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 […]
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 […]
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 […]
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
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
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 […]
Financial ratios are used by personnel in marketing, human resources, and other groups within a firm, not just by the finance and accounting personnel. Indicate whether the statement is true or false ANSWER TRUE
Congratulations you have just won the tuition lottery! The lottery pays out four beginning-of-the-year cash flows of $50,000 each with the first cash flow today and the remaining cash flows to follow at the start of years 2, 3, and 4. Since the lottery is managed by the Fergetaboutit University system you are considering their […]
A budget should set optimistic goals even though it may be difficult to achieve them. Indicate whether the statement is true or false ANSWER FALSE
An advantage of the book value of equity plus adjustments approach is: A) that it implicitly assumes that a firm is going to be shut down. B) it doesn’t consider the firm being valued as an ongoing concern. C) we can immediately “plug in” the starting point of the book value of equity without having […]
