Business_Finance__1__A卷2007-2008-2期末试卷答案

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浙江大学城市学院 答案

2007 — 2008 学年第 二 学期期末考试试卷A 卷

《Business Finance(Ⅰ) 》

开课单位： 商学院 ；考试形式：闭卷；考试时间：_ 2008__年_ 6_月_20_日； 所需时间： 120 分钟

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一、Multiple Choice (本大题共__20_题，每题__2__分，共__40__分。)

1. Capital budgeting is the process of managing a firm’s b a. short-term assets and liabilities. b. long-term investments.

c. mix of debt and equity financing.

d. working capital.

2.

Which one of the following statements concerning partnerships is correct? b a. A limited partner actively participates in running the partnership on a daily basis.

b. A general partner has unlimited liability for the business debts.

c. If a limited partner wishes to leave a general partnership a new

partnership agreement is required.

d. Both limited and general partners have unlimited liability for the business

debts.

3. You opened a savings account four years ago and deposited $200 at that

time. Three years ago, you added another $400 to the account. Last year, you deposited an additional $100 into this account. The rate of return is 5 percent compounded annually. How much is in your account today? c

a. $772.53

b. $806.15

c. $811.15

d. $813.67

4. Which of the following statements are correct? d

I. All else equal, the present value will decrease as the interest rate decreases. II.All else equal, the future value will increase as the period of time increases. III.All else equal, there is an inverse relationship between the present value and the period of time.

a. I only

b. II only

c. I and III only

d. II and III only

5. A preferred stock pays annual dividends of $3.50. How much are you willing to

pay today to buy one share of this stock if you want to earn a 13 percent rate of return? b

a. $24.29

b. $26.92

c. $29.99

d. $37.144.

6. The more frequently interest is compounded, the _____ interest you will pay

on a loan and the _____ interest you will receive on a savings account. a

a. more; more

b. more; less

c. less; less

d. less; more

7. Which one of the following bonds has the most interest rate risk? c

a. 5-year; 6 percent coupon

b. 5-year; 4 percent coupon

c. 10-year; 4 percent coupon

d. 10-year; 6 percent coupon

8. A semi-annual corporate bond has a face value of $1,000, a yield to maturity

of 7.3 percent, and a coupon rate of 8 percent. The bond matures 6 years from today. This bond b

a. pays interest payments of $80 every six months.

b. sells at a premium.

c. has a current yield that is greater than 8 percent.

d. is currently quoted at a price of 103:11.

9. Which one of the following best describes a sunk cost? c

a. the loss of sales of one product because you commence selling another

product

b. the current market value of equipment you own that you want to use for a

new project

c. repairs made last year to a vehicle which you want to sell this year

d. copier machine lease for the next twelve months

10. Which one of the following statements is correct? d

a. The payback period of a project will be longer than the discounted payback

period.

b. The internal rate of return can be reliably used for all independent projects.

c. The internal rate of return is used to evaluate different sized projects.

d. The internal rate of return should not be used to rank mutually exclusive

projects.

11. Martha is managing a project that has a degree of operating leverage equal to

1.8. What was the percentage change in the sales quantity if her operating

cash flow rose by 6.3 percent? c

a. decrease of 11.34 percent

b. decrease of 3.5 percent

c. increase of 3.5 percent

d. increase of 11.34 percent

12. The analysis of a project which investigates the changes in project values

based on a change in a single variable is called __c__ analysis.

a. operating leverage

b. rationing

c. sensitivity

d. scenario5.

13. The Ol’ Tech Co. last paid a $2.40 annual dividend. The market rate of return

on this security is 13 percent and the market price is $28.70 a share. What is the expected growth rate of Ol’ Tech? b

a. 3.56 percent

b. 4.28 percent

c. 4.48 percent

d. 5.07 percent

14. The common stock of the Zing Co. is selling for $37.31 a share and offers a

7.5 percent rate of return. The dividend growth rate is constant at 3 percent.

