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1 BFM – Spring 2019, Professor Mukharlyamov Midterm Exam #1 NAME:
_______________________________________________________________________________ SECTION (circle yours): 2:00–3:15 PM 3:30–4:45 PM 5:00–6:15 PM EXAM INSTRUCTIONS 1)
The midterm lasts 1 hour and 15 minutes. If you want to submit the work early, please do so in the first 60 minutes. In the last 15 minutes of the exam, submitting early is not allowed so that your fellow classmates are not disturbed by movement at the finish line of the midterm. 2)
No bathroom breaks.
If you need to use the bathroom, do so before opening the exam booklet. 3)
Please write all answers and work in your exam booklet. Only answers in the exam booklet will count.
No credit will be given for answers or work written on scratch paper. 4)
The scratch paper
and the formula sheet
are attached to the end of the exam booklet. For your convenience, you may unclip the scratch paper and the formula sheet. If you do so, 1) write your name on each piece of the scratch paper and the formula sheet, and 2) make sure the exam booklet (with questions and answers) is securely stapled. The scratch paper and the formula sheet have to be submitted with the exam booklet at the end of the exam. 5)
If you are unsure of any element of a question, or believe the question is vague, please make an assumption, write down your assumption
, and continue to solve the question. 6)
No partial credit will be given for the Part I multiple-choice questions. 7)
Partial credit is possible for the Part II problems. To receive full credit, you must show all your work and write your final answers in the boxes provided
. 8)
If you use financial functions of a business calculator, indicate what was entered for each key to receive full credit. Sharing of calculators is not allowed. One financial calculator per person. Graphic calculators not allowed.
9)
Round your final answers to 2 decimal places unless requested otherwise.
Honor statement: On my honor, I attest that I have completed this exam independently, without help from any individual. I also attest that I have not shared my exam answers with any other student. I further attest that I will not provide information about the exam to any other student. I understand that violation of this honor statement subjects me to appropriate sanctions as determined by Georgetown University’s Honor Council. Signature _____________________________________________________________________________
2 Part I: Multiple Choice (circle the single right answer) (10 points) 1) Which one of the following is a capital budgeting decision? A. determining how many shares of stock to issue B. deciding whether or not to purchase a new machine for the production line C. deciding how to refinance a debt issue that is maturing D. determining how much inventory to keep on hand E. determining how much money should be kept in the checking account 2) Which one of the following actions by a financial manager is most apt to create an agency problem? A. refusing to borrow money when doing so will create losses for the firm B. refusing to lower selling prices if doing so will reduce the net profits C. refusing to expand the company if doing so will lower the value of the equity D. agreeing to pay bonuses based on the company’s stock price rather than on the firm's level of sales E. increasing current profits when doing so lowers the value of the firm's equity 3) Which of the following help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes. (Circle one of the choices A, B, C, D, or E on the right.) I. compensation based on the value of the stock II. stock option plans III. threat of a company takeover IV. threat of a proxy fight A. I and II only B. III and IV only C. I, II, and III only D. I, III, and IV only E. I, II, III, and IV 4) Which one of the following will increase the value of a firm's net working capital? A. using cash to pay a supplier B. depreciating an asset C. collecting an accounts receivable D. purchasing inventory on credit E. selling inventory at a profit 5) Dee Dee's Marina is obligated to pay its creditors $6,400 today. The firm's assets have a current market value of $5,900. What is the current market value of the shareholders' equity? A. −$600
B. −$500
C. $0 D. $500 E. $600 6) A firm has a debt-total asset ratio of 74% and a return on total assets of 13%. What is the return on equity? A. 26 percent B. 50 percent C. 65 percent D. 84 percent E. 135 percent 7) Given the tax rates as shown, what is the average tax rate for a firm with taxable income of $311,360? A. 28.25 percent B. 31.09 percent C. 33.62 percent D. 35.48 percent E. 39.00 percent
