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(TCO C) Presented below is information related to Tidal Wave Company. Retained earnings, December 31, 20X2


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4. (TCO B) By evaluating cost and benefits using competitive market prices, we can determine whether a decision will make the firm and its investors wealthier. This central concept is called: (Points : 10)

       the Law of One Price.
       the Present Value.
       the Valuation Principle.
       the Internal Rate of Return.


Question 5.5. (TCO D) Which of the following statements is FALSE? (Points : 10)

       The bond certificate typically specifies that the coupons will be paid periodically until the maturity date of the bond.
       The bond certificate indicates the amounts and dates of all payments to be made.
       The only cash payments that the investor will receive from a zero coupon bond are the interest payments that are paid up until the maturity date.
       Usually, the face value of a bond is repaid at maturity.


Question 6.6. (TCO D) Which of the following s

(TCO C) Presented below is information related to Tidal Wave Company.


 Retained earnings, December 31, 20X2  

$ 2,350,000



Selling and administrative expenses 


Earthquake loss (pre-tax) on plant (extraordinary item) 


Cash dividends declared on common stock    


Cost of goods sold                     


Gain resulting from computation error on depreciation charge in 2009 (pre-tax)


Other revenue    


Other expenses     





Instructions: Prepare in good form a multiple-step income statement for the year 20X2. Assume a 30% tax rate and that 100,000 shares of common stock were outstanding during the year. (Points : 40)

tatements is FALSE? (Points : 10)

       We should use the general dividend discount model to value the stock of a firm with rapid or changing growth.
       As firms mature, their growth slows to rates more typical of established companies.
       The dividend discount model values the stock based on a forecast of the future dividends paid to shareholders.
       The simplest forecast for the firm’s future dividends states that they will grow at a constant rate, g, forever.


7. (TCO D) A bond has 5 years to maturity and has a YTM of 8%. Its par value is $1,000. Its semiannual coupons are $50. What is the bond’s current market price? Show your work.(Points : 20)


8. (TCO D) A bond currently sells for $1,000 and has a par of $1,000. It was issued two years ago and had a maturity of 10 years. The coupon rate is 7% and the interest payments are made semiannually. What is its YTM? Show your work. (Points : 20)


9. (TCO D) A stock has just paid a dividend and declared an annual dividend of $12.00 to be paid one year from today. The dividend is expected to grow at a 7% annual rate. The return on equity for similar stocks is 12%. What is P0? Show your work. (Points : 20)


1. (TCO A) The DuPont Identity expresses the firm's ROE in terms of? Explain in details. (Points : 20)

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