1.The Ramirez company last dividend was $1.75. Its dividend growth rate is expected to be constant at 25% for two years after which dividends are expected to grow 6% forever. It is required return (rs)is 12%. Which is the best estimate of the current stock price?

a. 41.58

b.42.64

c. 43.71

d. 44.80

45.92

2.Consider the information for the following four firms.

Firm	Cash	Debt	Equity	rD	rE	Ï„c
Eenie	0	150	150	5%	10%	40%
Meenie	0	250	750	6%	12%	35%
Minie	25	175	325	6%	11%	35%
Moe	50	350	150	7.50%	15%	30%

Which is the weighted average cost of capital for Meenie closest to?

A) 10.5%

B) 7.4%

C) 10.0%

D) 8.8%

 

 

 

 

 

 

 

 

 

 

 

 

3. Zervos Inc. had the following data for 2008 (in millions). The new CFO believes (a) that an improved inventory management system could lower the average inventory by $4,000, (b) that improvements in the credit department could reduce receivables by $2,000, and (c) that the purchasing department could negotiate better credit terms and thereby increase accounts payable by $2,000. Furthermore, she thinks that these changes would not affect either sales or the costs of goods sold. If these changes were made, by how many days would the cash conversion cycle be lowered?

	Original	Revised
Annual sales: unchanged Cost of goods sold: unchanged Average inventory: lowered by $4,000 Average receivables: lowered by $2,000 Average payables: increased by $2,000 Days in year	$110,000 $80,000 $20,000 $16,000 $10,000 365	$110,000 $80,000 $16,000 $14,000 $12,000 365

a. 34.0
b. 37.4
c. 41.2
d. 45.3
e. 49.8 (Points : 30)

 

4. Your firm is planning to invest in a new power generation system. Galt Industries is an all-equity firm that specializes in this business. Suppose Galt’s equity beta is 0.75, the risk-free rate is 3%, and the market risk premium is 6%. If your firm’s project is all equity financed, then which is your estimate of your cost of capital closest to?

A) 5.25%

B) 6.00%

C) 6.75%

D) 7.50%

(Points : 30)

(TCO D)

 

 

 

 

 

 

 

5.Which is the standard deviation of the returns on Stock A from 2000 to 2009 closest to?

  

Year End	Stock A Realized Return	(R – R)	(R – R)2
2000	46.3%	29.85%	0.0891023
2001	26.7%	10.25%	0.0105063
2002	86.9%	70.45%	0.4963203
2003	23.1%	6.65%	0.0044223
2004	0.2%	-16.25%	0.0264063
2005	-3.2%	-19.65%	0.0386123
2006	-27.0%	-43.45%	0.1887903
2007	27.9%	11.45%	0.0131103
2008	-5.1%	-21.55%	0.0464403
2009	-11.3%	-27.75%	0.0770063

A) 33.2%

B) 16.4%

C) 31.5%

D) 11.0%

 

6.

You expect CCM Corporation to generate the following free cash flows over the next 5 years.

Year	1	2	3	4	5
FCF ($ millions)	25	28	32	37	40

Following Year 5, you estimate that CCM’s free cash flows will grow at 5% per year and that CCM’s weighted average cost of capital is 13%.

Which is the enterprise value of CCM Corporation closest to?

A) $396 million

B) $290 million

C) $382 million

D) $350 million

(Points : 35)

 

7. TCO C) Bumpas Enterprises purchases $4,562,500 in goods per year from its sole supplier on terms of 2/15, net 50. If the firm chooses to pay on time but does not take the discount, what is the effective annual percentage cost of its nonfree trade credit? (Assume a 365-day year.)

a. 20.11%

 b. 21.17%

 c. 22.28%

 d. 23.45%

 e. 24.63%

 

 (Points : 30)