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Module 5: May 5 - May 17 (2 Weeks)
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Quiz 3 (Read Instructions)
Started on
Wednesday, May 13, 2020, 1:23 AM
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Finished
Completed on
Wednesday, May 13, 2020, 1:52 AM
Time taken
28 mins 38 secs
Points
19.00/20.00
Grade
76.00
out of 80.00 (
95
%)
Question 1
Correct
1.00 points out of 1.00
Which of the following statements about the cost of capital is incorrect?
Select one:
a. A company's target capital structure affects its weighted average cost of capital.
b. Weighted average cost of capital calculations should be based on the after-tax-costs of
all the individual capital components.
c. If a company's tax rate increases, then, all else equal, its weighted average cost of
capital will increase.
d. The cost of retained earnings is equal to the return stockholders could earn on alternative
investments of equal risk.
e. Flotation costs can increase the cost of preferred stock.
Statement c is the correct choice. A tax rate increase would lead to a decrease in the after-tax
cost of debt and, consequently, the firm's WACC would decrease.
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Question 2
Correct
1.00 points out of 1.00
Bouchard Company's stock sells for $20 per share, its last dividend (D0) was $1.00, and its
growth rate is a constant 6 percent. What is its cost of common stock, rs?
Select one:
a. 5.0%
b. 5.3%
c. 11.0%
d. 11.3%
e. 11.6%
The cost of common stock is:
rs = $1(1.06)/$20 + 0.06 = 0.053 + 0.06 = 0.113 = 11.3%.
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Question 3
Correct
1.00 points out of 1.00
A company’s balance sheets show a total of $30 million long-term debt with a coupon rate of 9
percent. The yield to maturity on this debt is 11.11 percent, and the debt has a total current market
value of $25 million. The balance sheets also show that that the company has 10 million shares of
stock; the total of common stock and retained earnings is $30 million. The current stock price is
$7.5 per share. The current return required by stockholders, rS, is 12 percent. The company has a
target capital structure of 40 percent debt and 60 percent equity. The tax rate is 40%. What
weighted average cost of capital should you use to evaluate potential projects?
Select one:
a. 8.55%
b. 9.33%
c. 9.36%
d. 9.87%
e. 10.67%
Weights should be based on the target capital structure: Debt = 40% and Equity = 60%. The cost
of debt should be based on the yield of 11.11%.
WACC = 0.60 (12%) + {[0.4 (1-.4)](11.11%)} = 9.87%.
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Question 4
Correct
1.00 points out of 1.00
Which of the following is not considered a capital component for the purpose of calculating the
weighted average cost of capital as it applies to capital budgeting?
Select one:
a. Long-term debt.
b. Common stock.
c. Accounts payable.
d. Preferred stock.
e. All of the above are considered capital components for WACC and capital budgeting
purposes.
Accounts payable is not considered in the calculation of WACC. Review related class reading materials
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Question 5
Correct
1.00 points out of 1.00
Rollins Corporation is estimating its WACC. Its target capital structure is 20 percent debt, 20
percent preferred stock, and 60 percent common equity. Its bonds have a 12 percent coupon, paid
semiannually, a current maturity of 20 years, and sell for $1,000. The firm could sell, at par, $100
preferred stock which pays a 12 percent annual dividend, but flotation costs of 5 percent would be
incurred. Rollins' beta is 1.2, the risk-free rate is 10 percent, and the market risk premium is 5
percent. Rollins is a constant-growth firm which just paid a dividend of $2.00, sells for $27.00 per
share, and has a growth rate of 8 percent. The firm's policy is to use a risk premium of 4
percentage points when using the bond-yield-plus-risk-premium method to find rs. The firm's
marginal tax rate is 40 percent.
What is Rollins' component cost of debt?
Select one:
a. 10.0%
b. 9.1%
c. 8.6%
d. 8.0%
e. 7.2%
Since the bond sells at par of $1,000, its yield to maturity (YTM) and coupon rate (12 percent) are
equal. Thus, the before-tax cost of debt to Rollins is 12 percent. The after-tax cost of debt equals:
rd,After-tax = 12.0%(1 - 0.40) = 7.2%.
