1. (TCO A) In the United States, which of the following types of organization has the greatest revenue in total? (Points : 5) � Sole proprietorship � C corporation � S corporation � Limited partnership Question 2.2. (TCO A) A sole proprietorship is owned by (Points : 5) � one person. � one or two people, but if there are two owners, they must be married to each other. � up to 100 owners. � up to 64 owners. Question 3.3. (TCO B) Which of the following would cause the present value of an annuity to decrease? (Points : 5) � Reducing the number of payments. � Increasing the number of payments. � Decreasing the interest rate. � Decreasing the liquidity of the payments. Question 4.4. (TCO B) In a TVM calculation, if incoming cash flows are positive, outgoing cash flows must be (Points : 5) � positive. � negative. � either positive or negative. It really doesn’t matter. � stated in time units that are different from the time units in which the interest rates are stated. Question 5.5. (TCO G) If you were a manager of a company, which of the three right side components of the DuPont Identity would you want to increase and which would you want to decrease, other things being equal? Give a specific example for how to do that for each of the three. (Points : 20) Question 6.6. (TCO D) A stock pays an annual dividend of $2.50 and that dividend is not expected to change. Similar stocks pay a return of 10%. What is P0? (Points : 20) Question 7.7. (TCO D) A stock has just paid a dividend and has declared an annual dividend of $2.00 to be paid one year from today. The dividend is expected to grow at a 5% annual rate. The return on equity for similar stocks is 12%. What is P0? (Points : 20) Question 8.8. (TCO D) A bond has 5 years to maturity and has a YTM of 8%. Its par value is $1,000. Its semiannual coupons are $50. What is the bonds current market price? (Points : 10) Question 9.9. (TCO D) A bond currently sells for $887 even though it has a par of $1,000. It was issued two years ago and had a maturity of 10 years. The coupon rate is 7% and the interest payments are made semiannually. What is its YTM? (Points : 10) Question 10.10. (TCO D) What is β and why is it important to investors and issuers of stock? Describe the behavior of stocks with βs of greater than one, less than one, and less than zero. (Points : 30) Question 11.11. (TCO E) A company has 10 million shares outstanding trading for $7 per share. It also has $300 million in outstanding debt. If its equity cost of capital is 15%, and its debt cost of capital is 9%, and its effective corporate tax rate is 40%, what is its weighted average cost of capital? (Points : 30) Question 12.12. (TCO A) What is the difference between capital structure and capital budgeting? Explain and give an example of a capital structure decision and an example of a capital budgeting decision. (Points : 25) Question 13.13. (TCO H) What is the difference between the cash cycle and the operating cycle? Under what condition would they be the same? (Points : 30) Question 14.14. (TCO F) A company has the opportunity to do any of the projects for which the net cash flows per year are shown below. The company has a cost of capital of 12%. Which should the company do and why? You must use at least two capital budgeting methods. Show your work. Year A � B � C
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