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 […]
Date: September 19th, 2020
If you co-sign a loan A) you are not responsible for future payments on the loan. Your signature only indicates that you believe the borrower is credit worthy. B) you are only responsible for the remaining loan payments if the borrower becomes bankrupt. C) you are only responsible for the portion of the loan that […]
Date: September 19th, 2020
Calculate the following 2010 financial ratios of Aggie Corporation using the information given in Table 4-7: i. current ratio ii. acid test ratio iii. debt ratio iv. return on total assets v. return on common equity What will be an ideal response? ANSWER i. Current ratio = $48/$28 = 1.71 ii. Acid Test […]
Date: September 19th, 2020
Which of the below publications does not provide periodic evaluations of mutual funds? A) Time B) Barron’s C) Forbes D) Money ANSWER A
Date: September 19th, 2020
Despite the clear cons of book value plus equity method of firm evaluation, we often see it used as a starting point for valuation. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
Which has a greater present value, a future value of $300,000 received in year 6, or an end-of-the-year annuity (first cash flow exactly one year from today) of $75,000 that lasts for four years if the relevant interest rate is 0%? A) The future value of $300,000 is preferred. B) The annuity has a greater […]
Date: September 19th, 2020
Stock A has a beta of 1.2 and a standard deviation of returns of 18%. Stock B has a beta of 1.8 and a standard deviation of returns of 18%. If the market risk premium increases, then A) the required returns on stocks A and B will both increase by the same amount. B) the […]
Date: September 19th, 2020
Which of the following investments has the highest effective annual return (EAR)? (Assume that all CDs are of equal risk.) A) a bank CD that pays 7.10 percent compounded monthly B) a bank CD that pays 7.30 percent annually C) a bank CD that pays 7.25 percent compounded semiannually D) a bank CD that pays […]
Date: September 19th, 2020
The risk-free rate of interest is 4% and the market risk premium is 9%. Howard Corporation has a beta of 2.0, and last year generated a return of 16% with a standard deviation of returns of 27%. The required return on Howard Corporation stock is A) 22%. B) 34%. C) 36%. D) 26%. […]
Date: September 19th, 2020
Beverly Corp had total sales of $1,200,000 in 2010 (80 percent of its sales are credit). The company’s gross profit margin is 25 percent, its ending inventory is $150,000, and its accounts receivable balance is $90,000. What additional amount of cash could the firm have generated if it had increased its inventory turnover ratio to […]
Date: September 19th, 2020
