6553 Words27 Pages

FIN331
Fall 2010 Extra Credit
Dr. Rhee
1. Which one (s) is (are) an external financing and has the flotation cost?
a. Retained earnings b. Bonds c. Preferred stock d. a & b e. b & c
Answer: e
Retained earnings are internal source of fund. Issuing bonds, preferred stocks, and common stocks are external source of fund, which have the floation cost.
2. The costs of financing from different sources are as follows:
IEF = 5%, EEF=6%, cost of debt before tax = 5%, tax rate=20%, the size of retained earnings=$30m. The capital structure is: We=40% and Wd=60%. Determine the WAMCC before and after the break point.
a. 4.4% 4.8%
b. 4.4% 5.2%
c. 4.6% 4.8%
d. 4.6% 5.2%
e. 4.8% 5.2% Answer: a 5%*(1 – 0.2)*0.6 + 5%*0.4 = 4.4%,
5%*(1 – 0.2)*0.6 + 6%*0.4 =4.8%
3. Given D1 = $1.00 and K=10%, what is the value of the stock at 8% growth rate? If the current price of the stock is $50, would you buy it? a. $55, Buy b. $54, Buy c. $55, Don’t d. $54, Don’t e. $50, Indifferent
Answer: e
PV=D1/(k-g)=1.00/(0.10 - 0.08) = $50. Since the price=PV, you are indifferent.
4. For a preferred stock with the dividend amount of $2.00 each quarter, what is the PV of it with an annual discount rate of 8%? If the price of the preferred stock is $80, what is the yield (ROI, APR) of this security?
a. $60, 8% b. $80, 8% c. $60, 10% d. $80, 10% e. $100, 10%
Answer: e
V0 = D/k = 8/0.08 = $100. ROI = (80+8)/80 = 10%
5. I checked the Microsoft stock price at 9:12am this morning. It was $24.88. The last 12 month trailing (ttm) net earnings is $14.58 billion with 9 billion shares. What is the 12 month trailing EPS and P/E ratio?
a. $1.62, 15.36 b. $2.26, 13.31 c. $1.26, 17.88 d. $2.32, 12.21 e. $1.18, 20.33
Answer: a
EPS = NE/Shares

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