FIN 5320 FIN5320 Exam 2 with Answers (American Public University)

FIN 5320 FIN/5320 FIN5320 Exam 2

1. A stock had returns of 6 percent, -6 percent, 4 percent, and 16 percent over the past four years. What is the standard deviation of these returns?
2. What are the arithmetic and geometric average returns for a stock with annual returns of 4%, 9%, -6%, and 18%?
3. The common stock of Jensen Shipping has an expected return of 14.40 percent. The return on the market is 10 percent and the risk-free rate of return is 4.5. What is the beta of this stock?
4. The Norris Co. has an improved version of its hotel stand. The investment cost is expected to be $72 million and will return $13.5 million for 5 years in net cash flows. The ratio of debt to equity is 1 to 1. The cost of equity is 13%, the cost of debt is 9%, and the tax rate is 34%. The appropriate discount rate, assuming average risk, is:
5. The market has an expected rate of return of 10.2%. The long-term government bond is expected to yield 4.2% and the U.S. Treasury bill is expected to yield 3.8%. The inflation rate is 3.1%. What is the market risk premium?
6. The expected return on JK stock is 13.26 percent while the expected return on the market is 11.1 percent. The beta of JK stock is 1.3. What is the risk-free rate of return?
7. Your best friend works in the finance office of the Delta Corporation. You are aware that this friend trades Delta stock based on information he overhears in the office. You know that this information is not known to the general public. Your friend continually brags to you about the profits he earns trading Delta stock. Based on this information, you would tend to argue that the financial markets are at best _____ form efficient.
8. You purchased 200 shares of ABC stock on July 15^th. On July 20^th, you purchased another 100 shares and then on July 22^st you purchased your final 200 shares of ABC stock. The company declared a dividend of $1.10 a share on July 5^th to holders of record on Friday, July 23^rd. The dividend is payable on July 31^st. How much dividend income will you receive on July 31^st from ABC?
9. Which one of the following is an argument in favor of a low dividend policy?
10. L.A. Clothing has expected earnings before interest and taxes of $2,300, an unlevered cost of capital of 15 percent and a tax rate of 35 percent. The company also has $3,000 of debt that carries a 7 percent coupon. The debt is selling at par value. What is the value of this firm?
11. Your firm has a pre-tax cost of debt of 7% and an unlevered cost of capital of 13%. Your tax rate is 35% and your cost of equity is 15.26%. What is your debt-equity ratio?
12. Wild Flowers Express has a debt-equity ratio of .60. The pre-tax cost of debt is 9% while the unlevered cost of capital is 14%. What is the cost of equity if the tax rate is 34%?
13. A firm has a market value equal to its book value. Currently, the firm has excess cash of $700 and other assets of $6,300. Equity is worth $7,000. The firm has 500 shares of stock outstanding and net income of $810. What will the new earnings per share be if the firm uses 25 percent of its excess cash to complete a stock repurchase?
14. Robinson's has 15,000 shares of stock outstanding with a par value of $1.00 per share and a market price of $36 a share. The balance sheet shows $15,000 in the common stock account, $315,000 in the capital in excess of par account, and $189,000 in the retained earnings account. The firm just announced a 3-for-2 stock split. What will the market price per share be after the split?
15. The Tinslow Co. has 125,000 shares of stock outstanding at a market price of $93 a share. The company has just announced a 5-for-3 stock split. How many shares of stock will be outstanding after the split?