Pinal Exam CBE Question 1 30 points Multiple choice choose t

Pinal Exam CBE Question 1 (30 points): Multiple choice: choose the correct answer. 1. A firm million to shareholders. How much was paid to debtholders and debt issuers? A) 50S B) 100S C) 150S D) 350S generated $200 million in free cash flow and paid a net dividend of $50 2. A firm paid a dividend to shareholders of $162 million and repurchased stock for $53 million. There were no share issues. The firm received net cash of $86 million from debt financing transactions. What was its free cash flow? A) 1a0s B) 160S 15 C) 190S 124 D) 220s 109 3. A firm holding $300 million in interest-bearing financial assets and with financing debt of $900 million, reported shareholders\' equity of $500 million. What were its net financial obligations and net operating assets respectively? A) 600S and 1100S B) 1200S and 800S C) 800S and 1400S D) 400S and 600S 4. P/E ratios indicate growth in earnings. If future earnings are expected to be higher than current earnings (that is, growth in earnings is expected), then: B) the P/E will be high F) the P/E will be low G) the P/E will be 1 H) the P/E will be 0 S. A firm\'s return on common equity (ROCE) will equal to its return on net operating assets (RNOA) when: A) return on net operating assets bigger than net borrowing cost. B) return on net operating assets smaller than net borrowing cost. C) financial assets equal financial obligations. D) Total assets equal total obligations.

Solution

1. C) 200-50= $ 150 millions 2--FCF+ 129 millions 162+53-86= 129 3. A. $ 600& $1100 Net financial obligations=900-300= $ 600 Net operating assets= 900+500-300= $ 1100 4. F. P/E will be low i)After reaching a growth stage ,the market will expect a downward trend ii)As the denominator grows, the P/E ratio will decrease 5. C. Financial assets equal financial obligations as ROCE depends on the FINANCIAL LEVERAGE ,ie. More of equity funding of assets will lower the ROCE, whereas, more of debt funding of assets will (lower the equity balance)& thus improve the ROCE ROCE=RNOA when operating assets are equal to operating obligations/liabilities