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1. (TCO H)
Zervos Inc. had the following data for 2008 (in millions). The new CFO believes (a) that an improved inventory management system could lower the average inventory by $4,000, (b) that improvements in the credit department could reduce receivables by $2,000, and (c) that the purchasing department could negotiate better credit terms and thereby increase accounts payable by $2,000. Furthermore, she thinks that these changes would not affect either sales or the costs of goods sold. If these changes were made, by how many days would the cash conversion cycle be lowered?
Original                     Revised
Annual sales: unchanged                         110,000            110,000
Cost of goods sold: unchanged                   80,000             80,000
Average inventory: lowered by $4,000         20,000              16,000
Average receivables: lowered by $2,000       16,000              14,000
Average payables: increased by $2,000        10,000             12,000
Days in year                                             365                   365
a. 34.0
b. 37.4
c. 41.2
d. 45.3
e. 49.8
2. (TCO E)
Division          Asset Beta          Next Period’s Expected          Expected Growth Rate
Free Cash Flow ($mm)
Oil Exploration       1.4                           450                                  4.0%
Oil Refining           1.1                           525                                  2.5%
Gas & Convenience Stores
0.8                          600                                  3.0%
The risk-free rate of interest is 3% and the market risk premium is 5%.
1) Which is the cost of capital for the oil exploration division closest to?
A) 6.0%
B) 7.0%
C) 8.5%
D) 10.0%

3. (TCO B)
You expect CCM Corporation to generate the following free cash flows over the next 5 years.
Year                           1            2             3                4                 5
FCF ($ millions)            25          28            32               37               40

If CCM has $200 million of debt and 8 million shares of stock outstanding, then which is the share price for CCM closest to?
A) $49.50
B) $12.50
C) $19.35
D) $24.50

4. (TCO D)
Which is the standard deviation of the returns on the index from 2000 to 2009 closest to?
Year End      Index Realized  Return            (R – R)               (R – R)2
2000                    23.6%                        14.78%             0.0218448
2001                    24.7%                        15.88%             0.0252174
2002                    30.5%                        21.68%             0.0470022
2003                      9.0%                         0.18%              3.24E-06
2004                     -2.0%                      -10.82%             0.0117072
2005                    -17.3%                      -26.12%             0.0682254
2006                    -24.3%                      -33.12%             0.1096934
2007                      32.2%                       23.38%             0.0546624
2008                       4.4%                        -4.42%             0.0019536
2009                        7.4%                       -1.42%             0.0002016
A) 19.5%
B) 20.5%
C) 3.8%
D) 8.8%