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A firm has assets valued at $950M, liabilities properly valued at $760M. What is the maximum percentage drop in asset prices a firm can withstand before becoming insolvent?

**QUESTION 2** (3 POINTS)

Which of the following is not true of WACC?

**QUESTION 3** (3 POINTS)

Which statement is incorrect regarding illiquidity and/or insolvency?

**QUESTION 4** (3 POINTS)

In which scenario should a company be most inclined to issue additional debt?

**QUESTION 5** (3 POINTS)

Assume a business can receive a guaranteed annual payment of $5M forever. If the appropriate discount rate 10.0%, how much should the business be willing to pay today for these future payments (hint: is this an annuity, annuity due, or perpetuity)?

**QUESTION 6** (3 POINTS)

If you were using the Gordon Growth Model to value a company, which of the following variables would not help you value the company?

**QUESTION 7** (3 POINTS)

Cash Conversion Cycle is influenced by how well a company does the following:

**QUESTION 8** (3 POINTS)

Which of the following is a key assumption of the Internal Growth Rate?

**QUESTION 9** (3 POINTS)

Which of the following cannot be found if you know a company’s most recent year’s dividend, retention rate, dividend growth rate and stock price?

**QUESTION 10** (3 POINTS)

A company’s bond is most likely said to be trading at a discount in which scenario?

**QUESTION 11** (3 POINTS)

Which of the following is a benefit of the Sharpe ratio?

**QUESTION 12** (6 POINTS)

Calculate the Days Payables Outstanding in 2014 for a company with the following financial measures:

YE 2012 Accounts Payable = $375M

YE 2013 AP = $385M YE 2014 AP = $345M

2013 Sales = $1.3B

2013 Gross Margin % = 60.0%

2014 Sales = $1.6B 2014 GM % = 55%

**QUESTION 13** (3 POINTS)

Which describes the results of a company with the following ratios regarding its Cash Conversion Cycle?

2014 DIO = 15 2014 DSO = 19

2014 DPO = 27 2015 DIO = 15

2015 DSO = 22 2015 DPO = 27

**QUESTION 14** (3 POINTS)

Which of the following describes a common feature of ordinary annuities and annuities due?

**QUESTION 15** (6 POINTS)

Calculate the sustainable AND internal growth rate for a company with the following financial information. Assume all ratios are constant.

2014 Company Data

Sales = $200M

Average Assets = $270M

Dividends Paid = $15M Net Income = $20M

Average Equity = $220M

**QUESTION 16** (6 POINTS)

Calculate the value of the following bond that was just issued, rounded to the nearest dollar (no payments made yet):

A 30-year bond has an 6% coupon rate, with payments made semi-annually and a par value of $1,000. Similar bonds have a YTM of 8%.

**QUESTION 17** (6 POINTS)

Calculate the Cost of Common Equity for a company with the following data and estimates:

Today’s stock price: $73.00

Constant Retention Rate = 40%

Estimated T+1 Earnings = $5.00/share

Estimated Earnings Growth Rate = 8%

**QUESTION 18** (6 POINTS)

A money manager requires all stocks in his or her portfolio to have, at worst, a Sharpe Ratio of 2.0. Currently, the market risk premium is estimated to be 6.5%. If a stock has a standard deviation of 7% and a Beta of 1.25, will it meet this criteria? (Hint: will require algebra to combine the Sharpe Ratio formula and the CAPM formula)

**QUESTION 19** (6 POINTS)

Calculate the WACC of the company with the characteristics below:

Common Equity: $125M in common equity trading at $15/share with most recent year’s dividend of $0.75/share and a dividend growth rate of 10% per year

Preferred Equity: $25M in preferred equity trading at $25/share with a constant $2.75/share dividend

Debt: $100M in bonds with a YTM and coupon rate of 7.5%

Marginal Tax Rate = 25%

Risk-Free Rate = 3%

Market Risk Premium = 7%

**QUESTION 20** (3 POINTS)

Which of the following is a true statement about diversification?

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