** Test:6-1 MyFinanceLab:Exam1**

**This Question:9pts**

**(Related to Checkpoint 3.1) (Working with the income statement) At the end of its third year of operations, the Sandifer Manufacturing Co. had $4,517,000 in revenuse,$3,320,000 in cost of goods sold,$447,000 in operating expenses which includeddeprecation expense of $156,000,and atax liability equal to 34 percent of the firm’s taxable income.What is the net income of the firm for the year?**

**Complete the income statement for Sandifer ManufacturingCO.:(Round to the nearest dollar.) **

**Revenues =**

**Less=**

** Equals=**

**Less=**

** Equals =**

**Less:**

** Equals=**

**Less:**

** Equals=**

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**Test:6-1MyFinancelab:Exam1**

**This question:9pts **

**(Related to Checkpoint 3.2) (Working with the balance sheet) The Caraway Seed Company grows heirloom tomatoes and sells their seeds.**

**The heirloom tomato plants are preferred by many growers for their superior flavor.**

**At the end of the most recent year the firm had current assets of $50,800,net fixed assets of $249,500,current liabilities of $29,700,and long-term debt$100,400.**

**a. Calculate Caraway’s stockholder’s equity **

**Caraway’s stockholder’s equity is .(Round to the nearest dollar.)b. What is the firm’s net working capital?**

**The firm’s net working capital is . (Round to the nearest dollar).**

**C .If Caraway’s current liabilities consist of in account payable and in short-team debt (notes payable),what is the firm’s net working capital?(Select the best choice below.) **

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**Test:6-1 MyFinanceLab: Exam 1**

**This question:10 pts**

**(Preparing common-size financial statement) The balance sheet and income statement for Carver Enterprises,Inc,are found here.**

**a.Prepare a common -size balance sheet for Carver Enterprises.**

**b.Prepare a common-size income statement for Carver Enterprises.**

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**Test:6-1 My Finance Lab: Exam 1**

**This Question:10 pts**

** (Preparing common-size balance sheet and income statement for Carver Enterprises,Inc,are found here.**

**a.Prepare a common-size balance sheet for Carver Enterprises.**

**b.Prepare a common-size income statement for Carver Enterprises.**

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**Test:6-1 MyFinanceLab:Exam 1**

**This Question:9 pts**

**(Present-voluecomporsion) Much to your surprise,you were selected to appear on the TV show “The Price is Right.” As a result of your prowess in identifying how many rolls of toilet paper a typical American family keeps on hand,you win the opportunity to choose one of the following:$1,000 today ,$11,000 in 10 years, or $34,000 in 24 years.Assuming that you can earn 15 percent on your money, which should you choose?**

**If you are offered $11,000 in 10 years and you can earn 15 percent on your money,what is the present value of $11,000?$ (Round to the nearest cent.)**

**If you are offered $34,000 in 24 years and you can earn 15 percent on your money,what is the present value of $34,000?**

** (Round to the nearest cent.)**

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**Test:6-1 MyFinanceLab: Exam 1**

**This question:9 pts**

**(Related to Checkpoint 5.7) (Calculating an EAR) You have choice of borrowing money from a finance company at 19 percent compounded semiannullay or borrowing money from a bank at 21 percent compounded quarterly.**

**Which alternative is the most attractive?**

**If you can borrow funds from a finance company at 19 percent compounded semiannually, the EAR for the loan is (Round to the decimal places.)**

**If you can borrow funds from a bank at 21 percent compound quarterly, the EAR for the loan is (Round to two decimal places.)**

**Based on the finding above, which alternative is more attractive? (Select the best choice below.)**

**(The loan from the finance company at 19% compounded semiannually.**

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**Test: 6-1 My FinanceLab: Exam 1 **

**This Question: 9 pts**

**(Related to The Business of Life: Saving for Retirement) (Future value of an ordinary annuity) You are graduating from college at the end of this semester after reading The Business of Life box in this chapter, you have decided to invest $5,600 at the end of each year into a Roth IRA for the next 43 years. If you earn 8 percent compounded annually on your investment, how much will you have when you retire in 43 years? How much will you have if you wait 10 years before beginning to save and only make 33 payments into your retirement account?**

