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Advanced Managerial Finance Week 4 Quiz

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Submitted By kushi1007
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Grade Details - All Questions |

1. | Question : | (TCO C) Blease Inc. has a capital budget of $625,000, and it wants to maintain a target capital structure of 60 percent debt and 40 percent equity. The company forecasts a net income of $475,000. If it follows the residual dividend policy, what is its forecasted dividend payout ratio?

(a) 40.61%
(b) 42.75%
(c) 45.00%
(d) 47.37%
(e) 49.74% | | | | Instructor Explanation: | Answer is: d
Text: pp. 570-572 - Residual Dividends, Chapter 14
Capital budget $625,000
Equity ratio 40%
Net income (NI) $475,000
Dividends paid = NI - (Equity ratio)(Capital budget) $225,000
Dividend payout ratio = Dividends paid/NI 47.37% | | | | Points Received: | 10 of 10 | | Comments: | | | | 2. | Question : | (TCO F) Chocolate Factory's convertible debentures were issued at their $1,000 par value in 2009. At any time prior to maturity on February 1, 2029, a debenture holder can exchange a bond for 25 shares of common stock. What is the conversion price, Pc?

(a) $40.00
(b) $42.00
(c) $44.10
(d) $46.31
(e) $48.62 | | | | Instructor Explanation: | Answer is: a
Chapter 19: pp. 770-774
Par value: $1,000.00
Conversion ratio: 25.00
Conversion price = Par value/Conversion ratio = $40.00 | | | | Points Received: | 10 of 10 | | Comments: | | | | 3. | Question : | (TCO B) Ang Enterprises has a levered beta of 1.10, its capital structure consists of 40 percent debt and 60 percent equity, and its tax rate is 40 percent. What would Ang's beta be if it used no debt, i.e., what is its unlevered beta?

(a) 0.64
(b) 0.67
(c) 0.71
(d) 0.75
(e) 0.79 | | | Instructor Explanation: | Answer is: e
Chapter 19: pp. 607-609

bL 1.10
D/A 0.40
Tax rate 40%
D/E = (D/A) / (1-D/A) 0.67 bU = bL/(1 + (D/E) × (1 - T)) 0.79 | | | | Points

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