MBA670 Financial Analysis and Risk Management 22430295 (Online Asynchronous) Quiz Solutions

QUESTION 1

Of the following choices, ________ is the best way to increase current shareholder value.

		maximizing the firm’s amount of available cash
		minimizing the overall size of the firm
		postponing all new projects
		increasing the current value of the overall firm
		decreasing the number of employees

1 points

QUESTION 2

Assume the firm has a constant dividend payout ratio and a constant debt-equity ratio. What is the sustainable growth rate the firm can achieve while maintaining its capital structure? Currently, the firm’s sales =$4,700, net income is $420, total assets=7890, dividends=125, A/P =790, LTD= 3130, and common stock=2780, and retained earnings =1190.

		1.61 percent
		2.65 percent
		8.03 percent
		3.88 percent

1 points

QUESTION 3

Of the following choices, ________ is most likely to create an agency problem.

		increasing the dividend payments to shareholders
		increasing the sales of a profitable division
		abandoning a profitable project because it involves some risk
		paying off debt in a timely manner
		selling an unprofitable division of the firm

1 points

QUESTION 4

Which growth rate can a firm grow at the maximum?

		sustainable growth rate
		internal growth rate
		maximum growth rate
		sales growth rate

1 points

QUESTION 5

If a firm always grows at its internal growth rate, what will happen to capital structure?

		nothing
		debt proportion will increase
		leverage will decrease
		equity will decrease

1 points

QUESTION 6

Assume the firm has a constant dividend payout ratio and a constant debt-equity ratio. What is the internal growth rate the firm can achieve without any external financing? Currently, the firm’s sales =$4,700, net income is $420, total assets=7890, dividends=125, A/P =790, LTD= 3130, and common stock=2780, and retained earnings =1190.

		3.61 percent
		3.88 percent
		5.98 percent
		8.03 percent

1 points

QUESTION 7

In the financial planning model, the external financing needed (EFN) as shown on a pro forma balance sheet is equal to the changes in assets:

		plus the changes in both liabilities and equity.
		minus the changes in both liabilities and equity.
		minus the changes in liabilities only.
		plus the changes in liabilities minus the changes in equity.
		minus the change in retained earnings.

1 points

QUESTION 8

Assume the profit margin is projected to increase to 9 percent while the dividend payout ratio remains constant. If sales increase by 12 percent, what is the projected total retained earnings (hint: add the additional RE onto the current RE)? Currently, the firm’s sales =$4,700, net income is $420, total assets=7890, dividends=125, A/P =790, LTD= 3130, and common stock=2780, and retained earnings =1190.

		$332.76
		$857.76
		$1,520.40
		$1,979.76

1 points

QUESTION 9

Assume the profit margin and dividend payout ratios are constant. What is the projected retained earnings on the Income Statement if sales increase by 7 percent? Currently, the firm’s sales =$4,700, net income is $420, total assets=7890, dividends=125, A/P =790, LTD= 3130, and common stock=2780, and retained earnings =1190.

		$315.65
		$896.25
		$1,505.65
		$2,060.25

1 points

QUESTION 10

Assume the firm has a constant dividend payout ratio and a projected sales increase of 12 percent. All costs, assets, and current liabilities vary directly with sales. The firm is currently at full production. What is the external financing need? Currently, the firm’s sales =$4,700, net income is $420, total assets=7890, dividends=125, A/P =790, LTD= 3130, and common stock=2780, and retained earnings =1190.

		$146.00
		$251.20
		$470.40
		$521.60

1 points

QUESTION 11

Answering which one of the following questions involves making a capital budgeting decision?

		Should the firm issue new equity to pay for its growth goals?
		How much inventory should the firm keep on hand?
		Should the firm build a new production facility?
		How much debt should the firm borrow from a particular lender?
		How much credit should the firm extend to a particular customer?

1 points

QUESTION 12

Assume the profit margin and dividend payout ratio are constant. By what amount will retained earnings
increase if sales are projected to increase by 11 percent? Currently, the firm’s sales =$4,700, net income is $420, total assets=7890, dividends=125, A/P =790, LTD= 3130, and common stock=2780, and retained earnings =1190.

		$138.75
		$327.45
		$466.20
		$584.12

Week 2

QUESTION 1

Which one of the following indicates a project should be accepted?

		NPV = -$281
		PI = 1.02
		IRR = 13.8 percent; Required return = 14.2 percent
		Payback = 3.31 years; Required payback = 3.25 years

1 points

QUESTION 2

Should the proposed project be accepted based on the profitability index (PI)? Why or why not?

		no; The PI is less than 1.0.
		no; The PI is greater than 1.0.
		yes; The PI is less than 1.0.
		yes; The PI is greater than 1.0.

1 points

QUESTION 3

Should the proposed project be accepted based on the payback period? Why or why not?

		yes; The payback period is greater than the required payback period.
		yes; The payback period is less than the required payback period.
		no; The payback period is greater than the required payback period.
		no; The payback period is less than the required payback period.

1 points

QUESTION 4

Should the project be accepted based on the internal rate of return (IRR)? Why or why not?

		no; The project IRR is greater than the required return.
		no; The project IRR is greater than zero.
		yes; The project IRR is greater than the required return.
		yes; The project IRR is equal to zero.

1 points

QUESTION 5

What is the net present value of the proposed project?

		$6,239.12
		$6,831.84
		$8,221.29
		$8,376.91

1 points

QUESTION 6

You should accept a project when the:

		net present value is positive.
		profitability index is less than 1 but greater than zero.
		discounted payback period is greater than the required period.
		modified internal rate of return is less than the required return.

