FIN623_Assessment Tool Page 1 of 6 Goldey-Beacom College Assessment Survey Corporate Finance (FIN623) Time: 50 minutes Choose the alternative the best answers the question. Du Pont equation 1. The Wilson Corporation has the following relationships: Sales/Total assets 2.0 Return on assets (ROA) 4% Return on equity (ROE) 6% What  is  Wilson’s  profit  margin  and  debt  ratio? a. 2% and 0.33 b. 4% and 0.33 c. 4% and 0.67 d. 2% and 0.67 e. 4% and 0.50 P/E ratio and stock price 2. Cleveland Corporation has 100,000 shares of common stock outstanding. The company’s   net   income  is  $750,000  and  its  P/E  is  8.    What  is  the  company’s  stock  price? a. $20.00 b. $30.00 c. $40.00 d. $50.00 e. $60.00 ROA 3. The Meryl Corporation's common stock is currently selling at $100 per share, which represents a P/E ratio of 10. If the firm has 100 shares of common stock outstanding, a return on equity of 20 percent, and a debt ratio of 60 percent, what is its return on total assets (ROA)? a. 8.0% b. 10.0% c. 12.0% d. 16.7% e. 20.0% Equity multiplier 4. A firm which has an equity multiplier of 4.0 will have a debt ratio of a. 4.00 b. 3.00 c. 1.00 d. 0.75 e. 0.25 FIN623_Assessment Tool Page 2 of 6 Liquidity ratios 5. Oliver Incorporated has a current ratio = 1.6, and a quick ratio equal to 1.2. The company has $2 million  in  sales  and  its  current  liabilities  are  $1  million.    What  is  the  company’s  inventory turnover ratio? a. 5.0 b. 5.2 c. 5.5 d. 6.0 e. 6.3 Profit margin 6. The Merriam Company has determined that its return on equity is 15 percent. Management is interested in the various components that went into this calculation. You are given the following information: total debt/total assets = 0.35 and total assets turnover = 2.8. What is the profit margin? a. 3.48% b. 5.42% c. 6.96% d. 2.45% e. 12.82% PV of an annuity 7. What is the present value of a 5-year ordinary annuity with annual payments of $200, evaluated at a 15 percent interest rate? a. $ 670.43 b. $ 842.91 c. $1,169.56 d. $1,348.48 e. $1,522.64 Interest rate of an annuity 8. South Penn Trucking is financing a new truck with a loan of $10,000 to be repaid in 5 annual end- of-year installments of $2,504.56. What annual interest rate is the company paying? a. 7% b. 8% c. 9% d. 10% e. 11% Number of periods for an annuity 9. Your subscription to Jogger's World Monthly is about to run out and you have the choice of renewing it by sending in the $10 a year regular rate or of getting a lifetime subscription to the magazine by paying $100. Your cost of capital is 7 percent. How many years would you have to live to make the lifetime subscription the better buy? Payments for the regular subscription are made at the beginning of each year. (Round up if necessary to obtain a whole number of years.) a. 15 years ...

1. FIN623_Assessment Tool
Page 1 of 6
Goldey-Beacom College
Assessment Survey
Corporate Finance (FIN623)
Time: 50 minutes
Choose the alternative the best answers the question.
Du Pont equation
1. The Wilson Corporation has the following relationships:
Sales/Total assets 2.0
Return on assets (ROA) 4%
Return on equity (ROE) 6%
What is Wilson’s profit margin and debt ratio?
a. 2% and 0.33
b. 4% and 0.33
c. 4% and 0.67
d. 2% and 0.67
e. 4% and 0.50
P/E ratio and stock price

2. 2. Cleveland Corporation has 100,000 shares of common stock
outstanding. The company’s net
income is $750,000 and its P/E is 8. What is the
company’s stock price?
a. $20.00
b. $30.00
c. $40.00
d. $50.00
e. $60.00
ROA
3. The Meryl Corporation's common stock is currently selling at
$100 per share, which represents a
P/E ratio of 10. If the firm has 100 shares of common stock
outstanding, a return on equity of 20
percent, and a debt ratio of 60 percent, what is its return on
total assets (ROA)?
a. 8.0%
b. 10.0%
c. 12.0%
d. 16.7%
e. 20.0%
Equity multiplier
4. A firm which has an equity multiplier of 4.0 will have a debt
ratio of

