Fin 516 Quiz 1

1. | Question :| (TCO C) Blease Inc. has a consummate budget of $625,000, and it wants to suppress a target consummate constituency of 60 percent claim and 40 percent equity. The association forecasts a net allowance of $475,000. If it follows the residual dividend plan, what is its forecasted dividend payout proportion? (a) 40. 61% (b) 42. 75% (c) 45. 00% (d) 47. 37% (e) 49. 74% | | | Student Answer:|  | (d) 47. 37 Equity required (Residual allowance) = $625,000*40% = $250,000 Dividend remunerated = $475,000 - $250,000 = $225,000 Dividend payout proconstituent = 225000/475000 = 47. 37% |  | Instructor Explanation:| Response is: d Text: pp. 570-572 - Residual Dividends, Chapter 14 Consummate budget $625,000 Equity proconstituent 40% Net allowance (NI) $475,000 Dividends remunerated = NI - (Equity proportion)(Capital budget) $225,000 Dividend payout proconstituent = Dividends remunerated/NI 47. 37% | | | | Points Received:| 10 of 10 | | Comments:| | | | 2. | Question :| (TCO F) The forthcoming axioms applies to Saunders Corporation's identical securitys: Maturity: 10 Hoard compensation: $30. 00 Par appraise: $1,000. 00 Transformation compensation: $35. 00 Annual coupon: 5. 00% Straight-claim let-go: 8. 00% What is the security's transformation appraise? (a) $698. 15 (b) $734. 89 (c) $773. 57 (d) $814. 29 e) $857. 14 | | | Student Answer:|  | (e) $857. 14 Transformation proconstituent = Par appraise / Transformation Price= 28. 5714 =1000/35 Current divide compensation= $30. 00 Therefore, transformation appraise of the security= $857. 14 =28. 5714x30 |  | Instructor Explanation:| Response is: e Chapter 19: pp. 770-774 Transformation appraise = Transformation proconstituent x Dispense compensation of hoard = $857. 14 | | | | Points Received:| 10 of 10 | | Comments:| | | | 3. | Question :| (TCO B) SA - Your unshaken has claim appraisement $350,000, delay a let-go of 12. 5 percent, and equity appraisement $700,000. It is growing at a seven percent admonish, and countenances a 40 percent tax admonish. A congruous unshaken delay no claim has a consume equity of 17 percent. Under the MM extension delay augmentation, what is its consume of equity? (a) 19. 25% (b) 21. 75% (c) 18. 0% (d) 17. 5% (e) 18. 4% | | | Student Answer:|  | | | Instructor Explanation:| A is emend. Instructor Explanation: M & M Extension delay Augmentation - Section 26. 4 (pp. 1011-1015) rsL = rsU + (rsU - rd)(D/S) 19. 25% = 17% + (17%-12. 5%)(350,000/700,000)| | | | Points Received:| 10 of 20 | | Comments:| this is you emailed disruption - 4. (TCO B) SA - Your unshaken has claim appraisement $350,000, delay a let-go of 12. 5 percent, and equity appraisement $700,000. It is growing at a seven percent admonish, and countenances a 40 percent tax admonish. A congruous unshaken delay no claim has a consume equity of 17 percent. Under the MM extension delay augmentation, what is its consume of equity? My response is: (d) 17. 5% rsL = rsU + (rsU - rd)(D/S) 17. 5% = 15% + (15%-10%)(200,000/400,000 I am not safe where you got the 15% sum for the rsU or the 200,000 for D or the 400,000 for S the calculations and formula are emend but you used all inemend inputs so I gain produce you 1/2 merit A is emend. Instructor Explanation: M & M Extension delay Augmentation - Section 26. (pp. 1011-1015) rsL = rsU + (rsU - rd)(D/S) 19. 25% = 17% + (17%-12. 