Mary has just been asked to analyze an investment to determine if it is acceptab
ID: 2741697 • Letter: M
Question
Mary has just been asked to analyze an investment to determine if it is acceptable. Unfortunately, she is not being given sufficient time to analyze the project using various methods. She must select one method of analysis and provide an answer based solely on that method. Which method do you suggest she use in this situation?
Select one:
a. Average accounting rate of return
b. Profitability index
c. Net present value
d. Internal rate of return
e. Payback
Which one of the following might be included in a bond's list of negative covenants?
Select one:
a. Limiting cash dividends to $1 per share or less
b. Providing audited financial statements in a timely manner
c. Maintaining a minimum cash balance of $1.2 million
d. Maintaining a times interest earned ratio of 2 or more
e. Maintaining a current ratio of 1.2 or more
A preferred stock sells for $48.20 a share and has a market return of 15.65 percent. What is the dividend amount?
Select one:
a. $6.93
b. $7.54
c. $7.25
d. $6.80
e. $7.42
Klaus Toys just paid its annual dividend of $1.40. The required return is 16 percent and the dividend growth rate is 2 percent. What is the expected value of this stock five years from now?
Select one:
a. $12.58
b. $11.26
c. $11.04
d. $11.67
e. $12.41
Explanation / Answer
Mary has just been asked to analyze an investment to determine if it is acceptable. Unfortunately, she is not being given sufficient time to analyze the project using various methods. She must select one method of analysis and provide an answer based solely on that method. Which method do you suggest she use in this situation?
Select one:
a. Average accounting rate of return
b. Profitability index
c. Net present value
d. Internal rate of return
e. Payback
Correct answer is option c. Net present value
Net present value is considered the best form of analysis if one have to select a single method to analyze an investment opportunities. Net Present Value is the difference between the present value of cash inflows and the present value of cash outflows.
Which one of the following might be included in a bond's list of negative covenants?
Select one:
a. Limiting cash dividends to $1 per share or less
b. Providing audited financial statements in a timely manner
c. Maintaining a minimum cash balance of $1.2 million
d. Maintaining a times interest earned ratio of 2 or more
e. Maintaining a current ratio of 1.2 or more
Correct answer is option a. Limiting cash dividends to $1 per share or less
A bond covenant is a legally binding term of agreement between a bond issuer and a bond holder. A Negative or restrictive covenants prevent the bond issuer from some activities.
A preferred stock sells for $48.20 a share and has a market return of 15.65 percent. What is the dividend amount?
Select one:
a. $6.93
b. $7.54
c. $7.25
d. $6.80
e. $7.42
Correct answer is option b. $ 7.54
Market return = (dividend per share/ stock price ) * 100 = ($7.54/$48.20)* 100 = 15.65%
Klaus Toys just paid its annual dividend of $1.40. The required return is 16 percent and the dividend growth rate is 2 percent. What is the expected value of this stock five years from now?
Select one:
a. $12.58
b. $11.26
c. $11.04
d. $11.67
e. $12.41
Correct Answer is option b. $ 11.26
Calculation expected value the stock after five years = [1.40×(1 + 0.02)^6]/(0.16 - 0.02) = $11.26