3. a. 4.00
b. 3.00
c. 1.00
d. 0.75
e. 0.25
FIN623_Assessment Tool
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Liquidity ratios
5. Oliver Incorporated has a current ratio = 1.6, and a quick
ratio equal to 1.2. The company has $2
million in sales and its current liabilities are $1 million.
What is the company’s inventory turnover
ratio?
a. 5.0
b. 5.2
c. 5.5
d. 6.0
e. 6.3
Profit margin
6. The Merriam Company has determined that its return on
equity is 15 percent. Management is
interested in the various components that went into this
calculation. You are given the following
information: total debt/total assets = 0.35 and total assets
turnover = 2.8. What is the profit
margin?

4. a. 3.48%
b. 5.42%
c. 6.96%
d. 2.45%
e. 12.82%
PV of an annuity
7. What is the present value of a 5-year ordinary annuity with
annual payments of $200, evaluated at
a 15 percent interest rate?
a. $ 670.43
b. $ 842.91
c. $1,169.56
d. $1,348.48
e. $1,522.64
Interest rate of an annuity
8. South Penn Trucking is financing a new truck with a loan of
$10,000 to be repaid in 5 annual end-
of-year installments of $2,504.56. What annual interest rate is
the company paying?
a. 7%
b. 8%
c. 9%
d. 10%
e. 11%

5. Number of periods for an annuity
9. Your subscription to Jogger's World Monthly is about to run
out and you have the choice of
renewing it by sending in the $10 a year regular rate or of
getting a lifetime subscription to the
magazine by paying $100. Your cost of capital is 7 percent.
How many years would you have to
live to make the lifetime subscription the better buy? Payments
for the regular subscription are
made at the beginning of each year. (Round up if necessary to
obtain a whole number of years.)
a. 15 years
b. 10 years
c. 18 years
d. 7 years
e. 8 years
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Amortization
10. You have just bought a house and have a $125,000, 25-year
mortgage with a fixed interest rate of
8.5 percent with monthly payments. Over the next five years,
what percentage of your mortgage
payments will go toward the repayment of principal?

6. a. 8.50%
b. 10.67%
c. 12.88%
d. 14.93%
e. 17.55%
Bond value - semiannual payment
11. You intend to purchase a 10-year, $1,000 face value bond
that pays interest of $60 every 6
months. If your nominal annual required rate of return is 10
percent with semiannual
compounding, how much should you be willing to pay for this
bond?
a. $ 826.31
b. $1,086.15
c. $ 957.50
d. $1,431.49
e. $1,124.62
YTM and YTC
12. A corporate bond matures in 14 years. The bond has an 8
percent semiannual coupon and a par
value of $1,000. The bond is callable in five years at a call
price of $1,050. The price of the bond
today is $1,075. What are the bond’s yield to maturity
and yield to call?
a. YTM = 14.29%; YTC = 14.09%
b. YTM = 3.57%; YTC = 3.52%

7. c. YTM = 7.14%; YTC = 7.34%
d. YTM = 6.64%; YTC = 4.78%
e. YTM = 7.14%; YTC = 7.05%
Yield to call
13. McGriff Motors has bonds outstanding which will mature in
12 years. The bonds pay a 12 percent
semiannual coupon and have a face value of $1,000 (i.e., the
bonds pay a $60 coupon every six
months). The bonds currently have a yield to maturity of 10
percent. The bonds are callable in 8
years and have a call price of $1,050. What are the bonds' yield
to call?
a. 8.89%
b. 9.89%
c. 9.94%
d. 10.00%
e. 12.00%
Preferred stock value
14. The Jones Company has decided to undertake a large
project. Consequently, there is a need for
additional funds. The financial manager plans to issue
preferred stock with a perpetual annual
dividend of $5 per share and a par value of $30. If the required
return on this stock is currently 20
percent, what should be the stock's market value?
a. $150

