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Request Description

Sims Inc. earned $1.00 per share in 2002. Five years later, in 2007, it earned $2.00.

What was the growth rate in Sims' earnings per share over the 5-year period? (b)

a. 15.82% b. 14.87% c. 13.61% d. 12.28% e. 11.17%

Your sister turned 30 today, and she is planning to save $3,000 per year for

retirement, with the first deposit to be made one year from today. She will invest in a

mutual fund, which she expects to provide a return of 10% per year. She plans to retire

35 years from today when she turns 65, and she expects to live for 30 years after

retirement, to age 95. Under these assumptions, how much can she spend each year

after she retires? Her first withdrawal will be made at the end of her first retirement

year. (d)

a. $78,976

b. $91,110

c. $88,513

d. $86,250

e. $83,049

Companies generate income from their "regular" operations and from things like

interest on securities they hold, which is called non-operating income. Mitel Metals

recently reported $9,000 of sales, $6,000 of operating costs excluding depreciation,

and $1,500 of depreciation. The company had no amortization charges and no nonoperating

income. It had issued $4,000 of bonds that carry a 7% interest rate, and its

federal-plus-state income tax rate was 40%. What was the firm's operating income,

or EBIT? (e)

a. $1,100 b. $1,200 c. $1,300 d. $1,400 e. $1,500

Temple Square Inc. reported that its retained earnings for 2007 were $490,000. In its

2008 financial statements, it reported $60,000 of net income, and it ended 2008 with

$510,000 of retained earnings. How much were paid out as cash dividends to

shareholders during 2008? (e)

a. $20,000 b. $25,000 c. $30,000 d. $35,000 e. $40,000

Collins Inc's latest net income was $1 million, and it had 200,000 shares outstanding.

The company wants to pay out 40% of its income. What dividend per share should the

company declare? (e)

a. $1.60 b. $1.70 c. $1.80 d. $1.90 e. $2.00

Approximately how long will it take to double your money if the interest rate is

12% compounded annually? (d)

a. 12 years b. 10 years c. 8 years d. 6 years e. None of the above

Which of the following statements is correct? (e)

a. If you purchase 100 shares of Disney stock from your brother-in-law, this is an

example of a primary market transaction.

b. If Disney issues additional shares of common stock through an investment

banker, this would be a secondary market transaction.

c. The NYSE is an example of an over-the-counter market.

d. Only institutions, and not individuals, can engage in the derivatives markets.

e. As they are generally defined, money market transactions involve debt securities

with maturities of less than one year.

Suppose you have a daughter who just turned 8. You would like to set up an

education account for her. You plan to save each year in next 10 years and the first

investment will be made in one year. The money in the education account earns

12%, compounded annually. It is expected that your daughter needs $20,000 per

year for 4 years to finish her college. The first withdraw will take place when she

turns 18 (ordinary annuity or annuity due?). How much should you save each year

in next 10 years? (d)

a. $8,000.00

b. $5,454.45

c. $4,356.34

d. $3,877.01

e. $3,233.05

Capital markets are markets for (e)

a. short-term debts.

b. consumer automobile loans.

c. corporate stocks.

d. long-term bonds.

e. Both c and d are correct

All of the following represent cash outflows to a firm except (a)

a. Depreciation.

b. Interest payments.

c. Dividends.

d. Purchase of plant and equipment.

e. Taxes.

What will be the present value of the following uneven cash flows if the interest

rate is 8%? (b)

100 200 200 200 200

--------------------------------------------------

0 1 2 3 4 5

a. 650.25 b. 705.95 c. 805.50 d. 855.90 e. None of the above

ABC’s return on equity (ROE) is 15%. If sales were $10 million, the debt ratio was

40%, and total liabilities were $5 million, what would be ABC’s return on assets

(ROA)? (c)

a. 15% b. 10% c. 9% d. 8% e. 7%

If you buy a condominium for $200,000 and the terms are 10% down, the balance

of $180,000 to be paid off over 15 years at a 6% rate of interest on the unpaid

balance, what is your annual payment? (a)

a. 18,533.30 b. 19,976.23 c. 20,143.56 d. 21,367.12 e. 22,102.31

In the above question, what is your monthly payment? (b)

a. 1,456.89 b. 1,518.94 c. 1,606.25 d. 1,664.67 e. 1,734.29

You are considering investing in either XYZ bonds that yield 6% or state of

California municipal bonds that yield 4.0%. What should be your marginal tax rate

such that you will be indifferent between these two investments based on after tax

returns (ignore the risk)? (c)

a. 28.00% b. 31.00% c. 33.33% d. 36.66% e. 38.00%

Amount borrowed: $100,000

Years: 5

Rate: 6% compounded annually

PMT: -$23,739.64

(PV = 100,000, N = 5, i/y = 6, FV = 0, solve for PMT)

