FIN 470 FINAL EXAM QUESTIONS WITH ACCURATE
ANSWERS
$0.80 correct answer An analyst has determined that the intrinsic value of VM
CORP stock is $20 per share using the capitalized earnings model. If the typical
P/E ratio in the computer industry is 25, then it would be reasonable to assume
the expected EPS of VM CORP in the coming year is
$60.00. correct answer Suppose that the average P/E multiple in the oil industry is
20. Non-Standard Oil Corp is expected to have an EPS of $3.00 in the coming year.
The intrinsic value of Non-Standard Oil Corp stock should be
0.52 correct answer You invest $200 in security A with a beta of 1.4 and $800 in
security B with a beta of 0.3. The beta of the resulting portfolio is
1 correct answer The market portfolio has a beta of
1.53 correct answer The financial statements of Snapit Company are given below.
Snapit CompanyIncome Statement (2009)
Sales$4,000,000Cost of goods sold3,040,000Gross profit960,000Selling &
administrative expenses430,000Operating profit530,000Interest
expense160,000Income before tax370,000Tax expense148,000Net
income$222,000
Balance Sheet20092008Cash$60,000$50,000Accounts
receivable550,000500,000Inventory690,000620,000Total current
assets$1,300,000$1,170,000Fixed assets1,300,0001,230,000Total
assets$2,600,000$2,400,000Accounts Payable$270,000$250,000Bank
loan580,000500,000Total current liabilities$850,000$750,000Bond
payable900,0001,000,000Total liabilities$1,750,000$1,750,000Common stock
, (130,000 shares)$250,000$250,000Retained earnings600,000400,000Total
liabilities & equity$2,600,000$2,400,000
Note: The common shares are trading in the stock market for $100 each.Refer to
the financial statements for Snapit Company. The firm's current ratio for 2009 is
3.5% correct answer A year ago, you invested $10,000 in a savings account that
pays an annual interest rate of 5%. What is your approximate annual real rate of
return if the rate of inflation was 1.5% over the year?
4.8% correct answer Riga Corp has an expected ROE of 16%. The dividend growth
rate will be ________ if the firm follows a policy of paying 70% of earnings in the
form of dividends
5.8% correct answer Over the past year, you earned a nominal rate of interest of
9% on your money. The inflation rate was 3% over the same period. The exact
actual growth rate of your purchasing power was
5.56% correct answer You purchase a share of Duke Energy Stock for $90. One
year later, after receiving a dividend of $3, you sell the stock for $92. What was
your holding-period return?
7.5% correct answer Zoom Corp has an expected ROE of 15%. The dividend
growth rate will be ________ if the firm follows a policy of paying 50% of earnings
in the form of dividends
9.25% correct answer As a financial analyst, you are tasked with evaluating a
capital-budgeting project. You were instructed to use the IRR method, and you
need to determine an appropriate hurdle rate. The risk-free rate is 4%, and the
expected market rate of return is 11%. Your company has a beta of 0.75, and the
ANSWERS
$0.80 correct answer An analyst has determined that the intrinsic value of VM
CORP stock is $20 per share using the capitalized earnings model. If the typical
P/E ratio in the computer industry is 25, then it would be reasonable to assume
the expected EPS of VM CORP in the coming year is
$60.00. correct answer Suppose that the average P/E multiple in the oil industry is
20. Non-Standard Oil Corp is expected to have an EPS of $3.00 in the coming year.
The intrinsic value of Non-Standard Oil Corp stock should be
0.52 correct answer You invest $200 in security A with a beta of 1.4 and $800 in
security B with a beta of 0.3. The beta of the resulting portfolio is
1 correct answer The market portfolio has a beta of
1.53 correct answer The financial statements of Snapit Company are given below.
Snapit CompanyIncome Statement (2009)
Sales$4,000,000Cost of goods sold3,040,000Gross profit960,000Selling &
administrative expenses430,000Operating profit530,000Interest
expense160,000Income before tax370,000Tax expense148,000Net
income$222,000
Balance Sheet20092008Cash$60,000$50,000Accounts
receivable550,000500,000Inventory690,000620,000Total current
assets$1,300,000$1,170,000Fixed assets1,300,0001,230,000Total
assets$2,600,000$2,400,000Accounts Payable$270,000$250,000Bank
loan580,000500,000Total current liabilities$850,000$750,000Bond
payable900,0001,000,000Total liabilities$1,750,000$1,750,000Common stock
, (130,000 shares)$250,000$250,000Retained earnings600,000400,000Total
liabilities & equity$2,600,000$2,400,000
Note: The common shares are trading in the stock market for $100 each.Refer to
the financial statements for Snapit Company. The firm's current ratio for 2009 is
3.5% correct answer A year ago, you invested $10,000 in a savings account that
pays an annual interest rate of 5%. What is your approximate annual real rate of
return if the rate of inflation was 1.5% over the year?
4.8% correct answer Riga Corp has an expected ROE of 16%. The dividend growth
rate will be ________ if the firm follows a policy of paying 70% of earnings in the
form of dividends
5.8% correct answer Over the past year, you earned a nominal rate of interest of
9% on your money. The inflation rate was 3% over the same period. The exact
actual growth rate of your purchasing power was
5.56% correct answer You purchase a share of Duke Energy Stock for $90. One
year later, after receiving a dividend of $3, you sell the stock for $92. What was
your holding-period return?
7.5% correct answer Zoom Corp has an expected ROE of 15%. The dividend
growth rate will be ________ if the firm follows a policy of paying 50% of earnings
in the form of dividends
9.25% correct answer As a financial analyst, you are tasked with evaluating a
capital-budgeting project. You were instructed to use the IRR method, and you
need to determine an appropriate hurdle rate. The risk-free rate is 4%, and the
expected market rate of return is 11%. Your company has a beta of 0.75, and the
