Question 1
1. (Analyzing the cash flow Statement) Goggle, Inc. is an Internet firm that has experienced a period of very rapid growth in revenues over the period 2007-2010. The cash flow statements for Goggle, Inc. spanning the period are below. Choose the best answer for the following question using the information found in these statements:
What years did Goggle generate positive cash flow from its operations?
| Goggle has generated positive cash flow from its operations during the years 2007 and 2008. | ||
| Goggle has generated positive cash flow from its operations during the years 2008 and 2009. | ||
| Goggle has generated positive cash flow from its operations during the years 2009 and 2010. | ||
| Goggle has generated positive cash flow from its operations during the years 2008, 2009, and 2010. |
Question 2
1. (Analyzing the cash flow Statement) Goggle, Inc. is an Internet firm that has experienced a period of very rapid growth in revenues over the period 2008-2010. The cash flow statements for Goggle, Inc. spanning the period are below. Choose the best answer for the following question using the information found in these statements: Describe Goggle’s main source of financing in the financial markets over the period.
| Google’s main source of financing in the financial markets over the period was the issuance of common stock for the amount of $985 million. | ||
| Google’s main source of financing in the financial markets over the period was the issuance of debt for the amount of $10 million. | ||
| Google’s main source of financing in the financial markets over the period was the issuance of common stock for the amount of $8,034. | ||
| Google’s main source of financing in the financial markets over the period was the issuance of debt for the amount of $985 million. |
Question 3
1. (Analyzing the cash flow Statement) Goggle, Inc. is an Internet firm that has experienced a period of very rapid growth in revenues over the period 2008-2010. The cash flow statements for Goggle, Inc. spanning the period are below. Based solely on the cash flow statements for 2008 through 2010, select the statement that best describes the major activities of Goggle’s management team over the period.
| Google’s management team has been investing heavily in working capital and financing them with the issuance of stocks and internally generated funds. | ||
| Google’s management team has been investing heavily in capital expenditures and financing them with the issuance of stocks and internally generated funds. | ||
| Google’s management team has been spending heavily in paying cash dividends and financing them with the issuance of stocks and internally generated funds. | ||
| Google’s management team has been investing heavily in capital expenditures and financing them with the issuance of debt and internally generated funds. |
Question 4
1. (Analyzing the cash flow Statement) Goggle, Inc. is an Internet firm that has experienced a period of very rapid growth in revenues over the period 2008-2010. The cash flow statements for Goggle, Inc. spanning the period are below. Choose the best answer for the following question using the information found in these statements: How much did Goggle invest in new capital expenditures over the period? (Round to the nearest integer.)
| The amount that Google invested in new capital expenditures over the period is $15,930 million. | ||
| The amount that Google invested in new capital expenditures over the period is $14,710 million. | ||
| The amount that Google invested in new capital expenditures over the period is $16,290 million. | ||
| The amount that Google invested in new capital expenditures over the period is $11,030 million. |
Question 5
1. When managers have little or no ownership in the firm, they are less likely to work energetically for the company’s shareholders. We call this type of conflict a(n) __________.
| agency problem | ||
| ownership problem | ||
| management problem | ||
| moral problem |
Question 6
1. (Expected rate of return and risk) Syntex, Inc. is considering an investment in one of two common stocks.
a. Given the information in the table, what is the expected rate of return for stock B?
b. What is the standard deviation of stock B?
c. What is the expected rate of return for stock A?
d. Based on the risk (as measured by the standard deviation) and return of each stock which investment is better? (Round to 2 decimal places)
Question 7
1. (DuPont analysis) Dearborn Supplies has total sales of $150 million, assets of $109 million, a return on equity of 30 percent, and a net profit margin of 7.6 percent. What is the firm’s debt ratio?
Question 8
1. (Calculating rates of return) The common stock of Placo Enterprises had a market price of $8.34 on the day you purchased it just one year ago. During the past year, the stock had paid a dividend of $0.54 and closed at a price of $11.47. What rate of return did you earn on your investment in Placo’s stock? (Round to two decimal places.)
10 points
Question 9
1. (Review of financial statements) Prepare a balance sheet and income statement for the Warner Company from the scrambled list of items found here in order to answer the question below. The statements do not need to be submitted, only your response to the question. What can you say about the firm’s financial condition based on the prepared financial statements?
Question 10
1. (NPV, PI, and IRR calculations) Fijisawa, Inc. is considering a major expansion of its product line and has estimated the following cash flows associated with such an expansion. The initial outlay would be $1,960,000, and the project would generate cash flows of $380,000 per year for six years. The appropriate discount rate is 4.0 percent.
a. Calculate the net present value.
b. Calculate the profitability index.
c. Calculate the internal rate of return.
d. Should this project be accepted? Why or why not?
Question 11
1. (Cost of debt) Temple-Midland, Inc. is issuing a $1,000 par value bond that pays 8.1 percent annual interest and matures in 15 years. Investors are willing to pay $948 for the bond and Temple faces a tax rate of 32 percent. What is Temple’s after-tax cost of debt on the bond?
Question 12
1. (Cost of common equity) The common stock for the Hetterbrand Corporation sells for $59.17, and the last dividend paid was $2.24. Five years ago the firm paid $1.54 per share, and dividends are expected to grow at the same annual rate in the figure as they did over the past five years.
a. What is the estimated cost of common equity to the firm using the dividend growth model? (Round to 2 decimal places.)
b. Hetterbrand’s CFO has asked his financial analyst to estimate the firm’s cost of common equity using the CAPM as a way of validating the earlier calculations. The risk-free rate of interest is currently 4.1 percent, the market risk premium is estimated to be 4.2 percent, and Hetterbrand’s beta is 0.78. What is your estimate of the firm’s cost of common equity using this method? (Round to 2 decimal places.)
Question 13
1. (Defining capital structure weights) Templeton Extended Care Facilities, Inc. is considering the acquisition of a chain of cemeteries for $440 million. Since the primary asset of this business is real estate, Templeton’s management has determined that they will be able to borrow the majority of the money needed to buy the business. The current owners have no debt financing, but Templeton plans to borrow $340 million and invest only $90 million in equity in the acquisition. What weights should Templeton use in computing the WACC for this acquisition? (Round to one decimal place.)
a. What is the appropriate weight of debt?
b. What is the appropriate weight of common equity?
1. (Weighted average cost of capital) In the spring of last year, Tempe Steel learned that the firm would need to re-evaluate the company’s weighted average cost of capital following a significant issue of debt. The firm now has financed 33 percent of its assets using debt and 57 percent using equity. Calculate the firm’s weighted average cost of capital where the firm’s borrowing rate on debt is 7.9 percent, it faces a 34 percent tax rate, and the common stockholders require a 19.7 percent rate of return.
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