Simpson Productions Inc. had net sales of $300,000, costs of sales of $150,000, additional expenses of $100,000, depreciation of $50,000, and a tax rate of 30%. Use this information to determine the firm’s after tax earnings on a cash basis. A) $0 B) $30,000 C) $35,000 D) $50,000 ANSWER D Explanation: D) After-tax […]
Date: September 19th, 2020
Based on the security market line, Robo-Tech stock has a required return of 14% and Friendly Insurance Company has a required return of 10%. Robo-Tech has a standard deviation of returns of 18%. Therefore, A) the beta for Friendly must be greater than the beta for Robo-Tech because Friendly is the better buy for a […]
Date: September 19th, 2020
You believe in the power of compounding and decide to save $1 per day by avoiding the purchase of a soda. You deposit the $1 at the end of each day in a bank account that pays 8% interest compounded daily. You are going to take a trip in 20 years with the money you […]
Date: September 19th, 2020
Which of the following could be considered a form of perpetuity? A) The college tuition payments that students make for four years. B) A 20-year corporate bond. C) A university scholarship endowment that promises to pay out $10,000 per year for an indefinite time period. D) A contract from the winning lottery ticket to receive […]
Date: September 19th, 2020
The balance sheet and income statement for Johnson and Breakwater is presented below. Balance Sheet (000) Cash $500 Accounts receivable 1,500 Inventories 500 Current assets 2,500 Net fixed assets 5,000 Total Assets 7,500 Accounts payable 1,200 Bank note 300 Total current liabilities 1,500 long-term debt 4,000 Common stock 300 Retained earnings 1,700 Total liabilities and […]
Date: September 19th, 2020
Green Company stock has a beta of 2 and a required return of 23%, while Gold Company stock has a beta of 1.0 and a required return of 14%. The standard deviation of returns for Green Company is 10% more than the standard deviation for Gold Company. The expected return on the market portfolio according […]
Date: September 19th, 2020
What is the present value of a series of $5,000 end-of-the-year cash flows to be received forever if the required rate of return is 6.00% per year and the first cash flow is one year from today? A) $8,333.33 B) $83,333.33 C) $300.00 D) This question cannot be answered because there is no time period […]
Date: September 19th, 2020
One bank offers you 4% interest compounded semiannually. What would the equivalent rate be if interest were compounded quarterly? A) 3.98% B) 1.00% C) 3.96% D) 3.92% ANSWER A
Date: September 19th, 2020
Today is your 20th birthday and your bank account balance is $25,000. Your account is earning 6.5% interest compounded semiannually. How much will be in the account on your 50th birthday? A) $170,351 B) $159,795 C) $162,183 D) $163,823 ANSWER A
Date: September 19th, 2020
Stock A has a beta of 1.2 and a standard deviation of returns of 14%. Stock B has a beta of 1.8 and a standard deviation of returns of 18%. If the risk-free rate of return increases and the market risk premium remains constant, then A) the required returns on stocks A and B will […]
Date: September 19th, 2020