1 points

QUESTION 7

A new project with an average book value of $120,000 is expected to produce $20,000 net income in the first year, $13,000 the second year, $30,000 the third year, and $50,000 in year 4. What is the average accounting return on this project?

		12.47 percent
		25.17 percent
		23.54 percent
		15.87 percent

1 points

QUESTION 8

What is the discounted payback period?

		1 year
		2 years
		More than 2 years but less than 3 years
		More than 3 years but less than 4 years

1 points

QUESTION 9

A mutually exclusive project is a project whose:

		IRR is always negative.
		NPV is always negative.
		acceptance or rejection has no effect on the acceptance of other projects.
		acceptance or rejection affects the acceptance of other projects.
		cash flow pattern exhibits more than one sign change.

1 points

QUESTION 10

A project will have more than one IRR if and only if the:

		NPV is zero.
		cash flow pattern exhibits exactly one sign change.
		primary IRR is positive.
		cash flow pattern exhibits more than one sign change.
		primary IRR is negative.

1 points

QUESTION 11

Which one of the following statements is correct concerning the profitability index (PI)?

		PI should be used to determine which one of two mutually exclusive projects should be accepted.
		PI is the discount rate that makes the net present value equal to zero.
		There can be multiple PIs if the cash flows are unconventional.
		PI is used to rank positive NPV projects when the available funds are limited.

1 points

QUESTION 12

Which one of the following methods of project analysis ignores time value of money?

		internal rate of return
		profitability ratio
		payback period
		net present value

Question 1

1 out of 1 points

The Black & Gold Co. is expected to pay a $3.60 annual dividend. The market rate of return on this security is 14 percent and the market price is $38.70 a share. What is the expected growth rate of Black & Gold?

Selected Answer:	4.70 percent
Answers:	4.20 percent
	4.30 percent
	4.60 percent
	4.70 percent

Question 2

1 out of 1 points

The common stock of Andy’s Sporting Goods sells for $30.65 a share. The company recently paid their annual dividend of $1.85 per share and expects to increase this dividend by 2 percent annually. What is the rate of return on this stock?

Selected Answer:	8.16 percent
Answers:	8.04 percent
	8.16 percent
	8.28 percent
	8.42 percent

Question 3

1 out of 1 points

Bottle Top, Inc. recently announced they will pay their first annual dividend next year in the amount of $0.75 a share. The dividend will be increased by 4 percent annually thereafter. How much are you willing to pay for one share of this stock if you require a 10 percent rate of return?

Selected Answer:	$12.50
Answers:	$12.50
	$13.83
	$21.58
	$22.91

Question 4

1 out of 1 points

The common stock of Andy’s Sporting Goods sells for $25.40 a share. The company recently paid their annual dividend of $1.30 per share and expects to increase this dividend by 3 percent annually. What is the rate of return on this stock?

Selected Answer:	8.27 percent
Answers:	5.12 percent
	5.27 percent
	8.12 percent
	8.27 percent

Question 5
1 out of 1 points
The ________ yield is the rate at which a stock’s price is expected to appreciate or depreciate.
Selected Answer:

capital gains
Answers:
earnings
current

capital gains
total
dividend

Question 6

1 out of 1 points

Hardware, Inc. recently announced their annual dividend will be increasing to $3.15 a share for next year with annual increases in the dividend amount of 1.15 percent thereafter. You require a 13.5 percent rate of return on this relatively risky security. How much are you willing to pay for one share of this stock?

Selected Answer:	$25.51
Answers:	$25.51
	$25.80
	$25.93
	$26.04

Question 7

1 out of 1 points

The Black & Gold Co. is expected to pay a $2.50 annual dividend next year. The market rate of return on this security is 12 percent and the market price is $31.40 a share. What is the expected growth rate of Black & Gold?

Selected Answer:	4.04 percent
Answers:	3.74 percent
	3.89 percent
	4.04 percent
	4.12 percent

Question 8

1 out of 1 points

Battles, Inc. just paid an annual dividend of $1.20 a share. The dividend will increase by 3 percent for the next three years and then increase by 2 percent annually thereafter. What is the present value of this stock at a discount rate of 9 percent?

Selected Answer:	$17.97
Answers:	$17.97
	$18.52
	$21.68
	$22.33

Question 9

1 out of 1 points

You would like to earn a 9.5 percent rate of return on a preferred stock paying $9 dividend per share. How much are you willing to pay for 10 shares?

Selected Answer:	$947.37
Answers:	$94.74
	$105.56
	$947.37
	$1,055.56

Question 10

0 out of 1 points

ThBell Weather Co. is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 20% a year for the next four years and then decreasing the growth rate to 5% per year. The company just paid its annual dividend in the amount of $1.00 per share. What is the current value of one share if the required rate of return is 9.25%?

Selected Answer:	$38.19
Answers:	$30.23
	$38.19
	$41.05
	$43.19

Question 11

1 out of 1 points

Baker’s Delight just paid an annual dividend of $1.60 a share. The dividend will increase by 4 percent for the next four years and then increase by 3 percent annually thereafter. What is the present value of this stock at a discount rate of 14 percent?

Selected Answer:	$15.49
Answers:	$13.87
	$15.49
	$17.08
	$19.30

Question 12

1 out of 1 points

The common stock of the Paper Co. is selling for $41.40 a share and offers an 8.2 percent rate of return. The dividend growth rate is constant at 4 percent. What is the expected amount of the next dividend?

Selected Answer:	$1.74
Answers:	$1.67
	$1.74
	$1.81
	$1.90

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