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Question 6
Correct
1.00 points out of 1.00
Rollins Corporation is estimating its WACC. Its target capital structure is 20 percent debt, 20
percent preferred stock, and 60 percent common equity. Its bonds have a 12 percent coupon, paid
semiannually, a current maturity of 20 years, and sell for $1,000. The firm could sell, at par, $100
preferred stock which pays a 12 percent annual dividend, but flotation costs of 5 percent would be
incurred. Rollins' beta is 1.2, the risk-free rate is 10 percent, and the market risk premium is 5
percent. Rollins is a constant-growth firm which just paid a dividend of $2.00, sells for $27.00 per
share, and has a growth rate of 8 percent. The firm's policy is to use a risk premium of 4
percentage points when using the bond-yield-plus-risk-premium method to find rs. The firm's
marginal tax rate is 40 percent.
What is Rollins' cost of preferred stock?
Select one:
a. 10.0%
b. 11.0%
c. 12.0%
d. 12.6%
e. 13.2%
Cost of preferred stock: rps = $12/$100(0.95) = 12.6%.
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Question 7
Correct
1.00 points out of 1.00
A major disadvantage of the payback period method is that it
Select one:
a. Is useless as a risk indicator.
b. Ignores cash flows beyond the payback period.
c. Does not directly account for the time value of money.
d. All of the answers above are correct.
e. Only answers b and c are correct.
Review related materials on capital budgeting evaluation Techniques.
Question 8
Incorrect
0.00 points out of 1.00
Which of the following statements is most correct?
Select one:
a. If a project’s internal rate of return (IRR) exceeds the cost of capital, then the project’s net
present value (NPV) must be positive.
b. If Project A has a higher IRR than Project B, then Project A must also have a higher NPV.
c. The IRR calculation implicitly assumes that all cash flows are reinvested at a rate of
return equal to the cost of capital.
d. Answers a and c are correct.
e. None of the answers above is correct.
Statement a is correct; the other statements are false. If the projects are mutually exclusive, then
project B may have a higher NPV even though Project A has a higher IRR. IRR is calculated
assuming cash flows are reinvested at the IRR, not the cost of capital.
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Question 9
Correct
1.00 points out of 1.00
Your company has a cost of capital equal to 10%. If the following projects are mutually exclusive
(indicating you can only choice one project at a time), and you only have the information that is
provided, which should you accept?
Select one:
a. A
b. B
c. C
d. B and C
e. E ...Information provided is insufficient to answer this question
For mutually exclusive projects, always take the one with the greatest NPV.
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Question 10
Correct
1.00 points out of 1.00
Project X has an internal rate of return of 20 percent. Project Y has an internal rate of return of 15
percent. Both projects have a positive net present value. Which of the following statements is
most correct?
Select one:
a. Project X must have a higher net present value than Project Y.
b. If the two projects have the same WACC, Project X must have a higher net present
value.
c. Project X must have a shorter payback than Project Y.
d. Both answers b and c are correct.
e. None of the above answers is correct.
Statement e is correct; the other statements are incorrect. Statement a is incorrect; the two
projects' NPV profiles could cross, consequently, a higher IRR doesn't guarantee a higher NPV.
Statement b is incorrect; if the two projects' NPV profiles cross, Y could have a higher NPV.
Statement c is incorrect; we don't have enough information.
Question 11
Correct
1.00 points out of 1.00
The internal rate of return of a capital investment
Select one:
a. Changes when the cost of capital changes.
b. Is equal to the annual net cash flows divided by one half of the project's cost when the
cash flows are an annuity.
c. Must exceed the cost of capital in order for the firm to accept the investment.
d. Is similar to the yield to maturity on a bond.
e. Answers c and d are correct.
Review assignment reading materials on bonds and cost of capital budgeting evaluation
techniques.
