1. Ackert Company’s last dividend was $1.55. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm’s required return (rs) is 12.0%. What is the best estimate of the current stock price?

$37.05

$38.16

$39.30

$40.48

2. The Chadmark Corporation’s budgeted monthly sales are $3,000. In the first month, 40% of its customers pay and take the 2% discount.

The remaining 60% pay in the month following the sale and don’t receive a discount.

Chadmark’s bad debts are very small and are excluded from this analysis. Purchases for next month’s sales are constant each month at $1,500.

Other payments for wages, rent, and taxes are constant at $700 per month. Construct a single month’s cash budget with the information given.

What is the average cash gain or (loss) during a typical month for the Chadmark Corporation? Please show your calculation.

3. Consider the following for the following 4 firms:

Firm Cash Debt Equity rD rE rC

Eenie 0 150 150 5% 10% 40%

Meenie 0 250 750 6% 12% 35%

Minie 25 175 325 6% 11% 35%

Moe 50 350 150 7.5% 15% 30%

Which is the weighted average cost of capital for Meenie closet to?

a. 10.5% b. 7.4% c. 10.0% d. 8.8%

4. Your consulting firm was hired to improve the performance of Shin-Soenen Inc which is highly profitable but has been experiencing cash shortage due to its high growth rate. As one part of your analysis, you want to determine the firm’s cash conversion cycle, using the following information and a 365 day a year, what is the firm’s present cash conversion cycle?

Average Inventory 75,000

Annual Sales 600,000

Annual cost of goods sold 360,000

Average accounts receivable 160,000

Average accounts payable 25,000

a. 120.6 days b. 126.9 days c. 133.6 days d. 140.6 days

e. 148.0 days.

5. Your company has been offered credit terms of 4/30, net 90 days. What will be the nominal annual percentage cost of its nonfree trade credit if it pays 120 days after the purchase? (Assume a 365-day year.)

a. 16.05%

b. 16.90%

c. 17.74%

d. 18.63%

e. 19.56%

6. Division Asset Next period exp. free cash flow Exp. growth

Oil Exploration 1.4 450 4%

Oil Refinery 1.1 525 2.5%

Gas & Conv. 0.8 600 3.0%

The risk free rate of interest is 3% and market risk premium is 5%. What is the cost of capital for oil exploration div. closet to:

a. 6.0% b. 7.0% c. 8.5% d. 10%

7. You expect CCM Corp to generate the foll. free cash flows ove rthe next 5 years:

Yr 1 2 3 4 5

FCF(million) 25 28 32 37 40

If CCM has $150million of debt and 12million shares of stock outstanding

which is the share price of CCM closest to/

a. $49.50 b. $11.25 c. $20.50 d. $22.75

8. Which is the variance of returns on the index from 2,000 to 2009 closet to?

Year End Index Realized Return (R-R) (R-R)2

2000 23.6% 14.78% 0.0218448

2001 24.7% 15.88% 0.0252174

2002 30.5% 21.68% 0.0470022

2003 9.0% 0.18% 3.4 E-06

2004 -2.0% -10.82% 0.0117072

2005 -17.3% -26.12% 0.0682254

2006 -24.3% -33.12% 0.1096934

2007 32.2% 23.38% 0.0546624

2008 4.4% -4.42% 0.0019536

2009 7.4% -1.42% 0.0002016

A. 0.0450 B. 0.3400 C. 0.1935 D. 0.0375

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