8. b. $100
c. $ 50
d. $ 25
e. $ 10
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Preferred stock yield
15. A share of preferred stock pays a quarterly dividend of
$2.50. If the price of this preferred stock is
currently $50, what is the nominal annual rate of return?
a. 12%
b. 18%
c. 20%
d. 23%
e. 28%
Stock price
16. Assume that you plan to buy a share of XYZ stock today and
to hold it for 2 years. Your
expectations are that you will not receive a dividend at the end
of Year 1, but you will receive a
dividend of $9.25 at the end of Year 2. In addition, you expect
to sell the stock for $150 at the end
of Year 2. If your expected rate of return is 16 percent, how
much should you be willing to pay
for this stock today?

9. a. $164.19
b. $ 75.29
c. $107.53
d. $118.35
e. $131.74
Constant growth stock
17. A share of common stock has just paid a dividend of $2.00.
If the expected long-run growth rate
for this stock is 15 percent, and if investors require a 19 percent
rate of return, what is the price of
the stock?
a. $57.50
b. $62.25
c. $71.86
d. $64.00
e. $44.92
Non-constant growth stock
18. Klein Company just paid a dividend of $1.00. Klein's
growth rate is expected to be a constant 5
percent for the next 2 years, after which dividends are expected
to grow at a rate of 10 percent
forever. Klein's required rate of return on equity (ks) is 12
percent. What is the current price of
Klein's common stock?
a. $21.00
b. $33.33

10. c. $42.25
d. $50.16
e. $53.34
Beta coefficient
19. Assume that the risk-free rate is 5 percent, and that the
market risk premium is 7 percent. If a
stock has a required rate of return of 13.75 percent, what is its
beta?
a. 1.25
b. 1.35
c. 1.37
d. 1.60
e. 1.96
FIN623_Assessment Tool
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Portfolio beta
20. You hold a diversified portfolio consisting of a $10,000
investment in each of 20 different
common stocks (i.e., your total investment is $200,000). The
portfolio beta is equal to 1.2. You
have decided to sell one of your stocks which has a beta equal
to 0.7 for $10,000. You plan to use
the proceeds to purchase another stock which has a beta equal to
1.4. What will be the beta of the
new portfolio?

11. a. 1.165
b. 1.235
c. 1.250
d. 1.284
e. 1.333
Portfolio return
21. You are an investor in common stock, and you currently
hold a well-diversified portfolio which
has an expected return of 12 percent, a beta of 1.2, and a total
value of $9,000. You plan to
increase your portfolio by buying 100 shares of AT&E at $10 a
share. AT&E has an expected
return of 20 percent with a beta of 2.0. What will be the
expected return and the beta of your
portfolio after you purchase the new stock?
= 12.8%; bp = 1.28
CAPM and required return
22. Your portfolio consists of $100,000 invested in a stock
which has a beta = 0.8, $150,000 invested
in a stock which has a beta = 1.2, and $50,000 invested in a
stock which has a beta = 1.8. The
risk-free rate is 7 percent. Last year this portfolio had a

12. required rate of return of 13 percent. This
year nothing has changed except for the fact that the market risk
premium has increased by 2
percent (two percentage points). What is the portfolio's current
required rate of return?
a. 5.14%
b. 7.14%
c. 11.45%
d. 15.33%
e. 16.25%
IRR
23. The capital budgeting director of Sparrow Corporation is
evaluating a project which costs
$200,000, is expected to last for 10 years and produce after-tax
cash flows, including depreciation,
of $44,503 per year. If the firm's cost of capital is 14 percent
and its tax rate is 40 percent, what is
the project's IRR?
a. 8%
b. 14%
c. 18%
d. -5%
e. 12%
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13. NPV, IRR, and payback
24. Braun Industries is considering an investment project which
has the following cash flows:
Year Cash Flow
0 -$1,000
1 400
2 300
3 500
4 400
The company’s WACC is 10 percent. What is the
project’s payback, internal rate of return, and
net present value?
a. Payback = 2.4, IRR = 10.00%, NPV = $600.
b. Payback = 2.4, IRR = 21.22%, NPV = $260.
c. Payback = 2.6, IRR = 21.22%, NPV = $300.
d. Payback = 2.6, IRR = 21.22%, NPV = $260.
e. Payback = 2.6, IRR = 24.12%, NPV = $300.
IRR
25. Genuine Products Inc. requires a new machine. Two
companies have submitted bids, and you
have been assigned the task of choosing one of the machines.
Cash flow analysis indicates the
following:
Machine A Machine B
Year Cash Flow Cash Flow

