Finance Questions

Calculate the increase or decrease in working capital if accounts receivables increase by $5,000, inventories decrease by $1,000 and accounts payables increase by $6,000 and state whether that is a source or use of cash.

Ben's Banana Stand Corp. just paid a dividend of $2.50 per share; its dividends are expected to grow at a constant rate of 5% per year forever. If the required rate of return on the stock is 15%, what is the current value of the stock, after paying the dividend?

The beta of an all-equity firm is 0.9. Suppose the firm changes its capital structure to 50 percent debt and 50 percent equity using 6 percent debt financing. What is the equity beta of the levered firm? The beta of debt is 0.1. (Assume no taxes.)

Based on the following data for year 1:Profits after taxes = $20 million; Depreciation = $6 million; Interest expense = $4 million; Investment in fixed assets = $12 million; Investment in working capital = $4 million. The corporate tax rate = 25 percent. Calculate the free cash flow (FCF) for year 1.A. $4 millionB. $6 millionC. $13 millionD. $8 million

What is the most important difference between a corporate bond and an equivalent U.S. Treasury bond?A. In the case of corporate bonds, firms have sometimes defaulted, whereas the U.S. government has not.B. The beta of corporate bonds is usually less than the beta of a U.S. Treasury bond.C. Corporate cash flow is relatively smooth, whereas U.S. government revenue is more variable.D. Corporate bonds are traded on the floor of the New York Stock Exchange, and Treasury bonds trade in the over-the-counter market.

Assume the following data: EBIT = 100; Depreciation = 40; Interest = 20; Dividends = 10. Calculate the cash coverage ratio.A. 4.7B. 5.0C. 14.0D. 7.0

The cash cycle occurs in the following sequence:A. cash, raw materials, receivables, finished goods, and cash.B. cash, receivables, finished goods, raw materials, and cash.C. cash, finished goods, receivables, raw materials, and cash.D. cash, raw materials, finished goods, receivables, and cash.

The following is the general formula for calculating the "Ending accounts receivable (AR)":A. Ending (AR) = beginning (AR) − sales + collections.B. Ending (AR) = beginning (AR) + sales − collections.C. Ending (AR) = beginning (AR) − sales − collections.D. Ending (AR) = beginning (AR) + sales + collections.

You are given the following data for year 1: Revenues = 100; Fixed costs = 30; Total variable costs = 50; Depreciation = $10; Tax rate = 21 percent. Calculate the after-tax cash flow for the project for year 1.A. $13.10B. $7.30C. $10.00D. $17.90

Generally, convertible bonds are issued byA. smaller and more speculative firms.B. the U.S. government.C. mature and profitable firms.D. very large firms.

Renovating the Sci Li requires an initial investment of $100,000 of material assets and expects to produce a cash flow before taxes of $75,000 for three years (i.e. cash flows will occur at year 1, year 2, and year 3). The corporate tax rate is 35%. The assets will depreciate using the MACRS 3-year schedule which calls for 33% depreciation in year 1, 45% in year 2, 15% in year 3, and 7% in year 4. The opportunity cost of capital is 10%. Assume the asset sells for book value at the end of the project. Calculate the NPV.

The asset beta of a levered firm is 1.1. The beta of debt is 0.3. If the debt equity ratio is 0.5, what is the equity beta? (Assume no taxes.)A. 0.30B. 0.15C. 1.10D. 1.50

What signal is sent to the market when a firm decides to issue new stock to raise capital?A. Bond markets are overpriced.B. Stock price is too high.C. Bond markets are underpriced.D. Stock price is too low.

A firm can achieve a higher growth rate (within limits) without raising external capital byA. increasing its current ratio.B. increasing the proportion of debt in its capital structure.C. increasing its plowback ratio.D. decreasing its inventory turnover.

Mirion, Inc., has a debt-equity ratio of 50 percent, with no preferred stock. However, Mirion now plans to raise enough preferred stock to retire half of its outstanding common stock. Its common equity is currently valued at $7 million. Which of the following choices displays Mirion's market value capital structure, in market values (i.e., V = D + P + E), after the preferred stock issue?A. 10.5[V] = 7 [E] + 3.5[P] + 0[D].B. 14[V] = 7[E] + 3.5[P] + 3.5[D].C. 10.5[V] = 3.5[E] + 3.5[P] + 3.5[D].D. 14[V] = 3.5[E] + 3.5[P] + 7[D].

Assume the following data: Current assets = 500; Current liabilities = 250; Inventory = 200; Accounts receivable = 200. Calculate the cash ratio. (Assume that the firm has no marketable securities.)A. 1.5B. 2.0C. 0.4D. 1.2

Given are the following data for Outsource Company: PV (of UFCFs for years 1-3) = $35 million; PV (horizon value) = $65 million. Suppose that the market value of the debt = $30 million. Calculate the total market value of equity of the firm.A. $35 millionB. $100 millionC. $30 millionD. $70 million

MM Proposition I with corporate taxes states that:I) capital structure can affect firm value by an amount that is equal to the present value of the interest tax shield;II) by raising the debt-to-equity ratio, the firm can lower its taxes and thereby increase its total value;III) firm value is maximized by using an all-equity capital structureA. I onlyB. III onlyC. I and IID. II only

In the AHP case, expenses above what amount needed to be approved by the CEO?A. 50,000B. 5,000C. 500D. 15,000

A puttable provision in a bond allows theA. holder to redeem the bond at par before maturity.B. issuer to extend the maturity of the bond.C. holder to extend the maturity of the bond.D. issuer to call the bond at par on the coupon payment date.