1. The Embroidery Shoppe had beginning retained earnings of $18,670. During the year, the company reported sales of $83,490, costs of $68,407, depreciation of $8,200, dividends of $950, and interest paid of $478. The tax rate is 35 %. What is the retained earnings balance at the end of the year?
A. $21,883.25B. $22,193.95C. $22,833.24D. $23,783.24E. $30,393.95
2. Denbo’s, Inc. has total equity of $389,600, long-term debt of $116,400, net working capital of $1,600, and total assets of $627,600. What is the total debt ratio?
A. 0.19B. 0.38C. 0.67D. 1.49E. 3.85
3. Goshen Industrial Sales has sales of $828,900, total equity of $539,200, a profit margin of 4.6 %, and a debt-equity ratio of 0.55. What is the return on assets?
A. 3.89%B. 4.56 %C. 6.67%D. 12.86%E. 13.33%
4. You have just made your first $5,000 contribution to your individual retirement account. Assuming you earn a 5 % rate of return and make no additional contributions, what will your account be worth when you retire in 35 years? What if you wait for 5 years before contributing?
A. $26,335.37; $23,011.60B. $27,311.20; $29,803.04C. $27,311.20; $22,614.08
D. $27,580.08; 21,609.71E. $31,241.90; $32,614.08
5. Turntable Industrial, Inc. owes your firm $138,600. This amount is seriously delinquent so your firm has offered to arrange a payment plan in the hopes that it might at least collect a portion of this receivable. Your firm’s offer consists of weekly payments for one year at an interest rate of 3 %. What is the amount of each payment?
A. $2,229.90B. $2,318.11C. $2,409.18D. $2,599.04E. $2,706.33
6. The Food Store is planning a major expansion for four years from today. In preparation for this, the company is setting aside $35,000 each quarter, starting today, for the next four years. How much money will the firm have when it is ready to expand if it can earn an average of 6.25 % on its savings?
A. $528,409.29B. $540,288.16C. $610,411.20D. $640,516.63E. $662,009.14
7. Kris will receive $800 a month for the next five years from an insurance settlement. The interest rate is 4 %, compounded monthly, for the first two years and 5 %, compounded monthly, for the final three years. What is this settlement worth to him today?
A. $36,003.18B. $38,219.97C. $41,388.71D. $43,066.22E. $45,115.16
8. Julie is borrowing $12,800 to purchase a car. The loan terms are 36 months at 7.5 % interest. How much interest will she pay on this loan if she pays the loan as agreed? Round your answer to the nearest whole dollar.
A. $1,338B. $1,414C. $1,459D. $1,506E. $1,534
9. Which one of the following statements is correct, all else held constant?
A. Beta is used to compute the return on equity and the standard deviation is used to compute the return on preferred.
B. A decrease in a firm’s WACC will increase the attractiveness of the firm’s investment options.
C. The aftertax cost of debt increases when the market price of a bond increases.
D. If you have both the dividend growth and the security market line’s costs of equity, you should use the higher of the two estimates when computing WACC.
E. WACC is applicable only to firms that issue both common and preferred stock.
10. Country Kitchen’s cost of equity is 15.3 % and its aftertax cost of debt is 6.9 %. What is the firm’s weighted average cost of capital if its debt-equity ratio is 0.58 and the tax rate is 30 %?
A. 8.94 %B. 11.47 %C. 12.21 %D. 12.28 %E. 13.01 %
11. Western Electric has 23,000 shares of common stock outstanding at a price per share of $57 and a rate of return of 14.2 %. The firm has 6,000 shares of 7 % preferred stock outstanding at a price of $48 a share. The preferred stock has a par value of $100. The outstanding debt has a total face value of $350,000 and currently sells for 102 % of face. The yield to maturity on the debt is 8.49 %. What is the firm’s weighted average cost of capital if the tax rate is 34 %?
A. 12.69 %B. 13.44 %C. 14.19 %D. 14.47 %E. 14.92 %
12. Bob’s is a retail chain of specialty hardware stores. The firm has 21,000 shares of stock outstanding that are currently valued at $68 a share and provide a 13.2 % rate of return. The firm also has 500 bonds outstanding that have a face value of $1,000, a market price of $1,068, and a 7 % coupon. These bonds mature in 6 years and pay interest semiannually. The tax rate is 35 %. The firm is considering expanding by building a new superstore. The superstore will require an initial investment of $12.3 mil. and is expected to produce cash inflows of $1.1 mil. annually over its 10-year life. The risks associated with the superstore are comparable to the risks of the firm’s current operations. The initial investment will be depreciated on a straight line basis over the life of the project. At the end of the 10 years, the firm expects to sell the superstore for $6.7 mil.. Should the firm accept or rej the superstore project and why?