but its expected rate of growth in earnings and dividends remain constant, then the new equilibrium price of the stock will almost certainly increase.
b. If the stock market is efficient, then the actual realized returns on all stocks will equal their expected rates of return.
c. An implication of the semistrong-form of the efficient markets hypothesis is that you cannot, over the long run, benefit from trading on information reported in The Wall Street Journal.
d. If the market is strong-form efficient, all stocks will be equally risky.
e. Because of increased globalization, all of the worldâs stock markets are equally efficient.
The cost of preferred stock is
Select one:
a. lower than the cost of long-term debt.
b. higher than the cost of common stock.
c. higher than the cost of long-term debt and lower than the cost of common stock.
d. lower than the cost of convertible long-term debt and higher than the cost of common stock.
Which of the following statements is CORRECT?
Select one:
a. If a stockâs risk increases but its expected rate of growth in earnings and dividends remain constant, then the new equilibrium price of the stock will almost certainly increase.
b. If the stock market is efficient, then the actual realized returns on all stocks will equal their expected rates of return.
c. An implication of the semistrong-form of the efficient markets hypothesis is that you cannot, over the long run, benefit from trading on information reported in The Wall Street Journal.
d. If the market is strong-form efficient, all stocks will be equally risky.
e. Because of increased globalization, all of the worldâs stock markets are equally efficient.
The cost of preferred stock is
Select one:
a. lower than the cost of long-term debt.
b. higher than the cost of common stock.
c. higher than the cost of long-term debt and lower than the cost of common stock.
d. lower than the cost of convertible long-term debt and higher than the cost of common stock.
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I just need help with the chart at the bottom. Here is all the information for the company.
Accounts receivable for 2015__$300____
Total current assets= cash and marketable securities + account rec + inventory
1,542=347+a/r+895
Accounts rec = $300
Accounts payable for 2014__$319_____
Total Current Liabilities = Accrued Wages and taxes + Accounts Payable + Notes Payable
997 = 257 + Accounts Payable + 421
Accounts Payable = $319
c. Gross plant and equipment for 2015_$3,159______
Net Plant and Equipment = Gross Plant and Equipment â Depreciation
2,872 = Gross Plant and Equipment â 287
Gross Plant and Equipment = $3,159
d. Long-term debt for 2014__$132_____
Total Debt = Long-term Debt + Current Liabilities
1,129 = Long-term Debt + 997
Long-term Debt = $132
e. Common stock and paid-in surplus (250 million shares) for 2014 $300
Total Equity = Preferred Stock + Common Stock and paid surplus + Retained Earnings
1,472 = 30 + Common Stock and paid surplus + 1,142
Common Stock and paid surplus = $300
f. Total FA for 2015 $3,393
Total FA = Net Plant and Equipment + Other long-term assets
Total FA = $2,872 + 521
Total FA = $3,393
g. Net sales for 2015_______
Net Sales â Cost of Goods Sold = Gross Profit
Net Sales â 987 = 1,396
Net Sales = $2,383
h. Less: Cost of goods sold for 2014_______
Net Sales â Cost of Goods Sold = Gross Profit
2,018 - Cost of Goods Sold = 1,189
Cost of Goods Sold = $829
i. Less: Interest for 2015_______
EBIT- Interest = EBT
1,086 â Interest = 949
Interest = $137
j. Less: Taxes for 2015_______
Net Income = EBT â Taxes
644 = 949 â Taxes
Taxes = $305
k. Earnings per share (EPS) for 2015_______
Earning per share for 2015 = Net Income available to Common Stockholders / No of Common Stocks
Earning per share =566 / 250
Earning per share = $2.27 per share
l. Dividends per share (DPS) for 2014_______
Dividend per share = Common stock Dividend/ No of Common Stocks
Dividend per share = 219/250
Dividend per share = $0.88 per share
m. Book value per share (BVPS) for 2015_______
Book value per share= total common stockholderâs equity/No of Common Stocks
Book value per share= 1,789/250
Book value per share= 7.16
n. Net income $664
o. Increase in accrued wages and taxes $309-$257= $52
p. Increase in inventory â(895-797)= $ -98
q. Net cash flow from operating activities 664+287+52+62-41-98=$926
r. Increase in other long-term assets â(521-487)= $-34
s. Net cash flow from investing activities -343-34=-377
t. Increase in notes payable 492-421= 71
u. Pay dividends 98+219= 317
v. Net cash flow from financing activities 71+147-317= -99
w. Plus: Net income for 2015 $664
x. Preferred stock $98
Worldwide Widget Manufacturing, Inc.
