# umuc finc330 final examination latest june 2016

Final examination

Value (price) of bond, annually

Question 1 1

/ 1 point

What is the value of a bond that has a par value of $1,000,

a coupon rate of 8.25 percent (paid annually), and that matures in 16 years?

Assume a required rate of return on this bond is 8.65 percent.

Round the answer to two decimal places.

Question 2 1

/ 1 point

Pet Food Company bonds pay an annual coupon rate of 8.79

percent. Coupon payments are paid semiannually. Bonds have 21 years to maturity

and par value of $1,000. Compute the value of Pet Food Company bonds if the

market interest rate on this type of bond is 10.89 percent.

Round the answer to two decimal places.

Question 3 1

/ 1 point

Blue Crab, Inc. plans to issue new bonds, but is uncertain

how the market would set the yield to maturity. The bonds would be 29-year to

maturity, carry a 8.02 percent annual coupon, and have a $1,000 par value. Blue

Crab, Inc. has determined that these bonds would sell for $1,191 each. What is

the yield to maturity for these bonds?

Round the answers to two decimal places in percentage form.

(Write the percentage sign in the “units” box).

You should use Excel or financial calculator.

Question 4 1

/ 1 point

A few years ago, Spider Web, Inc. issued bonds with a 8.23

percent annual coupon rate, paid semiannually. The bonds have a par value of

$1,000, a current price of $1,092, and will mature in 20 years. What would the

annual yield to maturity be on the bond if you purchased the bond today?

Round the answer to two decimal places in percentage form.

(Write the percentage sign in the “units” box)

You should use Excel or financial calculator.

Question 5 1

/ 1 point

Black Water Corp. just issued zero-coupon bonds with a par

value of $1,000. The bond has a maturity of 24 years and a yield to maturity of

6.71 percent, compounded annually. What is the current price of the bond?

Round the answer to two decimal places.

Question 6 1

/ 1 point

What is the yield to call of a 30-year to maturity bond that

pays a coupon rate of 7.00 percent per year, has a $1,000 par value, and is

currently priced at $988? The bond can be called back in 8 years at a call

price $1,098. Assume annual coupon payments.

Round the answer to two decimal places in percentage form.

(Write the percentage sign in the “units” box)

You should use Excel or financial calculator.

Question 7 1

/ 1 point

A $1,000 par value bond with a 13.54 percent coupon rate,

currently selling for $1,035, has a current yield of _____.

Round the answer to two decimal places in percentage form.

(Write the percentage sign in the “units” box)

Question 8 1

/ 1 point

Tall Trees, Inc. is using the net present value (NPV) when

evaluating projects. You have to find the NPV for the company’s project,

assuming the company’s cost of capital is 14.81 percent. The initial outlay for

the project is $355,720. The project will produce the following after-tax cash

inflows of

Year 1: 198,168

Year 2: 164,946

Year 3: 62,686

Year 4: 136,491

Round the answer to two decimal places.

Question 9 1

/ 1 point

Deep Waters, Inc. is using the internal rate of return (IRR)

when evaluating projects. Find the IRR for the company’s project. The initial

outlay for the project is $307,000. The project will produce the following

after-tax cash inflows of

Year 1: 142,300

Year 2: 126,800

Year 3: 133,200

Year 4: 198,700

(Write the percentage sign in the “units” box)

You should use Excel or financial calculator.

Question 10 1

/ 1 point

Marathon Technologies, Inc. is using the modified internal

rate of return (MIRR) when evaluating projects. The company is able to reinvest

cash flows received from the project at an annual rate of 8.50 percent. The

initial outlay for the project is $473,800. Find the MIRR for the company’s

project. The project will produce the following after-tax cash inflows of

Year 1: $229,700

Year 2: $232,300

Year 3: $191,800

Year 4: $246,300

(Write the percentage sign in the “units” box)

Question 11 1

/ 1 point

Find the profitability index (PI) for the following series

of future cash flows, assuming the company’s cost of capital is 9.71 percent.

The initial outlay is $447,775.

Year 1: $130,230

Year 2: $150,944

Year 3: $140,301

Year 4: $136,872

Year 5: $133,530

Round the answer to two decimal places.

Question 12 1

/ 1 point

Find the Payback period for the following project:

Project X

Initial Outlay

$8,050

Year 1

$3,130

Year 2

$3,010

Year 3

$3,690

Year 4

$7,920

The answer should be calculated to two decimal places.

