Finance Quiz

1. (TCO D) A stock is expected to pay a dividend of =$0.75 at the end of the year. The required rate of return is r(s)=10.5%, and the expected constant growth rate is g=6.4%. What is thw stock’s current price?
a. $17.49
b. $17.84
c. $18.29
d. $18.75
e. $19.22

2. (TCO D) If D(o)=$2.25, g (which is constant)= 3.5%, and P(o)=$50, what is the stock’s expected dividend yield for the coming year?
a. 4.42%
b. 4.66%
c. 4.89%
d. 5.13%
e. 5.39%

3. (TCO D) Molen Inc. has an outstanding issue of perpetual preferred stock with an annual dividend of $7.50 per share. If the required return on this preferred stock is 6.5%, at what price should the preferred stock sell?
a. $104.27
b. $106.95
c. $109.69
d. $112.50
e. $115.38

4. (TCO E) which of the following is not a capital component when calculating the weighted average cost of capital (WACC) for use in capital budgeting?
a. Long-term dept
b. Accounts payable
c. Retained earnings
d. Common stock
e. Preferred stock

5. (TCO E) If a typical U.S. company correctly estimates its WACC at a given point in time and then uses that same cost of capital to evaluate all projects for the next 10 years, then the firm will most likely
a. Become riskier over time, but its intrinsic value will be maximized
b. Become less risky over time, and this will maximize its intrinsic value
c. Accept too many low risk projects and too few high risk projects
d. Become more risky and also have an increasing WACC. Its intrinsic value will not be maximized
e. Continue as before, because there is no reason to expect its risk position or value to change over time as a result of its use of a single cost of capital

6. (TCO D) Scanlon Inc’s CFO hired you as a consultant to help her estimate the cost of capital. You have been provided with the following data:r(RF)=4.10%; RP(M)=5.25%; and b=1.30. Based on the CAMO approach, what is the cost of common from retained earnings?

Answer: 10.93%

7. (TCO F) Warnock Inc. is considering a project that has the following cash flow and WACC data. What is the projects NPV? Note that a project’s expected NPV can be negative, in which case it will be rejected.
WACC: 10.00%
Cash flows Year 0 -$950
Year 1 $500
Year 2 $400
Year 3 $300

a. $54.62
b. $57.49
c. $60.52
d. $63.54
e. $66.72
8. (TCO F) Simkins Renovations Inc. is considering a project that has the following cash flow data. What is the project’s IRR? Note that a project’s IRR can be less than the WACC (and even negative), in which case it will be rejected.
Cash flows Year 0 -$850
Year 1 $300
Year 2 $290
Year 3 $280
Year 4 $270

a. 13.13%
b. 14.44%
c. 15.89%
d. 17.48%
e. 19.22%

9. (TCO F) Fernando Designs is considering a project that has the following cash flow and WACC data. What is the project’s discounted payback?
WACC: 10.00%

Cash flows Year 0 -$900
Year 1 $500
Year 2 $500
Year 3 $500

a. 1.88 years
b. 2.09 years
c. 2.29 years
d. 2.52 years
e. 2.78 years


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Company Research – Starbucks

In this assignment, assume you are a savvy financial analyst researching companies in which to invest.
Select a U.S. publically-traded company you think might be a good investment and perform a financial analysis. Your analysis should include the following:
•Company Overview. Conduct research and describe the company, its operations, locations, markets, and lines of business. Collect financial statements for the past three (3) years, fiscal or calendar (please insert these in the appendix). These financial statements must include at least the income statement and the balance sheet.
•Evaluate the company’s vulnerability to current financial threats such as a recession, higher interest rates, and global competition.
•Financial Performance. Based on the financial trends of the company, predict how these trends will impact financial performance in future periods. Explain your rationale for this prediction.
•Stock Price Analysis. Given the performance of the stock in the periods presented on the company’s financial statements, discuss how the stock is likely to perform in the future, what type of investor would be drawn to this stock, and make a recommendation to management to improve stock performance.
Submit your analysis in the form of a 6-8 page paper in which you:
1.Provide a detailed overview of a U.S. publicly traded company. This should be one to two (1-2) pages.
2.Evaluate the company’s vulnerability to current financial threats such as a recession, higher interest rates, and global competition.
3.Based on the financial trends of the company, predict how these trends will impact financial performance in future periods. Explain your rationale for this prediction.
4.Cite at least five (5) quality references.
Your assignment must follow these formatting requirements:
•Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.
•Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.
The specific course learning outcomes associated with this assignment are:
•Critique financial management strategies that support business operations in various market environments.
•Estimate the risk and return on financial investments.
•Apply financial management options to corporate finance.
•Use technology and information resources to research issues in financial management.
•Write clearly and concisely about financial management using proper writing mechanics

Answer is 8 page long with references and citations.


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