Question 1 1 pts Orlando Nursing Home, an investor-owned healthcare organization

Question

Question 1 1 pts Orlando Nursing Home, an investor-owned healthcare organization, recently reported $345,900 of revenues, $213,000 of operating costs other than depreciation, and $12,500 of depreciation. The firm had $400,000 of debt that carry, on average, 4.5% interest rate, and its income tax rate was 30%. How much was its net cash flow?

$84,180

$75,430

$96,780

None of the above

Question 2 1 pts Humana Inc. (HUM), a health care company who offers a range of insurance products and health and wellness services; recently issued bonds with a yield of 8%. Florida Hospital, a not-for profit health care enterprise, issued bonds of equal risk with a yield of 6%. 1). at what tax rate would an investor be indifferent between these two bonds? 2). which bond should an investor in the 30% tax bracket invest in?

25%, Humana’s

33.3.0%, Humana’s

25%, Florida Hospital’s

33.3%, Florida Hospital’s

None of the above

Question 31 pts

Which of the following could explain why a healthcare enterprise might choose to operate as a corporation rather than as a sole proprietorship or a partnership?

Question 41 pts

Which of the following statements is INCORRECT?

The more depreciation an investor-owned healthcare firm reports, the higher its net cash flow, other things held constant.

Question 51 pts

Which of the following statements regarding a 15-year (180-month) $125,000, 6% APR, fixed-rate mortgage is NOT CORRECT? (Ignore all taxes and transactions costs.)

The outstanding balance gets paid off at a faster rate in the later years of a loan’s life.

Question 61 pts

Which of the following investments will have the highest future value at the end of 10 years? Assume that the annual percentage rate for all investments is the same.

Investment E pays $250 at the end of every year for the next 10 years (a total of 10 payments).

Question 71 pts

A Treasury bond promises to pay a lump sum of $1,000 exactly 3 years from today. The nominal interest rate is 6%, semiannual compounding. Which of the following statements is CORRECT?

The PV of the $1,000 lump sum has a higher present value than the PV of a 3-year, $333.33 ordinary annuity.

Question 81 pts

Which of the following statements is CORRECT, assuming positive interest rates and other things held constant?

Banks A and B offer the same nominal annual rate of interest, but A pays interest quarterly and B pays semiannually. Deposits in Bank B will have the higher future value if you leave the funds on deposit.

Question 91 pts

You are considering two equally risky annuities, each of which pays $5,000 per year for 10 years. Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due. Which of the following statements is CORRECT?

Question 101 pts

Your sister turned 35 today, and she is planning to save $5,000 per year for retirement, with the first deposit to be made one year from today. She will invest in a mutual fund that will provide an average return of 8% per year. She plans to retire 30 years from today, when she turns 65, and she expects to live for 25 years after retirement, to age 90. Under these assumptions, how much can she withdraw in each year after she retires? Her first withdrawal will be made at the end of her first retirement year.

$58,500

Question 111 pts

Stock A has a beta = 0.8, while Stock B has a beta = 1.6. Which of the following statements is CORRECT?

If the risk-free rate increases but the market risk premium remains constant, the required return on Stock B will increase by more than that on Stock A.

Question 121 pts

Consider the following information for three stocks, A, B, and C, and portfolios of these stocks. The stocks' returns are positively but not perfectly positively correlated with one another, i.e., the correlation coefficients are all between 0 and 1.

Stock

Expected

Return

Standard

Deviation

Beta

Stock A

10%

20%

1.0

Stock B

10%

10%

1.0

Stock C

12%

12%

1.4

Portfolio AB has half of its funds invested in Stock A and half in Stock B. Portfolio ABC has one third of its funds invested in each of the three stocks. The risk-free rate is 5%, and the market is in equilibrium, so required returns equal expected returns. Which of the following statements is CORRECT?

Portfolio ABC has a standard deviation of 14%.

Question 131 pts

Which of the following statements best describes what you should expect to happen if you randomly select stocks and add them to your portfolio?

Question 151 pts

Boston General Hospital believes the following probability distribution exists for its proposed expansion project. What is the coefficient of variation on the hospital’s project investment?
               

Economic State

Probability of Occurrence

Rate of Return if Economic State Occurs

Boom

0.25

25%

Normal

0.50

15%

Recession

0.25

5%

Question 161 pts

Recently, Pfizer Inc. (PFE), tried to acquire AstraZeneca PLC (AZN), a British-Swedish multinational pharmaceutical and biologics company headquartered in London, United Kingdom. As the new CFO of PFE, you were asked to compute AZN’s beta based on the following averaged empirical data.

Year

Market

Return (%)

AZN

Return (%)

2006

17.15

9.35

2007

6.51

-2.02

2008

9.15

28.50

2009

12.12

-8.15

2010

-17.78

-17.70

2011

-21.95

-1.33

2012

19.21

12.37

2013

13.27

2.46

2014

8.26

-4.80

2015

19.17

12.03

Which of the following statements is CORRECT?

Question 171 pts

Miami Lab Inc., an investor-owned healthcare enterprise, has a beta of 0.88. The T-bond rate (a proxy of the risk-free rate of return) is 5.25%. Investors expect the average annual future return on the market to be 11.50%. Using the SML, what is the required rate of return on Miami Lab stock?

11.29%
C) 11.58%

Question 181 pts

Which is the best measure of risk for a mutually exclusive asset to be held in isolation, and which is the best measure for an asset held in a diversified portfolio?

Beta; standard deviation

Question 191 pts

Assume that interest rates on 20-year Treasury and corporate bonds with different ratings, all of which are non-callable, are as follows:

T-bond = 7.72%

A           = 9.64%

AAA      = 8.72%

BBB      = 10.18%

                
The differences in rates among these issues were most probably caused primarily by:

Inflation differences.

Question 201 pts

Which of the following statements is CORRECT?

If expected inflation increases, interest rates are likely to increase.

Question 211 pts

Which of the following statements is CORRECT?

Question 221 pts

Which of the following events would make it more likely that a company would choose to call its outstanding callable bonds?

Question 231 pts

A 10-year bond with a 9% annual coupon has a yield to maturity of 8%. Which of the following statements is CORRECT?

The bond’s current yield is greater than 9%.

Question 241 pts

Three $1,000 face value bonds that mature in 10 years have the same level of risk, hence their YTMs are equal. Bond A has an 8% annual coupon, Bond B has a 10% annual coupon, and Bond C has a 12% annual coupon. Bond B sells at par. Assuming interest rates remain constant for the next 10 years, which of the following statements is CORRECT?

Over the next year, Bond A’s price is expected to decrease, Bond B’s price is expected to stay the same, and Bond C’s price is expected to increase.

Question 251 pts

Florida Hospital, one of the best hospitals in the USA, is planning two new issues of 25-year bonds to finance its rapid expansion in Central Florida. Bond P will be sold at its $1,000 par value, and it will have a 10% annual coupon. Bond D will also have a 25-year maturity and a $1,000 par value, but its annual coupon will be only 6.25%. If both bonds are to provide investors with the same effective yield, how many of the D bonds must Florida Hospital issue to raise $3,000,000? Round your final answer up to a whole number of bonds.

Corporations generally find it relatively difficult to raise large amounts of capital.

Explanation / Answer

Solution.

Question 1.1

Calculation of net cash flow.

Particulars Amount Revenues     345,900.00 Operating costs (213,000.00) Gross Profit     132,900.00 Depreciation     (12,500.00) Interest     (18,000.00) EBT     102,400.00 Tax @30%     (30,720.00) EAT        71,680.00 Depreciation        12,500.00 Net cash flow        84,180.00

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