5%)(350,000/700,000) | | | 4. | Question :| (TCO B) Unshaken L has claim delay a dispense appraise of $200,000 and a let-go of nine percent. The unshaken's equity has a dispense appraise of $300,000, its rights are growing at a five percent rate, and its tax admonish is 40 percent. A congruous unshaken delay no claim has a consume of equity of 12 percent. Under the MM extension delay augmentation, what would Unshaken L's entirety appraise be if it had no claim? (a) $358,421 (b) $377,286 (c) $397,143 (d) $417,000 (e) $437,850 | | Student Answer:|  | (c) $397,143 VTotal = VU + VTS, so VU = VTotal - VTS = D + S - VTS. Appraise tax sanctuary = VTS = rdTD/(rsU - g) = 0. 09(0. 40)($200,000)/(0. 12 - 0. 05) = $102,857 VU = $300,000 + $200,000 - $102,857 = $397,143 |  | Instructor Explanation:| Response is: c Chapter 26, pp. 1011-1015 Debt: $200,000 Equity: $300,000 rd: 9% rsU : 12% T: 40% g: 5% Unshaken L has a entirety appraise of $200,000 + $300,000 = $500,000. A congruous unshaken delay no claim should possess a smaller valu(e) Here is the calculation: VTotal = VU + VTS, so VU = VTotal - VTS = D + S - VTS. Appraise tax sanctuary = VTS = rdTD/(rsU - g) = 0. 9(0. 40)($200,000)/(0. 12 - 0. 05) = $102,857 VU = $300,000 + $200,000 - $102,857 = $397,143 | | | | Points Received:| 20 of 20 | | Comments:| | | | 5. | Question :| (TCO A) Which of the forthcoming statements is CORRECT? (a) An discretion's appraise is stable by its exertion appraise, which is the dispense compensation of the hoard hither its surprising compensation. Thus, an discretion can't dispose-of for further than its exertion appraise. (b) As the hoard’s compensation rises, the spell appraise constituent of an discretion on a hoard increases owing the dissonance betwixt the compensation of the hoard and the unroving surprise compensation increases. c) Issuing discretions provides companies delay a low consume rule of preferment consummate. (d) The dispense appraise of an discretion depends in sepaobjurgate on the discretion's spell to manliness and too on the variability of the underlying hoard's compensation. (e) The implicit waste on an discretion decreases as the discretion dispose-ofs at surpassing and surpassing compensations owing the benefit-service boundary gets bigger. | | | Student Answer:|  | (c) Issuing discretions provides companies delay a low consume rule of preferment consummate. |  | Instructor Explanation:| Response is: d Chapter 8, pp. 306-310 | | | | Points Received:| 0 of 20 | Comments:| Companies do not offspring Options - they are a trading demeanor of the exchanges - no consummate from discretions go to the unshaken | | | 6. | Question :| (TCO F) Suppose the December CBOT Treasury security futures narrow has a quoted compensation of 80-07. What is the indicated annual attention admonish congenital in the futures narrow? Assume this narrow is inveteobjurgate on a 20 year Treasury security delay semi-annual attention payments. The countenance appraise of the security is $1000, and the semi-annual coupon payments are $30. The annual coupon admonish on the securitys is $60 per security (or 6%). The futures narrow has 100 securitys. (a) 6. 86% (b) 7. 22% (c) 7. 60% (d) 8. 00% (e) 8. 40% | | | Student Answer:|  | (d) 8% Quote: 80’07 0. 80 0. 07 N: 40 PV = (0. 80+0. 07/32) ? $1,000 = -$802. 1875 FV = $1,000 PMT = $30 I/YR = 4. 00% Annual admonish: I/YR ? 2 = 8. 00% |  | Instructor Explanation:| Response is: d Chapter 23, pp. 917-923 Response Detail: Quote: 80-07 0. 80 0. 07 N: 40 PV = (0. 80+0. 07/32) ? $1,000 = -$802. 1875 FV = $1,000 PMT = $30 I/YR = 4. 00% Annual admonish: I/YR ? 2 = 8. 00% | | | | Points Received:| 20 of 20 | | Comments:| | | | | |