QUIZ-Corporate Taxes and and Financial StatementsBuiltrite had sales of $700,000 and COGS of $280,000. In addition, operating expenses were calculated at 25% of sales. Builtrite also received dividends of $40,000 and paid out common stock dividends of $25,000 to its stockholders. A long-term capital gain of $55,000 was realized during the year along with a capital loss of $70,000Based on the above information, answer the following 4 questions:

Question 1What is Builtrite’s taxable income?Correct Answer: $257,000

Question 2Based on their taxable income, what is Builtrite’s tax liability?Correct Answer: $83,480

Question 3If we add to our problem that Builtrite also had $20,000 in interest expense, how much would this interest expense cost Builtrite after taxes?Correct Answer: $12,200

Question 4If Builtrite had experienced a long-term capital loss of $30,000 instead of the $70,000 long-term capital loss stated in the problem, (in addition to the $55,000 long-term capital gain) which of the following is correct:Correct Answer: taxable income would increase by $25,000

Question 5(This problem is not related to the above problem) Last year Builtrite had retained earnings of $140,000. This year, Builtrite had net profits after taxes of $65,000 and paid a preferred dividend of $25,000. Builtrite also received common stock dividends of $10,000 from stock owned. What is Builtrite’s new level of retained earnings? Correct Answer: $180,000

Quiz-Time Value of MoneyQuestion 1Barry Cuda would like to save $175,000 over the next 20 years. He will assume his account will earn 7% annually. If Barry decides to make a single deposit into his account, how much would he need to deposit today?$45,150

Question 2Ella Funt would like to set up her retirement account that will begin in 40 years. To play it safe, she wants to assume that she will live forever and she will withdraw $160,000 annually. Assuming her account will earn 10% interest during the next 40 years and 5% interest afterwards forever, how much will Ella need to save annually over the next 40 years to fund her retirement account?$12,088

Question 3Bob Katz is purchasing a new Honda Pilot for $32,000. He is financing $28,000 with a six year, 4% loan with annual payments. Construct an amortization schedule, in the 2nd year row, corresponding to his second annual payment, what is the dollar amount of the principal reduction?$4,390

Question 4Sally Mander is planning on retiring in 20 years and she believes that she will live for 25 years after she retires. Sally would like to set up a retirement plan that will pay her $90,000 annually for 25 years. Assuming 9% interest over the next 20 years that she is working, and 6% interest after she retires, how much will Sally need to save annually over the next 20 years?$34,883

Question 5Regarding compound interest, daily compounding of your savings account will always be worth more compared to annual compounding.True

QUIZ-Bond and Stock ValuationQuestion 1Builtrite bonds have the following: 4 1/4% coupon, 14 years until maturity, $1000 par and are currently selling at $1032. If you purchase this bond, what would be your AYTM?3.9%

Question 2Builtrite bonds have the following: 6 ½% coupon, 12 years until maturity, $1000 par and are currently selling at $1064. If you want to make an 6% return, what would you be willing to pay for the bond?$1042

Question 3Builtrite sold 10 year, $1000 par value, zero coupon bonds yielding 4%. What did they sell for?$676

Question 4Builtrite preferred stock has a 5 1/2% coupon based on a par value of $50 a share. Currently, investors require a 5% return. What is the value of Builtrite’s preferred stock?$55

Question 5Given the following information, calculate the current value of the stock: current dividend is $1.50, projected super normal growth for three years at 20%, growth rate after year 3 should remain constant at 10% and you want to earn a 16% annual return. What should you pay for the stock?$35.26

QUIZ-Risk and ReturnQuestion 1Questions 1-2 go with the following information:

Terry Dactel is considering the purchase of an asset having the following cash flows:

What is the asset’s expected return:$10

Question 2What is the asset’s standard deviation?$14.1

Question 3Polly Khan is trying to calculate the risk-free rate given the following information: The current market rate of interest is 8%. Investor’s have been requiring a 10% annual return on Builtrite’s stock which has a beta of 1.5. What is the current risk-free rate?

4%

Question 4Builtrite has calculated the average cash flow to be $12,000 with a standard deviation of $4,500. What is the probability of a cash flow being greater than $9750? (Assume a normal distribution.)19.15%

Question 5The purpose of the CAPM is to try and equate a stock's required return to its perceived level of risk.True

QUIZ-Cost of CapitalQuestion 1Builtrite Auto has preferred stock shares outstanding that pay an annual dividend of $8 and are currently selling for $86 a share. What is the after-tax cost of preferred stock if the flotation cost for new shares is 5% and Builtrite is in the 34% marginal tax bracket?9.79%

Question 2Builtrite Furniture is considering sells bonds for a plant expansion. Currently, Builtrite believes that it could sell 15 year maturity, $1000 par value, 5 3/4% coupon bonds after flotation costs for $985. If Builtrite is in the 34% marginal tax bracket, what is the after-tax cost for the bonds?3.90%

Question 3Builtrite’s common stock is currently selling for $56 a share and the firm just paid an annual dividend of $3.20 per share. Management believes that dividends and earnings should grow at 9% annually. Based on this, and a marginal tax rate of 34%, what is the after-tax cost of common stock (or after-tax cost of retained earnings)?15.2%

Question 4Builtrite’s common stock is currently selling for $48 a share and the firm just paid an annual dividend of $2.30 per share. Management believes that dividends and earnings should grow at 8% annually. Since new stock would need to be sold to finance an expansion, Builtrite expects flotation costs to be 5% of the expected selling price of $48 a share. Based on this, and a marginal tax rate of 34%, what is the after-tax cost of new common stock?13.4%

Question 5

Common stock is called a hybrid security because it takes on the attributes of both preferred stock and bonds.False

QUIZ-Capital BudgetingQuestion 1QUESTIONS 1 – 3 GO WITH THE FOLLOWING PROBLEM:

Builtrite has estimated their cost of capital is 15% and they are considering the purchase of a machine with the following capital budget:

Initial Investment $62,000RATFCF Year 1 $22,000RATFCF Year 2 $30,000RATFCF Year 3 $38,000

What is the machine’s NPV? Question 2What is the Profitability Index (PI) of this machine?

Question 3What is the Internal Rate of Return of this machine?

Question 4QUESTIONS 4 – 5 GO WITH THE FOLLOWING INFORMATION:

Builtrite is considering purchasing a new machine that would cost $50,000 and the machine would be depreciated (straight line) down to $0 over its five year life. At the end of five years it is believed that the machine could be sold for $8,000. The machine would increase EBDT by $36,000 annually.Builtrite’s marginal tax rate is 34%.

What the RATFCF’s associated with the purchase of this machine?

Question 5What is the TCF associated with the purchase of this machine?

Quiz 7: Extra Credit QuizQuestion 1Which of the following business organization set-ups has the most potential liability for all owner(s)?

Question 2

Builtrite Furniture just paid an annual dividend of $2.90 last week and investors' believe that dividends will continue to grow at a 8% rate into the future. The current price of Builtrite's common stock is $78. What return do investors' require of Builtrite stock?

Question 3Builtrite's upper management has been comparing their books to industry standards and came up with the following question: Why is our gross profit margin higher than the industry standard and our operating profit margin lower than the industry standard?

Question 4Beginning in 5 years, (end of years 5, 6 and 7) Sally Mander will receive three annual benefit checks of $15,000 each. If Sally assumes an interest rate of 5%, what is the present value of these checks?

Question 5Barry Cuda is considering the purchase of the following Builtrite bond: $1000 par, 6 3/8% coupon rate, 15 year maturity that is currently selling for $1060. If Barry purchases this bond, what would his approximate yield to maturity be?