What is the amount of the last annual dividend paid? b

a. $1.58

b. $1.63

c. $1.68

d. $1.74

15. Financial managers are concerned with which of the following aspects of

future cash flows? d

I. timing II. risk III. size

a. I and III only

b.II and III only

c. I and II only

d. I, II, and III

Use this information to answer questions 16 and 17.

The Sable Co. is considering the introduction of a new product. Company management has prepared the following estimates related to the project as well as the related range of values, where applicable.

Sales quantity 3,000 ± 5 percent

Sales price $9.00 ± 3 percent

Variable cost per unit $5.00 ± 4 percent

Fixed costs $8,500 ± 2 percent

Depreciation $1,500

Tax rate 34 percent

16. What is the projected worst case earnings before interest and taxes? (Round

to the nearest whole dollar) a

a. -$109.50

b. $19.55

c. $1,370.50

d. $1,390.05

17. What is the projected best case operating cash flow? (Round to the nearest

whole dollar) d

a. $2,805

b. $4,196

c. $4,251

d. $4,305

18. An increase in a leveraged firm’s tax rate will c

a. not affect their cost of capital.

b. increase their cost of capital.

c. decrease their cost of capital.

d. have an effect on the firm cost of capital but the direction of that effect

cannot be predicted.

19. Four years ago, Cheese Snacks, Inc. purchased land located beside their

factory at a price of $739,000. The land is currently valued at $825,000. The company is now considering building a new warehouse on that l and. The construction cost of the warehouse is estimated at $425,000. In addition, $35,000 worth of grading will be required to prepare the construction site.

What is the initial cash outflow that should be used when analyzing this project? d

a. $1,164,000

b. $1,199,000

c. $1,250,000

d. $1,285,000

20. The risk-free rate of return is 4.5 percent and the market risk premium is 8

percent. What is the expected return for a stock with a beta of 1.32? c

a. 9.28 percent

b. 13.94 percent

c. 15.06 percent

d. 16.50 percent

二、 Problems (本大题共 6 题，共计 60 分)

1. Prepare an amortization schedule for a five-year loan of $30,000. The interest rate is 10% per year, and the loan calls for equal annual payments. How much interest is paid in the fourth year? How much total interest is paid over the life of the loan? (10 marks)

solution：

PV=A* PVIFA10%,5 (1marks)

A=PV/ PVIFA10%,5=30,000/ PVIFA10%,5=7913.92 (2marks)

(6marks)

Interest paid in the fourth year =1373.49 (0.5marks)

Total interest paid over the life of the loan=9569.62 (0.5marks)

2. A Microgates Industries bond has a 10 percent coupon rate and a $1,000face value. Interest is paid semiannually, and the bond has 3 years to maturity.If investors require a 12 percent yield,what is the bond,s value? If investors require a 10 percent yield,what is the bond,s value? If investors require a 8 percent yield,what is the bond,s value? From the previous calculation, explain the relationship between bond value and its yield? (10 marks)

solution：

1000*10%/2=$50 t=2*3=6 (2 marks)

Bond Value=50*PVIFA6%,6+1000*PVIF6%,6

=50*4.9173+1000*0.7050

=950.87

(2 marks)

Bond Value=50*PVIFA5%,6+1000*PVIF5%,6

=50*5.0757+1000*0.7462

=1000

(2 marks)

Bond Value=50*PVIFA4%,6+1000*PVIF4%,6

=50*5.2421+1000*0.7903

=1052.41

(2 marks)

As the yield rises ,the value become lower.

