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35)
A firm with unlimited funds must evaluate five projects. Projects 1 and 2 are independent and Projects 3, 4, and 5 are mutually exclusive. The projects are listed with their returns.
A ranking of the projects on the basis of their returns from the best to the worst according to their acceptability to the firm would be
35)
______
A)
3, 2 or 5, 1, and 4.
B)
4, 1, and 2.
C)
4, 1, 2 or 5, and 3.
D)
4, 1, 5, and 3.

36)
________ probability distribution shows all possible outcomes and associated probabilities for a given event.
36)
______
A)
An expected value
B)
A continuous
C)
A bar chart
D)
A discrete

37)
A common stock currently has a beta of 1.3, the risk-free rate is an annual rate of 6 percent, and the market return is an annual rate of 12 percent. The stock is expected to generate a constant dividend of $5.20 per share. A toxic spill results in a lawsuit and potential fines, and the beta of the stock jumps to 1.6. The new equilibrium price of the stock
37)
______
A)
will be $37.68.
B)
will be $33.33.
C)
cannot be determined from the information given.
D)
will be $43.33.

38)
In comparing an ordinary annuity and an annuity due, which of the following is true?
38)
______
A)
The future value of an annuity due is always greater than the future value of an otherwise identical ordinary annuity.
B)
The future value of an annuity due is always less than the future value of an otherwise identical ordinary annuity, since one less payment is received with an annuity due.
C)
The future value of an ordinary annuity is always greater than the future value of an otherwise identical annuity due.
D)
All things being equal, one would prefer to receive an ordinary annuity compared to an annuity due.

Table 11.1A firm has determined its optimal capital structure which is composed of the following sources and target market value proportions.
Debt: The firm can sell a 12-year, $1,000 par value, 7 percent bond for $960. A flotation cost of2 percent of the face value would be required in addition to the discount of $40.Preferred Stock: The firm has determined it can issue preferred stock at $75 per share par value. The stock will pay a $10 annual dividend. The cost of issuing and selling the stock is $3 per share.Common Stock: A firm’s common stock is currently selling for $18 per share. The dividend expected to be paid at the end of the coming year is $1.74. Its dividend payments have been growing at a constant rate for the last four years. Four years ago, the dividend was $1.50. It is expected that to sell, a new common stock issue must be underpriced $1 per share in floatation costs. Additionally, the firm’s marginal tax rate is 40 percent.
39)
The firm’s cost of preferred stock is (See Table 11.1.)
39)
______
A)
7.2 percent.
B)
8.3 percent.
C)
13.9 percent.
D)
13.3 percent.

40)
The firm’s cost of retained earnings is (See Table 11.1.)
40)
______
A)
13.6 percent.
B)
10.2 percent.
C)
13.9 percent.
D)
12.4 percent.

41)
The risk of the debt capital is less than that of other long-term contributors of capital because
41)
______
A)
the tax-deductibility of interest payments lowers the debt cost to the firm substantially.
B)
they have a higher priority of claim against any earnings or assets available for payment.
C)
they have a far stronger legal pressure against the company to make payment than do preferred and common stockholders.
D)
all of the above.

42)
A firm had year end 2004 and 2005 retained earnings balances of $670,000 and $560,000, respectively. The firm paid $10,000 in dividends in 2005. The firm’s net profit after taxes in 2002 was ________.
42)
______
A)
-$100,000
B)
$110,000
C)
-$110,000
D)
$100,000

43)
The present value of $200 to be received 10 years from today, assuming an opportunity cost of 10 percent, is
43)
______
A)
$200.
B)
$ 77.
C)
$ 50.
D)
$518.

44)
Combining two assets having perfectly negatively correlated returns will result in the creation of a portfolio with an overall risk that
44)
______
A)
remains unchanged.
B)
increases to a level above that of either asset.
C)
stabilizes to a level between the asset with the higher risk and the asset with the lower risk.
D)
decreases to a level below that of either asset.

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