29 Dec Limited partnership

Question 1 5 pts
(TCO A) Double taxation is a drawback for which of the following types of business organization except?

S corporation

C corporation

Limited partnership

Limited liability company

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Question 2 5 pts

(TCO A) The one thing that makes a corporation different from the other forms of business ownership is

legally, the corporation is the same as its owners.

it requires all owners to share liability equally.

it is a legally defined entity, completely separate from its owners.

it protects small shareholders, allocating most of any liability to those who own more stock.

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Question 3 5 pts

(TCO B) Which of the following would cause the future value of an annuity to decrease?

Reducing the number of payments.

Increasing the number of payments.

Increasing the interest rate.

Decreasing the liquidity of the payments.

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Question 4 5 pts

(TCO B) In a TVM calculation, if the interest rate is 10% per year and payments are monthly, the interest rate should be entered into the formula as

10

.10

.833 or .0833, depending on the method being used.

120 or 1.20 depending on the method being used.

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Question 5 15 pts

(TCO D) A bond has 5 years to maturity and has a YTM of 8%. Its par value is $5,000. Its semiannual coupons are $250. What is the bonds current market price? (Show workings)

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Question 6 15 pts

(TCO D) A bond currently sells for $1,000 and 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? (Show workings)

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Question 7 20 pts

(TCO A) 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.

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Question 8 20 pts

(TCO D) A stock has just paid a dividend and will pay a dividend of $3.00 in a year. The dividend will stay constant for the rest of time. The return on equity for similar stocks is 14%. What is P0? (Show workings)

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Question 9 20 pts

(TCO D) A stock has just declared an annual dividend of $2.45 to be paid one year from today. The dividend is expected to grow at a 7% annual rate. The return on equity for similar stocks is 14%. What is P0? (Show workings)

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Question 10 25 pts

(TCO C) What is ? and why is it important to investors and issuers of stock? Describe the behavior of stocks with ?s of greater than one, less than one, and less than zero.

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Question 11 25 pts

(TCO D) 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? (Show workings)

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Question 12 25 pts

(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.

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Question 13 25 pts

(TCO G) Other things being equal, would a firm prefer a longer or shorter Cash Conversion Cycle? What are some examples of ways a firm could attain this?

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Question 14 45 pts

(TCO E) 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 15%. Which should the company do and why? You must use at least two capital budgeting methods. Show your work.

Year A B C

0 -300 -100 -300

1 100 50 100

2 100 100 100

3 100 100 100

4 100 100 100

5 100 100 100

6 100 100 100

7 100 200 0

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