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

Question2.2.(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.

Question3.3.(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.

Question4.4.(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(Points:5)

10

.10

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

1(TCO D) A given bond has 5 years to maturity. It has a face value of $1,000. It has a YTM of 6%
and the coupons are paid semiannually at a 10% annual rate. What does the bond currently sell
for? (Show workings)(Points:15)

2.(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)(Points:15)

3. (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. (Points : 20)

4. (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 not expected to
grow. The return on equity for similar stocks is 12%. What is P 0? (Show workings)
(Points : 20)
5. (TCO D) A stock has just paid a dividend has declared an annual dividend of
$12.00 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 12%. What is P 0? (Show
workings) (Points : 20)
6. (TCO C) Using examples, explain the difference between systematic risk and
nonsystematic risk. Explain why the distinction is important for both investors and
issuers of stock. (Points : 25)
7. (TCO D) A company has 100 million shares outstanding trading for $8 per
share. It also has $900 million in outstanding debt. If its equity cost of capital is
15%, and its debt cost of capital is 12%, and its effective corporate tax rate is
40%, what is its weighted average cost of capital? (Show workings) (Points :
25)
8. (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)
9. (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? (Points : 25)
10. (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 12%. Which should the company do and why? You must use at least two
capital budgeting methods. Show your work.
Year

300

100

300

100

50

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

200