14. 0 -$2,000 -$2,000
1 0 832
2 0 832
3 0 832
4 3,877 832
What is the internal rate of return for each machine?
a. IRRA = 16%; IRRB = 20%
b. IRRA = 24%; IRRB = 20%
c. IRRA = 18%; IRRB = 16%
d. IRRA = 18%; IRRB = 24%
e. IRRA = 24%; IRRB = 26%
Page 1 of 4
Goldey-Beacom College
Corporate Finance (FIN623) I. Elsaify
Final Exam Spring II, 2013
Warning
You have promised, and are expected to, complete this Exam
alone. You are not to
discuss the Exam, or any part of it, in any way with anybody
under any circumstances.
Any evidence to the contrary will result in a failing grade in the
course and a violation of

15. the Academic Honor Code.
Instructions:
1. Your Answer must be submitted by hand by 1:00pm Saturday,
4/27/2013
2. Your name must be written on every page.
3. Your Answer cannot exceed the Exam 4 pages.
Page 2 of 4
1. (15 Points) Mr. Alert Tucker of Pleasant Valley, Ohio is an
investor who is interested in allocating part
of his portfolio to investment-grade corporate bonds with 15-
year maturity. He recently received two
proposals to choose from.
Prudential: A 7% coupon bond that sells for $1,100. Coupon
payments are made semiannually.
Morgan Stanley: A 6% coupon bond that sells for $980. Coupon
payments are made annually.
a. Calculate each option YTM and CY.
b. If Prudential bond can be called at the end of five years at a
call value of 950, calculate YTC.
c. If Morgan Stanley bond can be called at the end of seven
years at a call value of 985, calculate
YTC.

16. Answer
a.
Bond N PMT FV PV I=YTM CY
Prudential
Morgan Stanley
b.
Bond N PMT CV PV YTC
Prudential
c.
Bond N PMT CV PV YTC
Morgan Stanley
Page 3 of 4
2. (15 Points) DesinceLogic is a fast growing company that
distributes 20% of its earnings as dividends.
An institutional investor plans to hold the company stock for 10
years. The investor seeks 15% rate of
return, and expects the stock to be traded at 30 times earnings at
the end of 10 years. Current
earning is $4/share (E0=4). Earning with grow at a rate of 21%
during the first year, and decline by 3%
every year during the following 4 years reaching 9% in year 5.
The growth rate will continue to be 9%
for the remaining 5 years.
a. Use the combined earnings and dividend model to determine
the current value of the stock.
b. How much is the growth rate after year 10?

17. Answer
Time G Earnings Dividend
Future
Price
D+FP PV
0 $ 4.00
1 0.21
2
3
4
5 0.09
6 0.09
7
8
9
10
Stock Value
Page 4 of 4
3. (20 Points) The following table gives hypothetical data on 2
stocks in a hypothetical portfolio, in addition
to the risk free rate of return, along with market portfolio
return.

18. a. Track the portfolio expected return, standard deviation, and
Beta for a mix of the 2 stocks that
changes in 10% increments starting with the portfolio fully
ending up with the portfolio fully invested in X ( 100%, 0%)x
table.
b. Is the expected return given consistent or inconsistent with
CAPM? Explain your answer.
Answer
Inputs
S.D. E(R) Beta
Ri s ky As s et X 20.0% 16.0% 2.5
Ri s ky As s et Y 15.0% 12.0% 1.5
Correl ati on (r) 0.0%
Ri s k Free Rate (Rf) 0.0% 6.0% 0
Market Portfol i o 10.0% 1
Outputs
Wx E(Rp) SDp Bp
EPF 0.0%
10.0%
20.0%
100.0%