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Question 12
Correct
1.00 points out of 1.00
The Seattle Corporation has been presented with an investment opportunity which will yield cash
flows of $30,000 per year in Years 1 through 4, $35,000 per year in Years 5 through 9, and
$40,000 in Year 10. This investment will cost the firm $150,000 today, and the firm's cost of capital
is 10 percent. Assume cash flows occur evenly during the year. What is the payback period for
this investment?
Select one:
a. 5.23 years
b. 4.86 years
c. 4.00 years
d. 6.12 years
e. 4.35 years
Using the even cash flow distribution assumption, the project will completely recover initial
investment after 30/35 = 0.86 of Year 5:
Payback = 4 + = 4.86 years.
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Question 13
Correct
1.00 points out of 1.00
You are considering the purchase of an investment that would pay you $5,000 per year for Years
1-5, $3,000 per year for Years 6-8, and $2,000 per year for Years 9 and 10. If you require a 14
percent rate of return, and the cash flows occur at the end of each year, then how much should
you be willing to pay for this investment?
Select one:
a. $15,819.27
b. $21,937.26
c. $32,415.85
d. $38,000.00
e. $52,815.71
Numerical solution:
PV = $5,000[(1/0.14)-(1/(0.14*(1+0.14)5
+ $3,000[(1/0.14)-(1/(0.14*(1+0.14)3 (1/1.145)
+ $2,000[(1/0.14)-(1/(0.14*(1+0.14)2 (1/1.148) = $5,000(3.4331) + $3,000(2.3216)(0.5194) + $2,000(1.6467)(0.3506)
= $17,165.50 + $3,617.52 + $1,154.67 = $21,937.69. Any difference due to rounding.
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Question 14
Correct
1.00 points out of 1.00
Which of the following statements is most correct?
Select one:
a. The constant growth model takes into consideration the capital gains earned on a stock.
b. It is appropriate to use the constant growth model to estimate stock value even if the
growth rate never becomes constant.
c. Two firms with the same dividend and growth rate must also have the same stock price.
d. Statements a and c are correct.
e. All of the statements above are correct.
Statement a is correct; the other statements are false. The constant growth model is not
appropriate for stock valuation in the absence of a constant growth rate. If the required rate of
return differs for the two firms due to risk differences, then the firms' stock prices would differ.
Question 15
Correct
1.00 points out of 1.00
Which of the following statements is most correct.
Select one:
a. The constant growth rate stock valuation model is P0 = D1/(rs - g).
b. If a stock has a required rate of return rs = 12 percent, and its dividend grows at a
constant rate of 5 percent, this implies that the stock’s dividend yield is 5 percent.
c. The price of a stock is the present value of all expected future dividends, discounted at
the dividend growth rate.
d. Statements a and c are correct.
e. All of the statements above are correct.
Statement a is correct; the other statements are false. If a stock’s required return is 12% and its
capital gains yield is 5 percent, then its dividend yield is 12% - 5% = 7%. The expected future
dividends should be discounted at the required rate of return.
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Question 16
Correct
1.00 points out of 1.00
A stock’s dividend is expected to grow at a constant rate of 5 percent a year. Which of the
following statements is most correct?
Select one:
a. The expected return on the stock is 5 percent a year.
b. The stock’s dividend yield is 5 percent.
c. The stock’s price one year from now is expected to be 5 percent higher.
d. Statements a and c are correct.
e. All of the statements above are correct.
Statement c is correct, the others are false. Statement a would only be true if the dividend yield
were zero. Statement b is false; we've been given no information about the dividend yield.
Statement c is true; the constant rate at which dividends are expected to grow is also the
expected growth rate of the stock’s price.
Question 17
Correct
1.00 points out of 1.00
A share of common stock has just paid a dividend of $3.00. If the expected long-run growth rate
for this stock is 5 percent, and if investors require an 11 percent rate of return, what is the price of
the stock?
