Quiz 1

Elec 2 Christ the King College
Valuation Concepts and Methods College Department

Quiz #1 Accountancy Program
Ray Patrick S. Guangco, CPA Gingoog City
PRAYER BEFORE A TEST

My God, enable me to trust in the good outcome of the test that I am about to take; help me to contribute my own
share of optimism and confidence. With your grace, my God, I hope to crown my efforts and with success. Keep me
far from me at this moment any presumption that it all depends exclusively on me. You are next to me, my God, the
necessary and welcome presence in all the moments of my life. I will take this test, my God, because it is important for
my personal development. My God, be the source of my inspiration in my doubts and uncertainties, supporting me
with your blessing. AMEN!
GOD BLESS!
THIS IS ONLY A QUESTIONNAIRE. ALL YOUR ANSWERS MUST BE IN THE ANSWER SHEET (GOOGLE FORM) PROVIDED.
TEST 1: TRUE OR FALSE (1 point)

INSTRUCTION: IN THE GOOGLE FORM, WRITE TRUE IF THE STATEMENT IS CORRECT AND FALSE IF THE STATEMENT IS
INCORRECT. BE SURE TO CAPITALIZE THE WORD.
1. The board of directors is responsible for managing day-to-day operations and carrying out the policies established by
the chief executive officer.
2. The capital expenditures analyst/manager is responsible for the evaluation and recommendation of proposed asset
investments and may be involved in the financial aspects of implementation of approved investments
3. The financial analyst administers the firm’s credit policy by analyzing or managing the evaluation of credit applications,
extending credit, and monitoring and collecting accounts receivable.
4. The corporate controller is the officer responsible for the firm’s financial activities such as financial planning and fund
raising, making capital expenditure decisions, and managing cash, credit, the pension fund, and foreign exchange.
5. Financing decisions deal with the left-hand side of the firm’s balance sheet and involve the most appropriate mix of
current and fixed assets.
6. The wealth of corporate owners is measured by the share price of the stock.
7. The likelihood that managers may place personal goals ahead of corporate goals is called the agency problem.
8. Primary and secondary markets are markets for short-term and long-term securities, respectively.
9. The greater the potential return on an investment and the longer the period of time, the higher the present value.
10. Annuity due is an amount that occurs at the beginning of each period.
11. The effective rate of interest is the contractual rate of interest charged by a lender or promised by a borrower.
12. Restrictive covenants are contractual clauses in long-term debt agreements that place certain operating and financial
constraints on the borrower.
13. The purpose of the restrictive debt covenant that imposes fixed assets restrictions is to limit the amount of fixed-
payment obligations.
14. In a practical sense, the longer the term of a bond, the greater the default risk associated with the bond.
15. The size of the bond offering affects the interest cost of borrowing in an inverse manner.
16. Sinking-fund requirement is a restrictive provision often included in a bond indenture providing for periodic payments
representing only interest and a large lump-sum payment at the maturity of the loan representing the entire loan
principal.
17. In the valuation process, the higher the risk, the greater the required return.
18. Interest rate risk is the chance that interest rates will change and thereby change the required return and bond value.
19. A bond with short maturity has less “interest rate risk” than a bond with long maturity when all other features—coupon
interest rate, par value, and interest payment frequency—are the same.
20. Preferred stock is a special form of stock having a fixed periodic dividend that must be paid prior to payment of any
interest to outstanding bonds.
21. The cost of preferred stock financing is generally higher than that of debt financing because unlike the payment of
interest to bondholders, the payment of dividends to preferred stockholders is not guaranteed, and interest on debt is
tax-deductible whereas preferred stock dividend is not.
22. A common stockholder has no guarantee of receiving any cash inflows, but receives what is left after all other claims on
the firm’s income and assets have been satisfied.
23. The constant growth model is an approach to dividend valuation that assumes that dividends grow at a constant rate
indefinitely.
24. Interest paid to bondholders is tax deductible but dividends paid to stockholders are not.
25. Common stock can be either privately or publicly owned.
TEST 2: PROBLEM SOLVING
INSTRUCTION: IN THE GOOGLE CLASSROOM, WRITE YOUR ANSWER IN THIS MANNER:
1. Put P before the number. P = Peso sign.
2. Correct placement of the comma.
EXAMPLE: P500,000
3. SHOW YOUR SOLUTION! ATTACH YOUR SOLUTION. NO OR WRONG SOLUTION WILL NOT BE CONSIDERED.
PROBLEM 1 (2 points)
Bill plans to deposit P200 into a bank account at the end of every month. The bank account has a nominal interest rate of
8 percent and interest is compounded monthly. How much will Bill have in the account at the end of 2½ years (30 months)?
You have been offered an investment that pays P500 at the end of every 6 months for the next 3 years. The nominal interest
rate is 12 percent; however, interest is compounded quarterly. What is the present value of the investment?
You are contributing money to an investment account so that you can purchase a house in five years. You plan to contribute
six payments of P3,000 a year. The first payment will be made today (t = 0) and the final payment will be made five years
from now (t = 5). If you earn 11 percent in your investment account, how much money will you have in the account five
years from now (at t = 5)?
Asiana Fashion’s bonds have 10 years remaining to maturity. Interest is paid annually; they have a P1,000 par value; the
coupon interest rate is 8%; and the yield to maturity is 9%. What is the bond’s current market price?
Mack Industries just paid a dividend of P1.00 per share (D0 = P1.00). Analysts expect the company’s dividend to grow 20 percent
this year (D1 = P1.20) and 15 percent next year. After two years the dividend is expected to grow at a constant rate of 5 percent.
The required rate of return on the company’s stock is 12 percent. What should be the company’s current stock price?
A stock currently sells for P28 a share. Its dividend is growing at a constant rate, and its dividend yield is 5 percent. The required
rate of return on the company’s stock is expected to remain constant at 13 percent. What is the expected stock price seven years
from now?
Johnston Corporation is growing at a constant rate of 6 percent per year. It has both common stock and non-participating
preferred stock outstanding. The cost of preferred stock (kp) is 8 percent. The par value of the preferred stock is P120, and the
stock has a stated dividend of 10 percent of par. What is the market value of the preferred stock?
Assume that the average firm in your company’s industry is expected to grow at a constant rate of 5 percent, and its dividend
yield is 4 percent. Your company is about as risky as the average firm in the industry, but it has just developed a line of innovative
new products, which leads you to expect that its earnings and dividends will grow at a rate of 40 percent (D1 = D0(1.40)) this year
and 25 percent the following year after which growth should match the 5 percent industry average rate. The last dividend paid
(D0) was P2. What is the stock’s value per share?
*End of the Quiz*
“Commit to the Lord whatever you do, and he will establish your plans.”
Proverbs 16:3

Quiz 1

Uploaded by

Copyright:

Available Formats

Quiz 1

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Quiz 1

Uploaded by

Copyright:

Available Formats

Elec 2 Christ the King College

Valuation Concepts and Methods College Department

PRAYER BEFORE A TEST

TEST 1: TRUE OR FALSE (1 point)

End of the Quiz

You might also like