29 Jun Question ____ 16. Suppose the U.S. Treasury announ
Question
____ 16. Suppose the U.S. Treasury announces plans to issue $50 billion of new bonds. Assuming the announcement was not expected, what effect, other things held constant, would that have on bond prices and interest rates?
a. Prices and interest rates would both rise.
b. Prices would rise and interest rates would decline.
c. Prices and interest rates would both decline.
d. There would be no changes in either prices or interest rates.
e. Prices would decline and interest rates would rise.
____ 17. Last year Toto Corporation’s sales were $225 million. If sales grow at 6% per year, how large (in millions) will they be 5 years later?
a. $271.74
b. $286.05
c. $301.10
d. $316.16
e. $331.96
____ 18. You want to go to Europe 5 years from now, and you can save $3,100 per year, beginning immediately. You plan to deposit the funds in a mutual fund which you expect to return 8.5% per year. Under these conditions, how much will you have just after you make the 5th deposit, 5 years from now?
a. $17,986.82
b. $18,933.49
c. $19,929.99
d. $20,926.49
e. $21,972.82
____ 19. Below is the common equity section (in millions) of Teweles Technology’s last two year-end balance sheets:
2006
2005
Common stock
$2,000
$1,000
Retained earnings
2,000
2,340
Total common equity
$4,000
$3,340
Teweles has never paid a dividend to its common stockholders. Which of the following statements is CORRECT?
a. The company’s net income in 2006 was higher than in 2005.
b. Teweles issued common stock in 2006.
c. The market price of Teweles’ stock doubled in 2006.
d. Teweles had positive net income in both 2005 and 2006, but the company’s net income in 2006 was lower than it was in 2005.
e. The company has more equity than debt on its balance sheet.
____ 20. Companies generate income from their “regular” operations and from other sources like interest earned on the securities they hold, which is called non-operating income. Lindley Textiles recently reported $12,500 of sales, $7,250 of operating costs other than depreciation, and $1,000 of depreciation. The company had no amortization charges and no non-operating income. It had $8,000 of bonds outstanding that carry a 7.5% interest rate, and its federal-plus-state income tax rate was 40%. How much was Lindley’s operating income, or EBIT?
a. $3,462
b. $3,644
c. $3,836
d. $4,038
e. $4,250
____ 21. An investor is considering starting a new business. The company would require $475,000 of assets, and it would be financed entirely with common stock. The investor will go forward only if she thinks the firm can provide a 13.5% return on the invested capital, which means that the firm must have an ROE of 13.5%. How much net income must be expected to warrant starting the business?
a. $52,230
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