Select one:
a. $50.00
b. $50.50
c. $52.50
d. $53.00
e. $63.00
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Question 18
Correct
1.00 points out of 1.00
The Jones Company has decided to undertake a large project. Consequently, there is a need for
additional funds. The financial manager plans to issue preferred stock with a perpetual annual
dividend of $5 per share and a par value of $30. If the required return on this stock is currently 20
percent, what should be the stock's market value?
Select one:
a. $150
b. $100
c. $ 50
d. $ 25
e. $ 10
Vps = Dps/rps = $5/0.20 = $25.
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Question 19
Correct
1.00 points out of 1.00
Albright Motors is expected to pay a year-end dividend of $3.00 a share (D1 = $3.00). The stock
currently sells for $30 a share. The required (and expected) rate of return on the stock is 16
percent. If the dividend is expected to grow at a constant rate, g, what is g?
Select one:
a. 13.00%
b. 10.05%
c. 6.00%
d. 5.33%
e. 7.00%
P0 = D1/(r - g)
$30 = $3/(0.16 – g)
$4.8 - $30g = $3
$1.8 = $30g
g = 6%.
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Question 20
Correct
1.00 points out of 1.00
Waters Corporation has a stock price of $20 a share. The stock’s year-end dividend is expected to
be $2 a share (D1 = $2.00). The stock’s required rate of return is 15 percent and the stock’s
dividend is expected to grow at the same constant rate forever. What is the expected price of the
stock seven years from now?
Select one:
a. $28
b. $53
c. $27
d. $23
e. $39
Step 1 Find g:
P0 = D1/(r - g)
$20 = $2/(0.15 - g)
g = 5%.
Step 2 Find P at t = 7:
7 = P0(1 + g)7
7 = $20(1.05)7
7 = $28.14 ± $28.
◄ Week 5 Discussion: Cost of Capital
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A process with no beginning work in process, completed and transferred out 85200 units during a period and had 50100 units in the
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O 95220 equivalent units.
O 135300 equivalent units.
O 70200 equivalent units.
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s/ CE167-0 2202 (DeWitt)/ Week 6: Menu Prices
Week 6: Culmination Knowledge Check
Chef Amy does beginning inventory on Thursday night and finds that she has $4194 in food products in the restaurant. Throughout the week
she purchases:
• $2088 produce,
• $1678 protein,
• $870 dry goods, and
• $3914 dairy.
The following Thursday she does ending inventory and finds that she has $3464 in food. She looks at her sales and finds that she made
$30541 over the same 7 day period. What is her total food cost?
Select one:
a. $12,744
K b. $16,208
c. $8,550
d. $9,280
Chef Fabio does beginning inventory on Thursday night and finds that he has $1456 in food products in the restaurant,. Throughout the week he
ered
purchases:
1.00
• $457 produce,
• $632…
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BFIN 300 Fal X
M Inbox (11,43 X
Week 4, We
Do/Con
A https://blackboard.albany.edu/webapps/assessment/take/take.jsp?course_assessment id=_152523 1&course_id= 157898 1&content id= 60538.
To
How To Factory Res..
O Honey
P MyLab IT | Pearson M Inbox (10,367) - rde.
Ot
WN. CPU.
Google WebAssign - Blackboard Learn
K.J. Lee, CFA, an analyst with
Water's Edge
Securities, estimates the
market risk premium is 6.80%
and the risk-free rate is
2.10%. She's calculated the
beta for Summerfield Tech as
0.94, and she estimates the
expected return is:
O Type here to search
5:54 PM
10/25/2021
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Live 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…
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Sheffield Corp. uses the percentage-of-receivables basis to record bad debt expense and concludes that 3% of accounts receivable will become
uncollectible. Accounts receivable are $430,800 at the end of the year, and the allowance for doubtful accounts has a credit balance of $2,864.
(a) Prepare the adjusting journal entry to record bad debt expense for the year.