Question 13 1

/ 1 point

The Black Bird Company plans an expansion. The expansion is

to be financed by selling $137 million in new debt and $17 million in new

common stock. The before-tax required rate of return on debt is 8.58% percent

and the required rate of return on equity is 15.86% percent. If the company is

in the 34 percent tax bracket, what is the weighted average cost of capital?

(Write the percentage sign in the “units” box)

Question 14 1

/ 1 point

Try to determine the required rate of return on Tilden Woods

Corporation’s common stock. The firm’s beta is 1.40. The rate on a 10-year

Treasury bond is 3.09 percent, and the market risk premium is 8.38 percent.

Round the answers to two decimal places in percentage form.

(Write the percentage sign in the “units” box)

Question 15 1

/ 1 point

Black Hill Inc. sells $100 million worth of 13-year to

maturity 11.39% annual coupon bonds. The net proceeds (proceeds after flotation

costs) are $973 for each $1,000 bond. What is the before-tax cost of capital

for this debt financing?

(Write the percentage sign in the “units” box)

You should use Excel or financial calculator.

Question 16 1

/ 1 point

El Dorado Storage has the following projections for Year 1

of a capital budgeting project.

Sales $201,951

Variable costs $121,655

Fixed costs adn selling, general and administrative expenses

$11,929

Depreciation Expense $13,950

Tax Rate 35%

Calculate the operating cash flow for Year 1. Round the

answer to two decimals

Question 17 1

/ 1 point

Calculate the cost of new common equity financing of stock R

using Gordon Model

Round the answers to two decimal places in percentage form.

(Write the percentage sign in the “units” box)

Last Year Dividend

Growth Rate of Dividends

Selling Price of Stock

Floatation Costs

Cost of Common Equity

Stock R

$3.77

2.1%

$75.05

$4.73

?

Question 18 1

/ 1 point

Paul Sharp is CFO of Fast Rocket Inc. He tries to determine

the cost of equity financing for his company. The stock has a beta of 2.39.

Paul estimated that the market return is 8.04%. The current rate for 10-year

Treasury Bonds is 2.41%. Calculate cost of common equity financing using CAPM –

SML formula.

Round the answers to two decimal places in percentage form.

(Write the percentage sign in the “units” box)

Question 19 1

/ 1 point

John invested the following amounts in three stocks:

Security Investment Beta

Stock A $480,378 1.01

Stock B $513,730 0.70

Stock C $480,957 1.60

Calculate the beta portfolio.

Round the answers to two decimal places.

Question 20 1

/ 1 point

Calculate the expected return on stock of Gamma Inc.:

State of the economy Probability

of the states Percentage

returns

Economic recession 18% -6.0%

Steady economic growth

38% 4.8%

Boom Please

calculate it 11.5%

Round the answers to two decimal places in percentage form.

(Write the percentage sign in the “units” box)

Question 21 1

/ 1 point

You hold a portfolio with the following securities:

Security Percent

of portfolio Return

Stock A 34% 5.9%

Stock B 15% 11.6%

Stock C Please

calculate it 5.7%

Calculate the expected return of portfolio. Round the

answers to two decimal places in percentage form. (Write the percentage sign in

the “units” box).

Question 22 1

/ 1 point

Mary purchased 200 shares of Harley Davidson Co. stock at a

price of $85.92 six months ago. She sold all stocks today for $92.87. During

the year the stock paid dividends of $4.17 per share. What is Mary’s holding

period return?

(Write the percentage sign in the “units” box)

Question 23 1

/ 1 point

The next year the common stock of Gold Corp. will pay a

dividend of $5.42 per share. If the company is growing at a rate of 3.65

percent per year, and your required rate of return is 10.27 percent, what is

Gold’s company stock worth to you?

Round the answer to two decimal places.

Question 24 1

/ 1 point

Deci-Bell, Inc. is producing new headphones, but first

management wants to determine its degree of operating leverage. Deci-Bell Inc.

has a base level of sales of 239,560 units. Sales price per unit is $129.24 and

variable cost per unit is $72.45. Total annual operating fixed costs are

$7,006,700.

Calculate Deci-Bell’s

degree of operating leverage. Round the answer to two decimal places

Question 25 1

/ 1 point

Appliance for Less is a local appliance store. It costs this

store $23.11 per unit annually for storage, insurance, etc., to hold microwave

in their inventory. Sales this year are anticipated to be 589 units. Each order

costs $80. The company is using Economic Order Quantity model in placing the

orders.

Calculate Economic Order Quantity.

(Round the answer to the whole number)

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