# Fi 515 Week6 Exam

Pages: 13 (942 words) Published: October 15, 2013
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These are the automatically computed results of your exam. Grades for essay questions, and comments from your instructor, are in the "Details" section below. Date Taken:
10/13/2013
Time Spent:
2 h , 49 min , 52 secs
52 / 100  (52%)

Question Type:
# Of Questions:
# Correct:
Multiple Choice
9
5
Essay
1
N/A

1.
Question :
(TCO D) A stock just paid a dividend of D0 = \$1.50. The required rate of return is rs = 10.1%, and the constant growth rate is g = 4.0%. What is the current stock price?

\$23.11

\$23.70

\$24.31

\$24.93

\$25.57

Instructor Explanation:
Chapter 7
D0                                   \$1.50 rs                                    10.1% g                                      4.0% D1 = D0(1 + g) =            \$1.56
P0 = D1/(rs − g)             \$25.57

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2.
Question :
(TCO D) If D1 = \$1.25, g (which is constant) = 5.5%, and P0 = \$44, what is the stock’s expected total return for the coming year?

7.54%

7.73%

7.93%

8.13%

8.34%

Instructor Explanation:
Chapter 7
D1                                               \$1.25 g                                                  5.5% P0                                              \$44.00 Total return = rs = D1/P0 + g     8.34%

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3.
Question :
(TCO D) Molen Inc. has an outstanding issue of perpetual preferred stock with an annual dividend of \$7.50 per share. If the required return on this preferred stock is 6.5%, at what price should the preferred stock sell?

\$104.27

\$106.95

\$109.69

\$112.50

\$115.38

Instructor Explanation:
Chapter 7
Preferred dividend                     \$7.50 Required return                           6.5% Preferred price = DP/rP =        \$115.38

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4.
Question :
(TCO E) Bankston Corporation forecasts that if all of its existing financial policies are followed, its proposed capital budget would be so large that it would have to issue new common stock. Since new stock has a higher cost than retained earnings, Bankston would like to avoid issuing new stock. Which of the following actions would REDUCE its need to issue new common stock?

Increase the dividend payout ratio for the upcoming year.

Increase the percentage of debt in the target capital structure.

Increase the proposed capital budget.

Reduce the amount of short-term bank debt in order to increase the current ratio.

Reduce the percentage of debt in the target capital structure.
Instructor Explanation:
Chapter 9

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5.
Question :
(TCO E) Duval Inc. uses only equity capital, and it has two equally-sized divisions. Division A’s cost of capital is 10.0%, Division B’s cost is 14.0%, and the corporate (composite) WACC is 12.0%. All of Division A’s projects are equally risky, as are all of Division B's projects. However, the projects of Division A are less risky than those of Division B. Which of the following projects should the firm accept?

A Division B project with a 13% return.

A Division B project with a 12% return.

A Division A project with an 11% return.

A Division A project with a 9% return.

A Division B project with an 11% return.

Instructor Explanation:
Chapter 9

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6.
Question :
(TCO D) Butcher Timber Company hired your consulting firm to help them estimate the cost of common equity. The yield on the firm's bonds is 8.75%, and your firm's economists believe that the cost of...