(b) If the allowance for doubtful accounts had a debit balance of $887 instead of a credit balance of $2,864, prepare the adjusting journal entry for
bad debt expense.
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myOpenMath
Course Messages Forums Calendar | Gradebook
Home > Math 173-4 Spring 2024> Assessment
Quiz 2 (Sec. 1.5-1.7)
54 points possible 5/12 answered
Question 6
The graph of the function
y = f(x - 39)
can be obtained from the graph of
y = f(x)
by one of the following actions:
> Next Question
Home | My
Oshifting the graph of f(x) to the right 39 units
shifting the graph of f(x) to the left 39 units
shifting the graph of f(x) upwards 39 units
shifting the graph of f(x) downwards 39 units
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A CengageNOWv2 | Online teaching and learning resource from Cengage.
eBook
Revenue Recognition Principle
Heartstrings Gift Shoppe sells an assortment of gifts for any occaslon. During October, Heartstrings started a Gift-of-the-Month program. Under the terms of this program,
beginning in the month of the sale, Heartstrings would select and deliver a random gift each month, over the next 12 months, to the person the customer selects as a
recipient. During October, Heartstrings sold 20 of these packages for a total of $10,956 in cash.
Required:
For the month of October, calculate the amount of revenue that Heartstrings will recognize.
10,956 X
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Apply the revenue recognition principle, which states that revenue is recognized when earned and the collection of cash is reasonably assured.
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Suhmit Assignment for Grading
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8/28/2019
CengageNOWv2 | Online teaching and learning resource from Cengage Leaming
28. PR.03-03
Problem 3-3
Inventories (LO 3.2)
Lawrence owns a small candy store that sells one type of candy. His beginning inventory of candy was made up of
10,000 boxes costing $1.50 per box ($15,000), and he made the following purchases of candy during the year:
March 1
10,000 boxes at $1.60 $16,000
1u
August 15
20,000 boxes at $1.70 34,000
November 20 10,000 boxes at $1.80 18,000
At the end of the year, Lawrence's inventory consisted of 15,000 boxes of candy.
Calculate Lawrence's ending inventory and cost of goods sold using the FIFO inventory valuation method.
Ending inventory $
Cost of goods sold $
b. Calculate Lawrence's ending inventory and cost of goods sold using the LIFO inventory valuation method.
Ending inventory $
Cost of goods sold $
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I
+ %06
| +
Business started off great the first year that the Golden Wolves Statues started production. Corey
realized, however, that the business was seasonal and had peak sales in the fall, during the third
quarter, when the students started college and continued through the beginning of the football
season. The following information concerns operations for Year 2, the coming year, and for the
first two quarters of Year 3.
A. Golden Wolves Statue Company is now making only the forward-facing statue with the
Alvernia University t-shirt and sells the product for $150/unit. Budgeted unit sales for the
next six quarters are as follows (all sales are on credit).
Year 2 Quarter
Year 3 Quarter
3
4
2.
Budgeted unit sales
680
000
009
B. Sales are collected in the following pattern: 75% in the quarter the sales are made, and the
remaining 25% in the following quarter. On January 1, Year 2, the company's balance sheet
shows $6,500 in accounts receivable, all of which will be collected in the…
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MindTap - Cengage Learning
2.cengagenow.com/ilrn/takeAssignment/takeAssignmentMain.do?invoker=&takeAssignmentSession Locator=&inprogress=false
ork
items
week 6: Homework
eBook
Salary
State income taxes
Exercise 12-22 (Algorithmic) (LO. 2, 3, 5)
Yanni, who is single, provides you with the following information for 2021:
CengageNOWv2 | Online teachin X
Print Item
Mortgage interest expense on principal
residence
Charitable contributions
Interest income
a. Yanni's taxable income:
b. Yanni's AMT base:
Check My Work
Click here to access the exemption table. If required, round your answers to the nearest dollar.
Compute the following:
c. Yanni's tentative minimum tax:
$117,400
11,740
10,566
2,348
1,761
94,507
32,647
X +
8,488
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