**How much will you have when you retire in 43 years?**

** (Round to the nearest cent.)**

**How much will you have if you wait 10 years before beginning to save and only make 33 payments into your retirement account?**

** (Round to the nearest cent.)**

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**Test: 6-1 My FinanceLab : Exam 1**

**This Question : 9 pts**

**(Related to Checkpoint 6.1) (Annuity payments) Mr. Bill S. Preston, Esq.,purchased a new house per $120,000. He paid $25,000 upfront and agreed to pay the rest over the next 30 years in 30 equal annual payments that include principal payments plus 14 percent compound interest on the unpaid balance. What will these equal payments be?**

**a. Mr. Bill S. Preston, Esq., purchased a new house for $120,000 and paid $25,000 upfront. How much does he need to borrow to purchase the house?**

** (Round to the nearest dollar.) **

**b. If Bill agrees to pay the loan over the next 30 years in 30 equal end-of-year payments plus 14 percent compound interest on the unpaid balance, what will these equal payments be?**

** (Round to the nearest cent.)**

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**Test: 6-1 My Finance Lab: Exam **

**This Question: 8 pts**

** (Related to Checkpoint 6.1) (Annuity payments) Lisa Simpson wants to have $1,800,000 in 35 years by making equal annual end-of-the-year deposits into a tax-deferred account paying 11.00 percent annually. What must Lisa’s annual deposit be?**

**The amount of Lisa’s annual deposit must be . (Round to the nearest cent.)**

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**Test: 6-1 My Finance Lab: Exam 1**

**This Question: 9 pts**

**(Calculating rates of return) The & P stock index represents a portfolio comprised of 500 large publicly traded companies. On December 24, 2007, the index had a value of 1,410 and December 24, 2008, the index was approximately 897. If the average dividend paid on the stocks in the index is approximately 3.5 percent of the index at the beginning of the year, what is the rate of return earned on the S & P index? What is your assessment of the relative riskiness of investing in a single stock such a Google, compared to investing in the S & P index (recall from chapter 2 that you can purchase mutual funds that mimic the returns of the index)?**

**The rate of return on the S & P 500 is – (Round to the decimal places.)**

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**Test: 6-1 My Finance Lab: Exam 1**

**This Question: 9 pts**

**(Related to Checkpoint 8.1) (Expected rate of return) James Fromholtz is considering whether to invest in a newly formed investment fund. The fund’s investment objective is to acquire home mortgage securities at what it hopes will be bargain prices. The fund sponsor has suggested to James that the fund’s performance will hinge on how the national economy performs in the coming year. Specifically, he suggested the following possible outcomes:**

**a. Based on these potential outcomes, what is your estimate of the expected rate of return from this investment opportunity?**

**b. Would you be interested in marking such an investment? Note that you lose all your money in one year if the economy collapses into the worst state or you double your money if the economy enters into a rapid expansion.**

**a. The expected rate of return from this investment opportunity is (Round to two decimal places)**

**b. Would you be interest in marketing such an investment? (Select the best choice below)**

**A. Your interest in making such an investment would depend on your risk tolerance. If you do not like risk you should avoid this investment, however if you do not mind risk you may want to make this investment.**

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**Test: 6-1 My FinanceLab: Exam 1**

** This question: 9 pts**

**(Related to Checkpoint 8.3) (Systematic risk and expected rates of return) The following table , contains beta coefficient estimates for six firms. Calculation the expected increase in the value of each firm’s shares if the market portfolio were to increase by 10 percent. Perform the same calculation where the market drops by 10 percent.**

**Company Yahoo Finance**

** Computers and Softwere**

**Apple Inc, (AAPL) 2.88/28.80%**

**Dell Inc, (DELL) 1.51/15.10%**

**Hewlett Packard (HPQ) 1.34/13.40% **

** Utilities**

**American Electric power Co. (AEP) 0.65/6.50%**

**Duke Energy Crop. (DUK) 0.35/3.50%**

**Centerpoint Energy (CNP) 0.97/9.70%**

**Input the expected decrease in the value of each firm’s shares if the market portfolio were to decrease by **

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**Test: 6-1 My Finance Lab : Exam 1**

