17) Joe bought a share of stock for $47.50 that paid a dividend of $.92 and sold one year later for $51.38. What was Joe's dollar profit or loss and holding period return?
A) $3.88, 8.95% B) $4.60, 9.68% C) $4.8, 10.11% D) $0.72, 7.55%
18) Consider the following ten-year project. The initial after-tax outlay or after-tax cost is $1,000,000. The future after-tax cash inflows each year for years 1 through 10 are $400,000 per year. What is the payback period without discounting cash flows?
A) 0.5 years B) 10 years C) 2.5 years D) 5 years
19) Assume the following information about the market and JumpMasters' stock. JumpMasters' beta = 1.50, the risk-free rate is 3.50%, the market return is 10.0%. Using the SML, what is the expected return for JumpMasters' stock?
A) 18.50% B) 13.25% C) 7.50% D) 27.00%
20) Kip owns the following portfolio of securities. What is the beta for the portfolio?
Company Beta Percent of Portfolio
Apple .82 50%
Ford 2.93 30%
Federal Express 1.67 20%
A) 1.00 B) 1.74 C) 1.50 D) 1.62
21) Your investment banking firm has estimated what your new issue of bonds is likely to sell for under several
different economic conditions. What is the expected (average) selling price of each bond?
Recession Steady Boom
Probability .25 .65 .10
Bond price $970 $1,000 $1,450
A) $1,000.00 B) $1,007.50 C) $1,100.33 D) $1,037.50
22) Willie's Western Corp. has outstanding nonconvertible preferred stock (cumulative) that pays a quarterly
dividend of $1.65. If your required rate of return is 9.5%, what should you be willing to pay for 1000 shares of
Willie's Western?
A) $69,611.58 B) $62,621.58 C) $69,437.68 D) $52,631.58
23) Lincoln Industries Inc. is considering a project that has an initial after-tax outlay or after-tax cost of
$350,000. The respective future cash inflows from its five-year project for years 1 through 5 are $85,000 each
year. Lincoln expects an additional cash flow of $50,000 in the fifth year. The firm uses the net present value
method and has a discount rate of 10%. Will Lincoln accept the project?
A) Lincoln accepts the project because it has an NPV greater than $18,000.
B) Lincoln rejects the project because it has an NPV less than $0.
C) Lincoln accepts the project because it has an NPV greater than $3,000.
D) There is not enough information to make a decision.
17) Joe bought a share of stock for $47.50 that paid a dividend of $.92 and sold one year later for $51.38. What was Joe's dollar profit or loss and holding period return?
A) $3.88, 8.95% B) $4.60, 9.68% C) $4.8, 10.11% D) $0.72, 7.55%
18) Consider the following ten-year project. The initial after-tax outlay or after-tax cost is $1,000,000. The future after-tax cash inflows each year for years 1 through 10 are $400,000 per year. What is the payback period without discounting cash flows?
A) 0.5 years B) 10 years C) 2.5 years D) 5 years
19) Assume the following information about the market and JumpMasters' stock. JumpMasters' beta = 1.50, the risk-free rate is 3.50%, the market return is 10.0%. Using the SML, what is the expected return for JumpMasters' stock?
A) 18.50% B) 13.25% C) 7.50% D) 27.00%
20) Kip owns the following portfolio of securities. What is the beta for the portfolio?
Company Beta Percent of Portfolio
Apple .82 50%
Ford 2.93 30%
Federal Express 1.67 20%
A) 1.00 B) 1.74 C) 1.50 D) 1.62
21) Your investment banking firm has estimated what your new issue of bonds is likely to sell for under several
different economic conditions. What is the expected (average) selling price of each bond?
Recession Steady Boom
Probability .25 .65 .10
Bond price $970 $1,000 $1,450
A) $1,000.00 B) $1,007.50 C) $1,100.33 D) $1,037.50
22) Willie's Western Corp. has outstanding nonconvertible preferred stock (cumulative) that pays a quarterly
dividend of $1.65. If your required rate of return is 9.5%, what should you be willing to pay for 1000 shares of
Willie's Western?
A) $69,611.58 B) $62,621.58 C) $69,437.68 D) $52,631.58
23) Lincoln Industries Inc. is considering a project that has an initial after-tax outlay or after-tax cost of
$350,000. The respective future cash inflows from its five-year project for years 1 through 5 are $85,000 each
year. Lincoln expects an additional cash flow of $50,000 in the fifth year. The firm uses the net present value
method and has a discount rate of 10%. Will Lincoln accept the project?
A) Lincoln accepts the project because it has an NPV greater than $18,000.
B) Lincoln rejects the project because it has an NPV less than $0.
C) Lincoln accepts the project because it has an NPV greater than $3,000.
D) There is not enough information to make a decision.
