WGU C214 Finance Management Concepts RETAKE_3 [2022/2023] Aced
WGU C214 Finance Management Concepts RETAKE_3
Time value of money question not
... [Show More] GROWTH
2.15 PMT
-18.00 PV
1 N
20 I/Y = 23.0556
32. A company just paid a $2 dividend per share of stock, which is expected to grow 10% annually. A
broker’s required return is 15%. What is the highest price the broker should be willing to pay for one share
of the company today?
Expected Dividend = Recent dividend * (1 + Growth Rate) Expected Dividend = 2* (1 + .10) = 2*1.10 = 2.20
Price = Expected Dividend / (required return - Growth Rate) Price= 2.20 / (.15 - .10) = 2.20 / .05 = 44.00
33. How is the expected return from the CAPM model used to make financial decisions?
It’s used to discount the expected dividends and capital appreciation of the stock over the expected holding
period.
34. Define par value of a bond?
AMOUNT OF PAYABLE OF MATURITY OF BOND
35. What is the benefit of the Gordon growth model over the CAPM model?
It is the most commonly used model to calculate share price and is therefore the easiest to understand.
36. In 2016, the ending retained earnings was $2,000,000. In 2017, the forecasted net income is $3,000,000
with a 30% dividend payout ratio. What is the forecasted retained earnings for year 2017?
Ending Retained Earnings = Beginning Retained Earnings + Net Income – Dividends Paid
2,000,000+3,000,000 -30% = 3,500,000 900,000 4100.0000.000
30000000* 30% = 90000000 50000000.000
37. If the projected total assets are $2,000,000 with projected total liabilities of $800,000 and projected
owner’s equity of $500,000. What is the amount of discretionary financing needed?
31. A broker purchases a stock that pays a $2.15 annual dividend at a price of $18.00. The broker expects a
15% rate of return. What is the total actual return if the broker sells the stock after one year for $202,000,000-800,000-500,000= 700,000
This study source was downloaded by 100000825611411 from CourseHero.com on 11-10-2022 11:51:59 GMT -06:0038. If the inflation rate is 5%, how much will an investment be worth in a year?
5% LESS
39. A company is preparing a pro forma balance sheet. The forecast calls for $15 million in projected sales.
The projected cash needed 5% of sales, accounts receivable are 20% of sales, and PP&E is 50% of sales.
Accounts payable is 15% of sales, and Long-Term debt is $2 million. Total shareholders equity is $4 million.
What is the discretionary financing needed?
(15*0.5) + (15*0.2) + (15*0.5) – (15*0.15) – 4- 2 =
0.7500 + 3 + 7.5 – 2.25 – 2 – 4 = 3.0000
7.5000
41. Based on the following financial data
Net income: $5,000,000
Sales: $25,000,000
Assets: $10,000,000
Dividends: $4,000,000
Equity: $2,000,000
Liabilities: $8,000,000
What is the SGR?
SGR = ROE * (1 – Dividend Payout Ratio)
5,000,000/2,000,000*(1-(4,000,000/5,000,000)
2.5*1-(0.8) =1.7
1-0.8 =0.2000* 0.5000
41. A company has $100 million in assets, total liabilities are $70 million, and owner’s equity is $15 million.
What is the discretionary financing needed?
100-70-15= 15 Million
42. Define NPV?
Is defined as the present value of after tax net cash flowsThe weighted average of the cost of debt and equity
44. A company is considering a project with the following cash flows and a discount rate of 15%:
Initial Outlay ($8,000)
Year 1 $4,000
Year 2 $4,500
Year 3 $4,000
Year 4 $3,900
Year 5 $2,000
What is the NPV for the project and why or why not should the project be accepted or rejected?
4,735.1634
45. Which three information is needed for capital budgeting?
Initial Cash outflows
Differential cash flows
Terminal Cash Flows
46. Which three information is needed for initial outlay in capital budgeting?
Initial Cash Outflow = Cost of Asset + Shipping & Installation + Increase in NWC
Cost of the new machine.
The proceeds from selling the old machine
Any additional net-working-capital that must be raised for the project.
47. If Company X has lower business risk than Company Y, what impact will a
5% increase in sales have on the operating income of both companies?
Company X will have lower risk and company Y will have higher risk
48. What is the name of the cash balance that a company must hold for future
emergencies?
Reserve balance
49. Which ratio is used in the comparable method of firm valuation?
P/E Ratio50. What is the advantage of equity financing over debt financing?
There is no obligation to repay the money acquired through it.
51. Which type of equity has the features of both common stock and debt?
Preferred Stock is a security which has characteristics of both equity and debt securities.
52. How does increase in market rate impact the cost of debt?
Cost of debt will increase.
53.
Sales = $1,250,000
Variable costs = $500,000
Fixed costs = $400,000
Interest expense = $100,000
What is the degree of financial leverage?
500,000 + 400,000+ 100,000 = 1,000,000
1,000,000/1250,000 = 0.8
54. What are the three costs associated with inventory?
Storage, Product, and Opportunity
55. Why do companies carry cash on hand?
Cash used for everyday purchases.
56. What ratios are used to determine efficient working capital management?
Accounts Receivable (AR) Turnover, Current ratio, and Cash ratio
57. What does the Volcker rule limit banks from doing?
Prohibits banks from conducting certain investment activities with their own accounts and limits
their dealings with hedge funds and private equity funds, also called covered funds.
58. What is the primary goal of the Sarbanes Oxley Act of 2002?
The primary goal of the Sarbanes-Oxley Act was to fix auditing of U.S. public companies,
consistent with its full, official name: the Public Company Accounting Reform and Investor
Protection Act of 2002.
59. What is required to be included in the prospectus filed with the SEC?
A company must clearly describe important information about its business operations, financial
condition, results of operations, risk factors, and management. The prospectus must also include
audited financial statements.60. What records should brokerages maintain in order to comply with FINRA?
Brokers must retain blotters (records containing details of all purchases and sales of securities) for
at least six years. But they must keep copies of trade confi [Show Less]