WGU C214 Multiple Attempt Study Guide
questions with verified answers
36. The expected return for a stock is 10% with a forecast growth rate of 2.5%.
The company recently paid a dividend of $3.50. What is the highest price an
investor should pay for the stock? Ans✓✓✓ V0 = D1/(kcs - g)
VO = 3.50(1.025)/(.10-.025)
VO = 3.50/ 0.0750
VO = 47
38. What is the growth in the expected stock price change for a company is trying
to value their stock's return in an uncertain economy. (Hint: use the same method
for calculating Expected Return for different economic states) They need to use
the most likely result for their planning. They estimate a 10% probability that will
result in a stock price drop of 7%, a 60% probability for no change in the stock,
and a 30% probability for a stock price increase of 15% Ans✓✓✓ E(R)
= .10*-.07+.60*0+.30*.15
=.0070+.0450
=.0520 or 5.2%
39. What will be the risk-return profile for an investor with a high tolerance for
risk? Ans✓✓✓ A higher rate of return
43. Why is the capital asset pricing model more appropriate to be used as the cost
of common stock in WACC than the Gordon Growth model? Ans✓✓✓ The Capital
Asset Pricing Model is more appropriate as it evaluates risks (Beta) whereas the
Gordon Growth Model does not.
, 44. Why would a company want to know its weighted average cost of capital?
Ans✓✓✓ A company would want to know it WACC to determine if they should
proceed with investments
45. A company has a balance sheet with the following information: A/R $500,000,
Inventory $400,000, and Equipment (at net) of $1,000,000. It also has A/P of
$250,000, long-term debt of $400,000, and owners' equity of $900,000. What is
the Discretionary Financing Needed? Ans✓✓✓ DFN = Projected Total Assets -
Projected Total Liabilities - Projected
Owner's Equity
= (500000 + 400000 + 1000000) - (250000 + 400000) - 900000
= 1900000 - 650000 - 900000
=350,000
46. Year A company has retained earnings of 2,500,000 at the end of 2018.
Forecast income is 400,000 for 2019 and the company has a policy of having a
dividend payout ratio of 17%. What is the forecast ending retained earnings at the
end of 2019? Ans✓✓✓ Beginning + net - div= Ending Retained
2.5+400-(400*.17)=334.5
47. What restraints might a company face that would inhibit its growth?
Ans✓✓✓ Capacity, cant grow
Marketing, cant grow
48. What is the sustainable growth rate given the following?
Sales 100,000
Expenses 50,000
questions with verified answers
36. The expected return for a stock is 10% with a forecast growth rate of 2.5%.
The company recently paid a dividend of $3.50. What is the highest price an
investor should pay for the stock? Ans✓✓✓ V0 = D1/(kcs - g)
VO = 3.50(1.025)/(.10-.025)
VO = 3.50/ 0.0750
VO = 47
38. What is the growth in the expected stock price change for a company is trying
to value their stock's return in an uncertain economy. (Hint: use the same method
for calculating Expected Return for different economic states) They need to use
the most likely result for their planning. They estimate a 10% probability that will
result in a stock price drop of 7%, a 60% probability for no change in the stock,
and a 30% probability for a stock price increase of 15% Ans✓✓✓ E(R)
= .10*-.07+.60*0+.30*.15
=.0070+.0450
=.0520 or 5.2%
39. What will be the risk-return profile for an investor with a high tolerance for
risk? Ans✓✓✓ A higher rate of return
43. Why is the capital asset pricing model more appropriate to be used as the cost
of common stock in WACC than the Gordon Growth model? Ans✓✓✓ The Capital
Asset Pricing Model is more appropriate as it evaluates risks (Beta) whereas the
Gordon Growth Model does not.
, 44. Why would a company want to know its weighted average cost of capital?
Ans✓✓✓ A company would want to know it WACC to determine if they should
proceed with investments
45. A company has a balance sheet with the following information: A/R $500,000,
Inventory $400,000, and Equipment (at net) of $1,000,000. It also has A/P of
$250,000, long-term debt of $400,000, and owners' equity of $900,000. What is
the Discretionary Financing Needed? Ans✓✓✓ DFN = Projected Total Assets -
Projected Total Liabilities - Projected
Owner's Equity
= (500000 + 400000 + 1000000) - (250000 + 400000) - 900000
= 1900000 - 650000 - 900000
=350,000
46. Year A company has retained earnings of 2,500,000 at the end of 2018.
Forecast income is 400,000 for 2019 and the company has a policy of having a
dividend payout ratio of 17%. What is the forecast ending retained earnings at the
end of 2019? Ans✓✓✓ Beginning + net - div= Ending Retained
2.5+400-(400*.17)=334.5
47. What restraints might a company face that would inhibit its growth?
Ans✓✓✓ Capacity, cant grow
Marketing, cant grow
48. What is the sustainable growth rate given the following?
Sales 100,000
Expenses 50,000
