P1–6 ETHICS PROBLEM What does it mean to say that managers should maximize shareholder wealth “subject to ethical constraints”? What ethical considerations might enter into decisions that result in cash flow and stock price effects that are less than they might otherwise have been?

E2–4 Your broker calls to offer you the investment opportunity of a lifetime, the chance

to invest in mortgage-backed securities. The broker explains that these securities are

entitled to the principal and interest payments received from a pool of residential

mortgages. List some of the questions you would ask your broker so as to assess the

risk of this investment opportunity.

P2–4 Interest versus dividend income During the year just ended, Shering Distributors,

Inc., had pretax earnings from operations of $490,000. In addition, during the year

it received $20,000 in income from interest on bonds it held in Zig Manufacturing

and received $20,000 in income from dividends on its 5% common stock holding in

Tank Industries, Inc. Shering is in the 40% tax bracket and is eligible for a 70% dividend

exclusion on its Tank Industries stock.

a. Calculate the firm’s tax on its operating earnings only.

b. Find the tax and the after-tax amount attributable to the interest income from

Zig Manufacturing bonds.

c. Find the tax and the after-tax amount attributable to the dividend income from

the Tank Industries, Inc., common stock.

d. Compare, contrast, and discuss the after-tax amounts resulting from the interest

income and dividend income calculated in parts b and c.

e. What is the firm’s total tax liability for the year?

Explain the cash conversion cycle (CCC). Describe the CCC for your employer or company in an industry in which you’re interested. What are some specific things that your company could do to decrease your cash conversion cycle? Let’s be sure to describe, in pretty specific terms, the CCC for our company and what could be done to shorten it. Minimum 1 page /no plagiarism/cite

1) Which of the following goals of the firm are synonymous (equivalent) to the maximization of

shareholder wealth?

A) profit maximization

B) risk minimization

C) maximization of the total market value of the firm’s common stock

D) none of the above

2) You inherit $300,000 from your parents and want to use the money to supplement your

retirement. You receive the money on your 65th birthday, the day you retire. You want to

withdraw equal amounts at the end of each of the next 20 years. What constant amount can you

withdraw each year and have nothing remaining at the end of 20 years if you are earning 7%

interest per year?

A) $15,000

B) $28,318

C) $33,574

D) $39,113

3) The risk-free rate of interest is 4% and the market risk premium is 9%. Howard Corporation

has a beta of 2.0, and last year generated a return of 16% with a standard deviation of returns of

27%. The required return on Howard Corporation stock is

A) 36%.

B) 34%.

C) 26%.

D) 22%.

4) Today is your 21st birthday and your bank account balance is $25,000. Your account is

earning 6.5% interest compounded monthly. How much will be in the account on your 50th

birthday?

A) $159,795

B) $162,183

C) $163,823

D) $164,631

5) All of the following statements about agency problems are true except:

A) Agency problems interfere with the goal of maximizing shareholder value.

B) Agency costs are paid by the managers who do not act in the shareholders’ best

interest.

C) Agency problems result from the separation of management and the ownership of a

firm.

D) The root cause of agency problems is conflicts of interest.

3 of 3

6) Which of the following conclusions would be true if you earn a higher rate of return on your

investments?

A) The greater the present value would be for any lump sum you would receive in the

future.

B) The lower the present value would be for any lump sum you would receive in the

future.

C) Your rate of return would not have any effect on the present value of any sum to be

received in the future.

D) The greater the present value would be for any annuity you would receive in the

future.

7) Investment A has an expected return of 14% with a standard deviation of 4%, while

investment B has an expected return of 20% with a standard deviation of 9%. Therefore,

A) a risk averse investor will definitely select investment A because the standard

deviation is lower.

B) a rational investor will pick investment B because the return adjusted for risk (20% –

9%) is higher than the return adjusted for risk for investment A ($14% – 4%).

C) it is irrational for a risk-averse investor to select investment B because its standard

deviation is more than twice as big as investment A’s, but the return is not twice as big.

D) rational investors could pick either A or B, depending on their level of risk aversion.

8) Joe purchased 800 shares of Robotics Stock at $3 per share on 1/1/15. He sold the shares on

12/31/15 for $3.45. Robotics stock has a beta of 1.9, the risk-free rate of return is 4%, and the

market risk premium is 9%. Joe’s holding period return is:

A) 15.0%.

B) 16.5%.

C) 17.6%.

D) 21.1%.