(2 marks)

3. The Garden City Company just paid a $1.5 annual dividend per share, it is expected to increase dividends by 20% in one year and by 15% in two years. After that dividends will increase at a rate of 5% per year indefinitely. If the required return is 20%, what is the price of the stock? If the stock is selling for $13.50, is the stock correctly priced? (10 marks)

solution：

D1=1.5*(1+20%)=1.8 (1 marks)

D2=1.5*(1+20%)(1+15%)=2.07 (1 marks)

D3=1.5*(1+20%)(1+15%)(1+5%)=2.17 (1 marks)

P2=2.17/(20%-5%)=14.47 (2 marks)

P=1.8/(1+20%)+(2.07+14.47)/(1+20%)2

=1.5+11.49=12.99 (3 marks)

The stock is overpriced. (2 marks)

4. Given the following probability distribution of returns:

Probability Stock A Stock B

0.3 14% 10%

0.4 9% 6%

0.3 3% 2%

Required:

(a) Calculate expected rate of return of Stock A and Stock B. (4 marks)

(b) Calculate standard deviation of the rate of return of Stock A and Stock B.

(4 marks)

solution:

(a) expected rate of return of Stock A=0.3*14%+0.4*9%+0.3*3%

=0.042+0.036+0.009=0.087=8.7% (2 marks)

expected rate of return of Stock B=0.3*10%+0.4*6%+0.3*2%

=0.03+0.024+0.006=0.06=6% (2 marks)

(b)

%

267.43.0*%)

7.8%3(4.0*%)

7.8%9(3.0*%)

7.8%14()(2

2

2

=-+-+-=

A σ

(2 marks)

%

10.33.0*%)

6%3(4.0*%)

6%6(3.0*%)

6%10()(2

2

2

=-+-+-=

B σ

(2 marks)

5. Your company is considering a new computer system that will initially cost $1 million. It will save costs $300,000 each year . The system is expected to last for five years.You will depreciate it using stright-line to zero. The system is expected to have a salvage value of $50,000 at the end of year 5. There is no impact on net working capital. The marginal tax rate is 40%. The required return is 8%. What is the OCF for this project? Calculate the project ’s payback,the discounted payback,and the NPV. (14 marks)

Solution:

Initial cash outflow= $1,000,000 (1 marks) depreciation=1000000/5=200,000 (1 marks) aftertax salvage value=(50000-0)*(1-40%)=30000 (2 marks) year 1 2 3 4 5 reduce labor costs 300,000 300,000 300000 300000 300000 depreciation 200,000 200,000 200,000 200,000 200,000 net change in income

before taxes 100,000 100,000 100,000 100,000 100,000

taxes(40%rate) 40,000 40,000 40,000 40,000 40,000

net change in income

after taxes 60,000 60,000 60,000 60,000 60,000

OCF 260,000 260,000 260,000 260,000 260,000

NCS -$1,000,000 30000 Incremental net cash flow

-$1,000,000 260,000 260,000 260,000 260,000 290,000

(4 marks) payback=3+(1000000-3*260000)/260000=3.85years (2 marks)

260,000/(1+8%)=240740.74

260,000/(1+8%)2=222908.09

260,000/(1+8%)3=206396.38

260,000/(1+8%)4=191107.76

290,000/(1+8%)5=197369.13

discounted

payback=4+(1000000-240740.74-222908.09-206396.38-191107.76)/197369.13 =4.7 (2 marks)

NPV=-1000000+240740.74+222908.09+206396.38+191107.76+197369.13 =58522.1 (2 marks)

6. Given the following information for HP Co.,find the WACC. Assume the company’s tax rate is 35%.

Capital struceure : debt 45%,common stock 50%, preferred stock 5%.

The pretax cost of debt is 8%.

Preferred stock with $6 stated dividend that just sold for $92 per share. Common stock’s most recent dividend (just paid) was $1.8 per share, and dividends are expected to grow at 5% annual rate indefintely, the stock sells for $34 per share. (8 marks)

Solution:

R d =8%

Rp=6/92=6.52% (2 marks)

R E=1.8*(1+5%)/34+5%=10.56% (2 marks)

WACC=8%*(1-35%)*45%+6.52%*5%+10.56%*50%

=0.0234+0.00326+0.0528=0.07946=7.95% (4 marks)