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"MBA 554 Managerial Finance List the three key financial statements and provide a brief description of each. (6 points) The local fitness store allows customers to choose their payment plan when they purchase exercise equipment. For the treadmill you purchase, you have the option to pay $1,200 today or pay $500 today along with $400 at the end of each of the next two years. The current interest rate on your money market at the bank is 8%. Which is the best payment option? (6 points) Acme, Inc. is considering the following two investments, both of which cost $50,000 today. The firm's cost of capital is 8%. Answer the following questions based on the data below. (10 points) Year Investment A Investment B 1 $20,000 $25,000 2 $25,000 $30,000 3 $30,000 $10,000 4 $30,000 $12,000 1.Which of the two projects should be chosen under the payback method? 2.Which of the two projects should be chosen based on the net present value method? 3.Should the firm have more confidence in answer (1) or (2)? Why? 4. A bond that pays coupons annually is issued with a coupon rate of 8%, maturity of 15 years, and a yield to maturity of 11%. What rate of return will be earned by an investor who purchases the bond and holds it for 1 year if the bond's yield to maturity at the end of the year is 10%? (14 points) What is the weighted-average cost of capital for a firm with the following sources of funds and corresponding required rates of return: $5 million common stock at 16%, $500,000 preferred stock at 10%, and $3 million debt at 9%. All amounts are listed at market values and the firm's tax rate is 35%. (10 points) 6. Gus' Games stock currently sells for $50 per share. There are 4 million shares currently outstanding. The company announces plans to raise $5 million by offering shares to the public at a price of $45 per share. (12 points) a)If the underwriting spread is 4%, how many shares will the company need to issue in order to be left with the net proceeds of $5 million? (6 points) b)If other administrative costs are $90,000, what is the dollar value of the total direct costs of the issue? (6 points) 7.The three possible outcomes of an investment are listed below. All outcomes are equally likely. Calculate the average profit, variation and the standard deviation of this investment. (12 points) Profit Best Case +$400 Most Likely +$150 Worst Case -$300 Multiple Choice (1 points each) 1. Which of the following would be considered an advantage of the sole proprietorship form of organization? A. Wide access to capital markets B. Unlimited liability C. A pool of expertise D. Profits taxed at only one level 2. The term ""capital structure"" refers to: A. the manner in which a firm obtains its long-term sources of funding. B. the length of time needed to repay debt. C. whether the firm invests in capital budgeting projects. D. which specific assets the firm should invest in. 3. A bond differs from a share of stock in that: A. a bond represents a claim on the firm. B. a bond has less risk. C. a bond has guaranteed returns. D. a bond has a maturity date. 4. The financial ratios of a firm can best be compared to: A. ratios of firms in the same city. B. ratios of firms having the same capital structure. C. ratios of firms in the same industry. D. ratios of firms having the same return on equity. 5. A stream of equal cash payments lasting forever is termed: A. an annuity. B. an annuity due. C. an installment plan. D. a perpetuity. 6. A stock's beta measures the: A. average return on the stock. B. variability in the stock's returns compared to that of the market portfolio. C. difference between the return on the stock and return on the market portfolio. D. market risk premium on the stock. 7. Capital structure decisions refer to the: A. dividend yield of the firm's stock. B. blend of equity and debt used by the firm. C. capital gains available on the firm's stock. D. maturity date for the firm's securities. 8. The purpose of a sinking fund is to: A. reduce the par value of stock over time. B. take advantage of the tax break on preferred stock. C. periodically pay off a portion of the outstanding debt prior to maturity. D. allow risky corporations to avoid bankruptcy. 9. A company's board of directors is primarily an agent of the company's: A. management. B. employees. C. shareholders. D. management and employees. 10. A firm's first offering of stock to the general public is known as: A. first-stage financing. B. an Initial Public Offering (IPO). C. a general cash offer. D. a seasoned offering. Jan 22 2014 06:01 AM"
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