3 8) How many days of sales are in receivables? (Use 2012 values) (Income statement is to the right; balance sheet is underneath.) A. $1,732 B. $2,247 C. $2,961 D. $3,915 E. $4,267 9) You have just won the lottery and will receive $540,000 as your first payment one year from now. You will receive payments for 26 years. The payments will increase in value by 4 percent each year. The appropriate discount rate is 10 percent. What is the present value of your winnings? A. $6,221,407 B. $6,906,372 C. $7,559,613 D. $7,811,406 E. $8,003.11 10) The bonds issued by Stainless Tubs bear an 8 percent coupon, payable semiannually. The bonds mature in 11 years and have a $1,000 face value. Currently, the bonds sell for $952. What is the yield to maturity? A. 7.87 percent B. 7.92 percent C. 8.08 percent D. 8.69 percent E. 9.20 percent
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4 Part II: Problems (20 points) Problem 11: Time Value of Money (5 points) What is the present value of $1,100 per year, at a discount rate of 10 percent if the first payment is received 6 years from now and the last payment is received 30 years from now? Answer Problem 12: Effective Annual Rate (5 points) You have just purchased a new warehouse. To finance the purchase, you've arranged for a 30-year mortgage loan for 80 percent of the $2,600,000 purchase price. The monthly payment on this loan will be $12,200. The first payment is in one month from now. What is the effective annual rate on this loan? Answer
5 Problem 13: Bond Valuation, YTM, and HPY (5 points) Today, you are considering an investment into a 5-year 10% annual coupon bond A with a face value of $1,000. The interest rate relevant for discounting is 6% over the first year, 8% over the second year, and 10% over the third, fourth, and fifth years. 13.1 (2 points) Calculate the bond’s fair price (i.e., present value) today. Answer 13.2 (1 point) Calculate the bond’s fair price at the end of the second year. (Use calculator or present value formulas.) Answer
6 13.3 (1 point) Keeping in mind that bonds are priced at par if and only if the coupon rate equals the yield-to-maturity, please give a verbal explanation of what you expect the bond’s fair price to be at the beginning of the fifth year, at the beginning of the fourth year, and at the beginning of the third year. The verbal explanation exists because two specific conditions are satisfied in this case. Please mention what these two conditions are. 13.4 (1 point) Imagine that you bought the bond today at the price calculated in 13.1 and sold after two years at the price calculated in 13.2. What is the holding period yield? Answer
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7 Problem 14: Bond Replication, Mispricing, and Sensitivity to the Interest Rate (5 points) You are a bond trader and observe the following three US government bonds trading in the market. The market interest rate is 7%. Bonds A and B trade at their fair prices. A: A five-year 10% semi-annual coupon bond trading at $1,130.0599 B: A five-year 5% semi-annual coupon bond trading at $921.5230 C: A five-year zero coupon bond trading at $700.0000 14.1 (1 point) What is the fair price of Bond C? Answer 14.2 (2 points) If Bond C is trading at a price different from its fair price, how can you profit from the mispricing? If the trading strategy involves buying low and selling high, be specific about what you will buy and what you will sell. (Hint: one transaction will involve Bond C and another transaction will involve a basket of bonds A and B. You need to be clear about the number (possibly fractional or negative) of each bond in this basket.)
8 14.3 (1 point) In financial markets, mispricings (i.e., deviations of prices from fair prices) do not usually exist for a long time. Give a verbal explanation why. You may use the mispricing of Bond C as an example. 14.4 (1 point) Suppose the market interest rate increases from 7% to 8%. The price of which bond, A or B, do you expect to experience a bigger percentage change? Give a verbal explanation. (Note that to guide your intuition—which is not required—you may recalculate the price of each bond assuming market interest rate of 8% and compare the new price with the old price. Bear in mind, though, the emphasis on a percentage change of price as opposed to the dollar (or absolute) change. Use this calculation only to guide or confirm your intuition, because full credit will be given only for a verbal explanation which does not rely exclusively on calculations.)
