BUSN 379 Final Exam

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BUSN 379 Final Exam 
(TCO 6) What are the factors that make up the capital asset pricing model? Where would you typically…

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BUSN 379 Final Exam

BUSN 379 Final Exam

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(TCO 1) Likeline, Inc., has sales of $445,000, costs of $173,000, depreciation expense of $72,000, interest expense of $36,000, and a tax rate of 35 percent. What is their net income? (Points : 20)

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Sales                            $445,000

Less:

Cost                             $173,000

Depreciation                $72,000….

(TCO 1) Hammett, Inc. has sales of $19,570, costs of $9,460, depreciation expense of $2,130, and interest expense of $1,620. If the tax rate is 35 percent, what is the operating cash flow, or OCF?

Show your work

(Points : 20)

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Operating cash flow in this case would be…

19,570 Sales

(9,460)

(TCOs 2 and 3) Cee Co. issued 20-year, $1,000 bonds at a coupon rate of 7 percent. The bonds make annual payments. If the YTM on these bonds is 4 percent, what is the current bond price? (Points : 20)

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Note:Coupon rate= 7% x…

(TCO 3) Sixteenth Bank has an issue of 6% preferred stock with a $100.00 par value that just sold for $89 per share. What is the bank’s cost of preferred stock? (Show your work and round your answer to two decimal places. (Points : 20)
The bank’s cost of preferred stock….

(TCOs 3 and 5) You own a portfolio that has $2,600 invested in Stock A and $3,400 invested in Stock B. If the expected returns on these stocks are 11 percent and 17 percent, respectively, what is the expected return on the portfolio? (Show your work.) (Points : 20)

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Total Portfolio = 2600 + 3400 = $6000

Ratio of Stock A/ total = $2600/6000 = 43.33%….

(TCO 3)  A stock has a beta of 1.25, the expected return on the market is 12 percent, and the risk-free rate is 2 percent. What must the expected return on this stock be? (Show your work.) (Points : 20)

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Ra= Rf + Ba (Rm – Rf)

Ra = …

(TCO 4) Suppose Tom, Ltd. just issued a dividend of $2.00 per share on its common stock. The company’s dividends have been growing at a rate of 7%. If the stock currently sells for $50.00, what is your best estimate of the company’s cost of equity? (Show your work.) (Points : 20)

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Cost of  equity= g + Current annual dividends (1+g)….

(TCO 4) Given the following information, calculate the weighted average cost for the Han Corp.
Percent of capital structure:
Preferred stock                                                      15%
Common equity                                                     60%
Debt                                                                      25%
Additional information:
Corporate tax rate                                                  34%
Dividend, preferred                                                $9.50
Dividend, expected common                                  $1.50
Price, preferred                                                      $100.00
Growth rate                                                            9%
Bond yield                                                             6%
Price, common                                                               $75.00 (Points : 40)

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WACC = ((E/V) * Re) +((E/V) * Rp) + [((D/V) * Rd)*(1-T)]

Where:

  • E = Market value of the company’s equity, preferred stock or debt
  • V = Total Market Value of the company (E + D); therefore…

(TCO 7) What are some important factors to consider when conducting a credit evaluation and scoring? (Points : 20)

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When doing a credit evaluation and scoring, the “classic five Cs of credit” is commonly used. These are:

  1. Character – this is the customer’s…
  2. Capacity – this pertains to the…
  3. Capital – refers to the…
(TCO 1) Provide three examples of situations in which business ethics play a role in the financial management process. Explain your rationale, and how these situations may affect the value of the firm. (Points : 20)

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  1. The ultimate goal of companies is to maximize the value of shareholder’s equity. In striving to achieve this objective, companies are prone to…

(TCO 6) What are the factors that make up the capital asset pricing model? Where would you typically find the data for these factors? (Points : 20)

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Capital asset pricing model (CAPM) depicts the relationship between risk and expected return on a risky asset or security through the formula below:

Ra= Rf …

Where the factors that make up the model and their sources are:

  • Note: Ra – represents the

BUSN 379 Final Exam

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