FIN 534 Final Exam 3
FIN 534 Last Examination three1. Which of the next statements is appropriate? 2. Grandin Inc. is evaluating its dividend coverage. It has a capital price range of $625,000, and it desires to take care of a goal capital construction of 60% debt and 40% fairness. The corporate forecasts a internet revenue of $475,000. If it follows the residual dividend coverage, what's its forecasted dividend payout ratio? three. The projected capital price range of Kandell Company is $1,000,000, its goal capital construction is 60% debt and 40% fairness, and its forecasted internet revenue is $550,000. If the corporate follows a residual dividend coverage, what whole dividends, if any, will it pay out? four. The capital price range of Artistic Ventures Inc. is $1,000,000. The corporate desires to preserve a goal capital construction that's 30% debt and 70% fairness. The firm forecasts that its internet revenue this yr can be $800,000. If the firm follows a residual dividend coverage, what can be its whole dividend cost? 5. Within the actual world, dividends 6. Which of the next statements is appropriate? 7. If a agency adheres strictly to the residual dividend coverage, the issuance of latest widespread inventory would counsel that eight. Which of the next statements is CORRECT? 9. Which of the next statements is appropriate? 10. If a agency adheres strictly to the residual dividend coverage, then if its optimum capital price range requires the usage of all earnings for a given yr (together with new debt in keeping with the optimum debt/whole belongings ratio), then the agency ought to pay 11. Which of the next actions will greatest allow an organization to boost extra fairness capital? 12. Poff Industries' inventory at the moment sells for $120 a share. You personal 100 shares of the inventory. The corporate is considering a 2-for-1 inventory break up. Which of the following greatest describes what your place can be after such a break up takes place? 13. Take into account two very totally different corporations, M and N. Agency M is a mature agency in a mature business. Its annual internet revenue and internet money flows are each constantly excessive and secure. Nevertheless, M's development prospects are fairly restricted, so its capital price range is small relative to its internet revenue. Agency N is a comparatively new agency in a brand new and rising business. Its markets and merchandise haven't stabilized, so its annual working revenue fluctuates significantly. Nevertheless, N has substantial development alternatives, and its capital price range is anticipated to be massive relative to its internet revenue for the foreseeable future. Which of the next statements is appropriate? 14. Which of the next statements is NOT appropriate? 15. Which of the next statements is appropriate? 16. Which of the next would improve the chance that an organization would improve its debt ratio, different issues held fixed? 17. Blueline Publishers is contemplating a recapitalization plan. It's at the moment 100% fairness financed however underneath the plan it might challenge long-term debt with a yield of 9% and use the proceeds to repurchase widespread inventory. The recapitalization wouldn't change the corporate's whole belongings, nor wouldn't it have an effect on the agency's primary incomes energy, which is at the moment 15%. The CFO believes that this recapitalization would scale back the WACC and improve inventory value. Which of the next would even be more likely to happen if the corporate goes forward with the recapitalization plan? 18. Which of the next occasions is more likely to encourage an organization to boost its goal debt ratio, different issues held fixed? 19. Two operationally comparable firms, HD and LD, have the identical whole belongings, working revenue (EBIT), tax price, and enterprise danger. Firm HD, nevertheless, has a a lot greater debt ratio than LD. Additionally HD's primary incomes energy (BEP) exceeds its price of debt (rd). Which of the next statements is CORRECT? 20. Which of the next statements is CORRECT? 21. Corporations U and L each have a primary incomes energy ratio of 20% and every has the identical quantity of belongings. Agency U is unleveraged, i.e., it's 100% fairness financed, whereas Agency L is financed with 50% debt and 50% fairness. Agency L's debt has a before-tax price of eight%. Each corporations have constructive internet revenue. Which of the next statements is CORRECT? 22. Which of the next statements greatest describes the optimum capital construction? The optimum capital construction is the combination of debt, fairness, and most well-liked inventory that maximizes the corporate's ____. 23. Corporations HD and LD have an identical tax charges, whole belongings, and primary incomes energy ratios, and their primary incomes energy exceeds their before-tax price of debt, rd. Nevertheless, Firm HD has the next debt ratio and thus extra curiosity expense than Firm LD. Which of the next statements is CORRECT? 24. Which of the next statements is CORRECT? 25. Different issues held fixed, which of the next occasions is most probably to encourage a agency to extend the quantity of debt in its capital construction? 26. Daylight Options is contemplating a recapitalization that may improve its debt ratio and improve its curiosity expense. The corporate would challenge new bonds and use the proceeds to purchase again shares of its widespread inventory. The corporate's CFO thinks the plan won't change whole belongings or working revenue, however that it'll improve earnings per share (EPS). Assuming the CFO's estimates are appropriate, which of the next statements is CORRECT? 27. Which of the next statements is CORRECT? 28. Which of the next statements is CORRECT? 29. Which of the next is NOT related to (or doesn't contribute to) enterprise danger? Recall that enterprise danger is affected by a agency's operations. 30. Which of the next statements is CORRECT?