Company | Industry | Comparison | |
Current Ratio | 2.2 times | ||
Quick Ratio | 1.1 times | ||
Cash Ratio | 0.35 times | ||
Inventory Turnover | 2 times or 1 time | ||
Days' sales in inventory | 135 days or 335 days | ||
Average payment period | 110 days | ||
Sales to working capital | 3 times | ||
total asset turnover | 0.6 times | ||
debt to equity | 1.1 times | ||
profit margin | 16.5% | ||
gross profit margin | 48.13% | ||
ROA | 8.78% | ||
ROE | 19.45% | ||
Dividend payout | 32% |
A. Use the information found in Worldwide Widget Manufacturingâs financial statements to calculate all of the listed financial ratios in the above table for your company. Then, for each ratio, provide a comparison of the companyâs result with the industry standards, indicating if your companyâs results are lower than, higher than, slower than, or faster than the industry standards.
B. Calculate your companyâs internal and sustainable growth rates.
Which of the following risks cannot be diversified away?
A. | risk of a local natural disaster affecting company production | |
B. | risk created by world political happenings | |
C. | risk of losing a major contract | |
E. | risk of a failed marketing campaign |
Magee Company's stock has a beta of 1.20, the risk-free rate is 4.50%, and the market risk premium is 5.00%. What is Magee's required return?
A. | 10.25% | |
B. | 10.50% | |
D. | 11.00% | |
E. | 11.25% |
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 A has more risk than Stock B. | |
C. | Stock A would be a more desirable addition to a portfolio than Stock B. | |
D. | The required return on Stock A will be greater than that on Stock B. | |
E. | The required return on Stock B will be greater than that on Stock A. |
Which of the following statements is CORRECT?
B. | Portfolio diversification reduces the variability of returns on an individual stock. | |
C. | The smaller standard deviation is, the less likely that actual returns will be closer to expected returns, the lower the investment risk. | |
D. | A stock with a beta of 1 is more risky than an average stock on the market. | |
E. | A well-diversified investor will require to earn higher return on stocks with higher beta. |
Assume a project has normal cash flows. All else equal, which of the following statements is CORRECT? (WACC is the weighted average cost of capital, the financing rate, or discount rate)
A. | The projectâs IRR increases as the WACC declines. | |
B. | The projectâs NPV increases as the WACC declines. | |
D. | The projectâs IRR decreases as the WACC declines. | |
E. | none of the above is correct. |
Burlees Inc.âs CFO has collected the following information to calculate its WACC:
⢠The companyâs capital structure consists of 60% debt and 40% common stock.
The company has 20-year, 12% annual coupon bonds that have a face value of $1,000 and sell for $1,200.
The company uses the CAPM to calculate the cost of common stock. Currently, the risk-free rate is 3% and the market risk premium is 5%. The companyâs common stock has a beta of 2.
The companyâs tax rate is 40%.
What is the companyâs cost of common equity?
A. | 9.65% | |
B. | 13.00% | |
D. | 17.60% | |
E. | 18.91% |
Burlees Inc.âs CFO has collected the following information to calculate its WACC:
⢠The companyâs capital structure consists of 60% debt and 40% common stock.
The company has 20-year, 12% annual coupon bonds that have a face value of $1,000 and sell for $1,200.
The company uses the CAPM to calculate the cost of common stock. Currently, the risk-free rate is 3% and the market risk premium is 5%. The companyâs common stock has a beta of 2.
The companyâs tax rate is 40%.
What is the companyâs weighted average cost of capital (WACC)?
A. | 8.69% | |
B. | 9.21% | |
D. | 11.04% | |
E. | 12.51% | |
Which of the following statement is correct?
A. | Higher flotation costs tend to reduce the cost of equity capital. | |
C. | The component cost of preferred stock is expressed as rp(1 - T), because preferred stock dividends are treated as fixed charges, similar to the treatment of debt interest. | |
D. | A higher risk projectâs WACC should be adjusted higher. | |
E. | Retained earnings bear no capital cost at all. |