Year Beginning

Amount (1)

Payment

(2)

Interest

(3)

Repayment of

Principal (4)

Ending

Balance (5)

1 $100,000.00 $23,739.64 $6,000.00 $17,739.64 $82,260.36

2 82,260.36 23,739.64 4,935.62 18,804.02 63,456.34

3 63,456.34 23,739.64 3,807.38 19,932.26 43,524.08

4 43,524.08 23,739.64 2,611.44 21,128.20 22,395.89

5 22,395.89 23,739.64 1,343.75 22,395.89 0.00

For the next three questions suppose the following holds:

You are given the following information about ABC Company for 2007:

Corporate Tax Rates

Corporate Income Base Tax Rate

$ 0 - 50,000 $ 0 15%

$ 50,000 - 75,000 7,500 25%

$ 75,000 - 100,000 13,750 34%

$ 100,000 - 335,000 22,250 39%

Over $335,000 113,900 34%

19. What is taxable income for ABC in 2007? (c)

a. $355,000

b. $310,000

c. $290,000

d. $276,000

e. $250,000

How much in taxes should ABC pay in 2007? (a)

a. $ 96,350

b. $114,580

c. $104,150

d. $ 90,890

e. $ 80,750

What are the marginal and average tax rates for the company in 2007? (b)

a. 34%, 32.45%

b. 39%, 33.22%

c. 39%, 35.23%

d. 34%, 30.23%

e. 39%, 34.00%

For the next three questions, suppose the following holds:

The projected taxable income for ABC to be formed in 2008 is indicated in the

following table. The tax rate for ABC is 40%.

Year Taxable income

2008 ($5,000,000)

2009 4,000,000

2010 4,000,000

2011 (2,000,000)

What would be the tax liability for ABC in year 2009? (b)

a. There would be no taxes due and there would be $5,000,000 loss to carry

forward.

b. There would be no taxes due and there would be $1,000,000 loss to carry

forward.

c. There would be no taxes due and there would be no loss to carry forward.

d. There would be a tax liability of $1,000,000.

e. There would be a tax liability of $400,000.

What would be the tax liability for ABC in year 2010? (e)

a. There would be no taxes due and there would be $3,000,000 loss to carry

forward.

b. There would be no taxes due and there would be $1,000,000 loss to carry back.

c. There would be no taxes due and there would be no loss to carry forward.

d. There would be a tax liability of $3,000,000.

e. There would be a tax liability of $1,200,000

What is the tax liability for ABC in year 2011? (a)

a. There would be no taxes due and there would be $2,000,000 loss to carry back

for a refund of $800,000.

b. There would be no taxes due and there would be $1,000,000 loss to carry back

for a refund of $400,000.

c. There would be no taxes due and there would be no loss to carry back.

d. There would be a tax liability of $1,000,000.

e. There would be a tax liability of $400,000.

Solution Description

Sims Inc. earned $1.00 per share in 2002. Five years later, in 2007, it earned $2.00.

What was the growth rate in Sims' earnings per share over the 5-year period? (b)

a. 15.82% b. 14.87% c. 13.61% d. 12.28% e. 11.17%

Your sister turned 30 today, and she is planning to save $3,000 per year for

retirement, with the first deposit to be made one year from today. She will invest in a

mutual fund, which she expects to provide a return of 10% per year. She plans to retire

35 years from today when she turns 65, and she expects to live for 30 years after

retirement, to age 95. Under these assumptions, how much can she spend each year

after she retires? Her first withdrawal will be made at the end of her first retirement

year. (d)

a. $78,976

b. $91,110

c. $88,513

d. $86,250

e. $83,049

Companies generate income from their "regular" operations and from things like

interest on securities they hold, which is called non-operating income. Mitel Metals

recently reported $9,000 of sales, $6,000 of operating costs excluding depreciation,

and $1,500 of depreciation. The company had no amortization charges and no nonoperating

income. It had issued $4,000 of bonds that carry a 7% interest rate, and its

federal-plus-state income tax rate was 40%. What was the firm's operating income,

or EBIT? (e)

a. $1,100 b. $1,200 c. $1,300 d. $1,400 e. $1,500

Temple Square Inc. reported that its retained earnings for 2007 were $490,000. In its

2008 financial statements, it reported $60,000 of net income, and it ended 2008 with