SCRATCH PAPER SCRATCH PAPER
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SCRATCH PAPER SCRATCH PAPER
SCRATCH PAPER SCRATCH PAPER
Formulas: ROA = NI / Total assets ROE = NI / Total equity ROE = PM * TAT * EM PM = Net income / Sales Inv. turnover = COGS / Inventory Receivables turnover = Sales / AR Days’ sales in inv. = 365 / inv. Turnover Days’ sales in rec. = 365 / rec. turnover Current ratio = CA / CL NWC turnover = Sales / NWC Quick ratio = (CA – Inv) / CL Cash ratio = Cash / CL Interval measure = CA / Avg daily operating costs TIE ratio = EBIT / Interest TAT = Sales / Total assets RE = NI – dividends BV per share = TE / Shares outstanding FAT = Sales / Net fixed assets Total debt ratio = (TA – TE) / TA D-E ratio = Total debt / Total equity MTB ratio = market value / book value EM = TA / TE PE ratio = Price / EPS EPS = NI /shares outstanding Dividend payout ratio = Divd / NI NWC = CA – CL Long term DR = LTD / (LTD + Equity) NFA = GFA – Accum. depreciaton FCF = OCF – CAPEX - ΔNWC
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- Auditing || fall20 Dashboard My courses ACCT4141_iram_fall20 WEEK 7: 25 OCTOBER - 31 OCTOBER Case study 2 Separate groups: 5 My Submissions Case 2 Title Start Date Due Date Post Date Marks Available Case study 2 - Case 2 27 Oct 2020 - 08:00 28 Oct 2020 - 06:00 28 Oct 2020 - 19:00 100 Summary: On Chapters 9, 10, and 11: The YuRaeKa charity was established in 1960. The charity’s aim is to provide support to children from disadvantaged backgrounds who wish to take part in sports such as tennis, badminton, squash, basketball and football. YuRaeKa has a detailed constitution[1] which explains how the charity’s income can be spent. The constitution also notes that administration expenditure cannot exceed 10% of income in any year. The charity’s income is derived wholly from voluntary donations. Sources of donations include: (i) Cash collected by volunteers asking the public for donations in shopping areas, (ii) Cheques sent to the charity’s head office, (iii) Donations…arrow_forward+V My Questions | bartleby b References Chapter 3 Quiz Camden County College camdenccinstructure.com/courses/3788/assignments/35967?module_item id=88693| Next> K Prev Send to Gradebook Submitted to Gradebook, Fri, Oct 4, 2019, 9:34:35 AM (America/New York -04:00) --/1 Question 15 View Policies Current Attempt in Progress Concord Industries has equivalent units of 7100 for materials and for conversion costs. Total manufacturing costs are $124370. Total materials costs are $91000. How much is the conversion cost per unit? O $17.52. O $4.70. $12.82. O $30.33 eTextbook and Media Submit Answer Save for Later Attempts: 0 of 1 used 11:10 A 10/4/20 hp ins prt sc end home f12 11 DI delete f9 f8 f7 f6 fs 10 + & % num backspace 6 7 lock 5 { P T U Y II 96arrow_forwardMy Questions | bartleby b + Camden County College References Chapter 3 Quiz Ha X //camdenccinstructure.com/courses/3788/assignments/35967?module item id=88693 Next> Send to Gradebook < Prev Submitted to Gradebook, Fri, Oct 4, 2019, 9:34:35 AM (America/New York -04:00) Question 19 -/1 View Policies Current Attempt in Progress A process with no beginning work in process, completed and transferred out 85200 units during a period and had 50100 units in the ending work in process inventory that were 20% complete. The equivalent units of production for the period for conversion costs were: O 95220 equivalent units. O 135300 equivalent units. O 70200 equivalent units. O 85200 equivalent units. eTextbook and Media Attempts: 0 of 1 used Submit Answer Save for Later 11:21 AM 10/4/2019 hp ins prt sc 12 end 11 home f10 delete fg f8 f5 f4 II & num backspace 6 5 lock } { P T U Y home + 96arrow_forward
- eeholeal Univeruity -Kadooria My courses 20203 الفرع الرئيسي الأعمال والاقتصاد انظمة معلومات محاسبية محاسبة التكالیف نظري - طولكرم nal summer semester exam محاسبة التكاليف نظري The ABC company has the following estimated costs for the next year: Direct materials: $15,000 Indirect materials: $5,000 Direct labor: $55,000 Salary of production supervisor: $35,000 Rent on factory equipment: $16,000 Sales commission: $75,000 Advertising expenses: $11,000 It is estimated that 53,000 machine hours and 8,000 direct labor hours will be worked during the next year. What will be the predetermined overhead rate if company applies manufacturing overhead cost to jobs on the basis of direct labor hours. Select one: a. $14 b. $17 C. $15 d. $7 مشمس 23°C