Derek’s Dinghies and Rafts (DDR) is the world’s largest manufacturer of rowboats and rafts. At the end of the current year, analysts expect DDR’s EBIT to be $2M and they expect the same earnings annually in perpetuity. DDR’s shareholders require a return of 12.5% and there are 5M common shares outstanding. DDR has debt with […]
Sloburn Barbeques Inc. uses the residual dividend model to set its dividends. Selected financial information for Sloburn is provided in the table below. Selected Financial Information Sloburn Barbeques Inc. Net income $75 million Equity capital structure weight 0.90 Total Dividends $7.5 million How much additional funds did Sloburn need to borrow in order to finance […]
________ are long-term debt instruments business and government use to raise large sums of money. A) T-bills B) Bonds C) Common stocks D) Preferred stocks E) Commercial papers ANSWER B
EnviroStyro Inc is all equity financed and generates perpetual annual EBIT of $750. Assume that the EBIT, and all other cash flows, occur at year end and that we are currently at the beginning of a year. EnviroStyro has 1,500 shares outstanding which trade for $3.611. The stockholders of EnviroStyro require a return of 9%. […]
Last month, Springfield Power Co announced that shareholders of record on this coming Friday will receive a dividend of $4.5 per share. (Assume that the dividend will also be paid on Friday). After this Friday, the next dividend is expected in one year’s time. Dividends are expected to be paid annually in perpetuity and are […]
Common stockholders expect to receive a return through capital gains and A) interest payments. B) dividends. C) fixed periodic dividends. D) coupon payments. E) receiving shares of preferred stock ANSWER B
The ________ is the financial market in which securities are initially issued. A) private placement B) OTC C) primary market D) secondary market E) NASDAQ ANSWER C
What do we call a market in which the price of a security is an accurate estimate by the market of its true value? A) Efficient Market B) Law of One Price C) Effective Market D) Primary Market E) Secondary Market ANSWER E
Bob’s Tractor and Party Supply has two separate divisions: party supplies, and tractor supplies and services. The party supply division has a beta of 1.2 and is financed by 25% debt. The tractor supply and service division has a beta of 0.8 and is financed by 60% debt. The cost of debt for each division […]
The relevant cash flows for capital budgeting analysis are A) incremental cash flows. B) ordinary cash flows. C) necessary cash flows. D) consistent cash flows. ANSWER A
