Question Details

FIN 515
MIDTERM
Question :
(TCO A) Which of the following statements is correct?
Question :
(TCO G) A security analyst obtained the following information from Prestopino Products’ financial statements.

• Retained earnings at the end of 2009 were $700,000, but retained earnings at the end of 2010 had declined to $320,000.
• The company does not pay dividends.
• The company- depreciation expense is its only noncash expense; it has no amortization charges.
• The company has no noncash revenues.
• The company- net cash flow (NCF) for 2010 was $150,000.
                                                                                                
On the basis of this information, which of the following statements is correct?
Question :
(TCO G) LeCompte Corp. has $312,900 of assets, and it uses only common equity capital (zero debt). Its sales for the last year were $620,000, and its net income after taxes was $24,655. Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 15%. Which profit margin would LeCompte need in order to achieve the 15% ROE, holding everything else constant?
Question :
(TCO B) You want to buy a new sports car 3 years from now, and you plan to save $4,200 per year, beginning 1 year from today. You will deposit your savings in an account that pays 5.2% interest. How much will you have just after you make the third deposit, 3 years from now?
Question :
(TCO B) At a rate of 6.5%, which is the future value of the following cash flow stream?
Years:    0       1          2         3        4
              |--------|-----------|----------|---------|
CFs:     $0     $75     $225     $0     $300
Question :
(TCO B) Suppose you borrowed $14,000 at a rate of 10.0% and must repay it in five equal installments at the end of each of the next 5 years. How much interest would you have to pay in the first year?
Question :
(TCO D) A 10-year bond pays an annual coupon, its YTM is 8%, and it currently trades at a premium. Which of the following statements is correct?
Question :
(TCO D) Ezzell Enterprises’ noncallable bonds currently sell for $1,165. They have a 15-year maturity, an annual coupon of $95, and a par value of $1,000. Which is their yield to maturity?
Question :
(TCO C) Niendorf Corporation's 5-year bonds yield 6.75%, and 5-year T-bonds yield 4.80%. The real risk-free rate is r* = 2.75%, the inflation premium for 5-year bonds is IP = 1.65%, the default risk premium for Niendorf's bonds is DRP = 1.20% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t - 1) × 0.1%, where t = number of years to maturity. Which is the liquidity premium (LP) on Niendorf's bonds?
Question :
(TCO C) Assume that to cool off the economy and decrease expectations for inflation, the Federal Reserve tightened the money supply, causing an increase in the risk-free rate, rRF. Investors also became concerned that the Fed's actions would lead to a recession, and that led to an increase in the market risk premium (rM - rRF). Under these conditions, with other things held constant, which of the following statements is most correct?