hparrow_forwardA Final Exam - MATH 1330 - Math b Details | bartleby E New tab A https://www.webassign.net/web/Student/Assignment-Responses/submit?dep=254878928tags=autosave#question4023958_1 Sign in 12. DETAILS HARMATHAP12 6.2.009. MYΝΟΤΕS What are the future value and the interest earned if $4000 is invested for 3 years at 8% compounded quarterly? (Round your answers to the nearest cent.) future value 24 interest earned %24arrow_forwardWeek 6: Quiz X CengageNOWv2 | Online teachin x + Irn/takeAssignment/takeAssignmentMain.do?invoker=&takeAssignmentSession Locator=&inprogress=false Rex and Dena are married and have two children, Michelle (age seven) and Nancy (age five). During 2021, Rex earned a salary of $26,500, received interest income of $300, and filed a joint income tax return with Dena. Dena had $0 gross income. Their earned income credit for the year is: Oa. $5,763. Ob. $0. Ⓒc. $5,980. Od. $5,700. All work saved. Previous Email Instructor Next Submit Tort for Cardi 0 8 Upcarrow_forward
- ccounting | Spring 2023 uiz Course Home - kar X K Chapter 9 Quiz OA. $18,200 OB. $18,800 OC. $17,500 O D. $20,300 mylab.pearson.com Question 5 of 10 X G At year-end, Snow 0 4 kara harper 04/09/23 10:36 AM This quiz: 10 point(s) possible This question: 1 point(s) possible ? Submit quiz Buddy Company uses the allowance method to account for uncollectible receivables. At the beginning of the year, Allowance for Bad Debts had a credit balance of $800. During the year Buddy wrote off uncollectible receivables of $2,100. Buddy recorded Bad Debts Expense of $2,800. Buddy's year-end balance in Allowance for Bad Debts is $1,500. Buddy's ending balance of Accounts Receivable is $20,300. Compute the net realizable value of Accounts Receivable at year-end.arrow_forwardвсе Google Chrome - D... My Learning Progre... N Northwestern Univ... Solution Manual Fo... Business Law Question 28 of 40 View Policies Show Attempt History < Current Attempt in Progress X Your answer is incorrect. 0/0.3 Your grandfather has agreed to deposit a certain amount of money each year into an account paying 7.90 percent annually to help you go to graduate school. Starting next year, and for the following four years, he plans to deposit $2,350, $8,600, $7,200, $6,600, and $12,150 into the account. How much will you have at the end of the five years? (Round answer to 2 decimal places, e.g. 15.25.) Future value at end of five years eTextbook and Media Save for Later Using multiple attempts will impact your score. 20% score reduction after attempt 2 Q Search 41719.11 GUND Attempts: 1 of 3 used Submit Answerarrow_forwardIf your answer is 41719.11 it's wrongarrow_forward
- b cengage mindtao - B X b cengage mindtap - B X A My Home * CengageNOWv2 | 0 x gagenow.com/ilrn/takeAssignment/takeAssignmentMain.do?invoker=&takeAssignmentSes... o Academy Grill Supply On October 1, 2019, the company received a $50,000 promissory note from a customer. The annual interest rate is 6%. Principal and interest will be collected in cash at the maturity date of September 30, 2020. Refer to Academy Grill Supply. If the company's year ends December 31, 2019, an adjusting entry is needed to Oa, increase interest revenue by $2,250. Ob, increase notes receivable by $750. Oc. increase notes receivable by $2,250. Od, increase interest receivable by $750. 11:25 3/4/2 aarrow_forwardLive Class Wed January 27, 2021 x 9 Dashboard x + - edugen.wileyplus.com/edugen/student/mainfr.uni en Assignment + * 引 CALCULATOR FULL SCREEN PRINTER VERSION 4 ВАСK NEX OURCES Exercise 1-14 (Part Level Submission) g 2021 Cheyenne Corp., a public camping ground near the Four Corners National Recreation Area, has compiled the following financial information as of December 31, 2019. Revenues during 2019-camping fees $190,400 Notes payable $81,600 1-4 Revenues during 2019-general store 63,920 Expenses during 2019 204,000 1-5 1-6 Accounts payable 14,960 Supplies on hand 3,400 Cash on hand 27,200 Common stock 27,200 Original cost of equipment 143,480 Retained earnings ? 1-8 e1-9 e 1-11 w14 v 1-5 Fair value of equipment 190,400 v (a) Your answer is correct. Determine Cheyenne Corp.'s net income for 2019. 11 14 (Part mission) Cheyenne Corp.'s net income 50320 -4A (Part mission) SHOW LIST OF ACCOUNTS SHOW SOLUTION SHOW ANSWER re Eults by Study LINK TO TEXT VIDEO: SIMILAR EXERCISE Attempts: 1 of…arrow_forwardQuestion 15 pleasearrow_forward
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