**This Question: 9 pts**

**(Protfolio beta and CAPM) You are putting together a portfolio made up of four different stock. However, you**

** (Portfolio Weightings)**

**Asset Beta First Protfolio Second Portfolio**

**A 2.20 20% 30%**

**B 1.10 20% 30%**

**C 0.40 30% 20%**

**D -1.30 30% 20%**

**a.What is the beat on each portfolio? **

**b. Which portfolio is riskier?**

**c. If the risk free of interest were 4.5 percent and the market risk premium were 7.5 percent, what rate of re**

**a. The beat on the first portfolio is 0.390. (Round to the three decimal places.)**

**The beat on the second portfolio is 0.810. (Round to the three decimal places.)**

**b.Which portfolio is risker? (Select below)**

**A. The second portfolio because the beta is larger.**

**B. The first portfolio because the beta is smaller.**

**C. The first portfolio because the beta is larger.**

**D. The second portfolio because the beta is smaller**

**c.If the risk-free rate of interest were 4.5 and the market risk premium were 7.5% then the rate of return on the first portfolio is expected to be (Round to two decimal places.)**

**If the risk-free rate of interest were 4.5% and the market risk premium were 7.5%, then the rate of return on the second portfolio is expected to be ( Round to two decimal places.)**

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**Test: 6.1 My Finance Lab : Exam 1**

**This Question: 9 pts**

**(Yield to maturity) A bond’s market price is $825. It has a $1,000 par value, will mature in 14 years, and has a coupon interest rate of 9 percent annual interest, but makes its interest payments semiannually. What is the bond’s yield to maturity? What happens to the bond’s yield to maturity if the bond matures in 28 years? What if it matures in 7 years?**

**a.The bond’s yield to maturity if it matures in 14 years is Round to two decimal places.)**

**b.The bond’s yield to maturity if it matures in 28 years is (Round to two decimal places.)**

**c.The bond’s yield to maturity if it matures in 7 years in (round to two decimal places.)**

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**Test: MyFinanceLab : Exam 1**

**This Question : 6pts **

**(Related to Checkpoint 9.3) (Bond valuation) Pybus, Inc. is considering issuing bonds that will mature in 17 years with an annual coupon rate of 6 percent. Their par value will be $1,00, and the interest will be paid semiannually. Pybus is hopping to get a AA rating on its bonds and, the yield to maturity on similar AA bonds is 8 percent. However, Pybus is not sure whether the new bonds will receive a AA rating. If they receive an A rating, the yield to maturity on similar A bonds is 9 percent. What will be the price of these bonds if they receive either an A or AA rating?**

**a.The price of the Pybus bonds if they receive a AA rating will be. (Round to the nearest cent.)**

**b.The price of the pybus if thye receive an A rating will be (Round to the nearest cent.)**

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**Test:6-1 MyFinanceLab : Exam 1**

**This Question: 6 pts**

**(Related to Checkpoint 9.2 and Checkpoint 9.3) (Bond valuation relationships) The 14-years, $1,000 par value bonds of Waco Industries pay 8 percent interest annually. The market price of the bond is $1,125, and the market’s required yield to maturity on a comparable-risk bond is 5 percent.**

**a.Computer the bond’s yield to maturity.**

**b.Determine the value of the bond to you given the market’s required yield to maturity on a comparable-risk bond.**

**c.Should you purchase the bond.**

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**a.What is your yield to maturity on the Waco bonds given the current market price of the bonds?**

** (Round to two decimal places)**

**b.What should be the value of the Waco bonds given the market’s required yield to the maturity on comparable-risk bond?**

** (Round to the nearest cent)**

**c.You should purchase the Waco bonds at the current market price because they are currently underpriced.(Select from the drop-down menus.)**

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**Test: 6-1 My FinanceLab : Exam 1**

**This Question: 6 pts**

**1.A low bond rating will require a company to pay a ______ rate of interest on any new debt issues. **

**A. variable**

**B. higher**

**C. lower**

**D. none of these**

**2. An upgrade in company’s bond rating will cause outstanding debt issues to _______ in value.**

**A. increase**

**B. remain unchanged**

**C. decrease**

**D. none of these.**

**3.Which of the following factors would have little or no impact on the initial coupon rate assigned to a new bond?**

**A. bon rating**

**B. stock price**

**C. market rates of interest**

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