QUESTION 1

1. If the economy is expected to go into a contraction, __________ stocks will perform better than _______ stocks, and ________ bonds will perform better than ________bonds.

   cyclical, non-cyclical, junk, investment grade

   cyclical, non-cyclical, investment grade, junk

   risky, safer, risky, safer

   safer, risky, safer, risky

1 points   

QUESTION 2

1. An example of a highly cyclical industry is _________.

   the automobile industry

   the tobacco industry

   the pharmaceutical industry

   the utility industry

1 points   

QUESTION 3

1. Estimate the value of a share of stock given the following information: a forward PE ratio of 12, current (year 0) EPS of $1 and analyst expected EPS of $1.1 next year. 

   10.9

   12.0

   13.2

   13.6

1 points   

QUESTION 4

1. Which of the following is not an example of monetary policy?

   Changing the target federal funds rate

   Sales of new Treasury notes

   Fed purchases of Treasury securities

   Changes in the tax rate

1 points   

QUESTION 5

1. A firm reports EBIT of $100 million. The income statement shows depreciation of $20 million. If the tax rate is 35%, capital expenditures are $10 million, and increases in working capital are $10 million, and the firm issued $10 million in new debt, what is the free cash flow to the firm?

   $57

   $65

   $75

   $95

1 points   

QUESTION 6

1. The free cash flow to the firm is $300 million in perpetuity, the cost of equity equals 18% and the WACC is 16%. If the market value of the debt is $1,000 million and there are 122 million shares outstanding, what is the value of a share of stock?

   $7.2

   $12.3

   $15.4

   $20.5

1 points   

QUESTION 7

1. In which of the following company lifecycle stages would you least likely expect a company to pay dividends?

   mature

   growth

   start-up or embryonic

1 points   

QUESTION 8

1. Z Motorcycle Company is expected to pay a dividend in year 1 of $10.00 and a dividend in year 2 of $11.00.   After year 2, dividends are expected to grow at the rate of 5% per year. An appropriate required return for the stock is 15%. Using the multistage DDM, the stock should be worth __________ today.

   98.6

   104.3

   112.2

   118.7

1 points   

QUESTION 9

1. Which industry is expected to have the highest stock returns at the peak of the stock market based on a sector rotation strategy?

   technology

   financial services / banking

   energy

   utilities

1 points   

QUESTION 10

1. MyWay Corporation has an expected ROE of 15%. If it pays out 30% of it earnings as dividends and its current dividends are $100/share what is the expected dividend next year?

   108.0

   109.1

   110.5

   113.2

1 points   

QUESTION 11

1. Mamamia Motorcycle Company is expected to have free cash flows to the firm of $2 million in year 0.  Assuming the free cash flow to firm grows at 10%/year for 2 years and then grows at a constant rate of 2%, calculate the value per share of stock.  Assume the cost of equity is 15%, cost of debt is 10%, tax rate is 40%, E/V = 60%, D/V = 40%, total debt = $5 million, and there are 2 million shares outstanding.  Choose the closest answer below.

   8

   9

   10

   11