1 Fris B. Corporation stock is currently selling for $42.86. It is expected to p

Question

1 Fris B. Corporation stock is currently selling for $42.86. It is expected to pay a dividend of $3.00 at the end of the year. Dividends are expected to grow at a constant rate of 3% indefinitely. Compute the required rate of return on FBC stock.
A7%
B33%
C4.3%
D10%

2 Green Corp.'s preferred stock is selling for $20.83. If the company pays $2.50 annual dividends, what is the expected rate of return on its stock?
A12.00%
B2.50%
C8.33%
D20.00%

3 World Wide Interlink Corp. has decided to undertake a large project. Consequently, there is a need for additional funds. The financial manager plans to issue preferred stock with an annual dividend of $5 per share. The stock will have a par value of $30. If investors' required rate of return on this investment is currently 20%, what should the preferred stock's market value be?
$15
$10
$20
$25

4 Which of the following exchanges has the strictest listing requirements?
A AMEX
B OTC
C NYSE
D Nasdaq

5 Errors in capital budgeting decisions:
A tend to average out over time.
B are easily reversed.
C decrease the firm's value.
D are diminished because the time value of money makes future cash flows less important.

6 Which of the following factors is least important to capital budgeting decisions.?
A The time value of money
B Cash flows directly resulting from the decision
C The risk-return tradeoff
D Net income based on accrual accounting principles

7 Good capital investment opportunities are most likely to exist when:
A interest rates are high and rising.
B a line of business is expensive to enter and uses proprietary technology.
C many firms compete to sell similar products.
D goods and services can be produced cheaply using readily available tools and technologies.

8Central Mass Ambulance Service can purchase a new ambulance for $200,000 that will provide an annual net cash flow of $50,000 per year for five years. Calculate the NPV of the ambulance if the required rate of return is 9%. (Round your answer to the nearest $1.)
A $50,000
B $(5,517)
C $(5,061)
D $5,517

9 Fitchminster Armored Car can purchase a new vehicle for $200,000 that will provide annual net cash flow over the next five years of $40,000, $45,000, $50,000, $55,000, $60,000. The salvage value of the vehicle will be $25,000. Assume that the vehicle is sold at the end of year 5. Calculate the NPV of the ambulance if the required rate of return is 9%. (Round your answer to the nearest $1.)
A $6,048
B $6,780
C $19,483
D $7,390

10 Project EH! requires an initial investment of $50,000, and has a net present value of $12,000. Project BE requires an initial investment of $100,000, and has a net present value of $13,000. The projects are mutually exclusive. The firm should accept:
A project BE.
B neither project.
C project EH!.
D both projects.

11 Recent surveys of the CFOs of large U.S. companies rank the popularity of major capital budgeting methods in which order?
A NPV, IRR, Profitability Index, Discounted Payback, Payback
B NPV, IRR, Payback, Discounted Payback, Profitability Index
C Payback, Discounted Payback, Profitability Index,IRR, NPV
D IRR, NPV, Payback, Discounted Payback, Profitability Index

12 With respect to the capital budgeting practices of large U. S. corporations:
A IRR and NPV have declined in popularity.
B payback and discounted payback have been gaining in popularity.
C the profitability index has been gaining in popularity.
D IRR and NPV have been gaining in popularity.

Explanation / Answer

4.B 5.C 6.D 7.A 8.A 9.B 10.B 11.A 12.C

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