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1) firm x plans to increase its financial leverage by issuing debt and using the proceeds
to repurchase equity. if you assume that the modigliani and miller assumptions hold,
then the effect of this increasing financial leverage transaction should
a.increase the market value of firm xs shares
b.have no effect on the market value of firm xs shares
c.decrease the market value of firm xs shares
d.it is not possible to tell what will happen
2) narrbegin: kennesaw steel corp.
kennesaw steel corporation
as chief financial officer of the kennesaw steel corporation (ksc), you are considering a
recapitalization plan that would convert ksc from its current all-equity capital structure
to one including substantial financial leverage. ksc now has 100,000 shares of common
stock outstanding, which are selling for $50.00 each, and the recapitalization proposal is
to issue $2,000,000 worth of long-term debt at an interest rate of 8.0 percent and use the
proceeds to repurchase $2,000,000 of common stock.
narrend
refer to kennesaw steel corporation. the tax rate is 40%. what is the earnings per share
under the new plan if ebit is $600,000 in the next year? (assume that the stock can be
repurchased at $50 per share)
a.$4.40
b.$4.20
c.$4.00
d.$3.80
3) when a firm files to either reorganize or liquidate in bankruptcy all creditors of the
firm
a.are prevented from filing or continuing with lawsuits against the firm
b.all creditors of the firm are guaranteed to receive less than their original claim
c.automatically become shareholders of the firm
d.none of the above
4) which of the following statements is false?
a.ideas for investment projects stem mainly from the firm's finance department
b.capital projects by their nature are easily reversible
c.once a capital project is approved, the role of a financial manager is non-existent
d.all of the above statements are false
e.only (b) and (c) are false
5) you just bought a pair of shoes for $129. if an identical pair of shoes sells for 105 in
france, what should be the $/ exchange rate if the purchasing power parity holds?
a..8140
b.1.2286
c.1.2905
d..5968
6) which of the following is an example of systematic risk?
a.ibm posts lower than expected earnings
b.intel announces record earnings
c.the national trade deficit is higher than expected
d.none of the above
7) you checked the /$ exchange rate a week ago and you found that one dollar cost you
0.8214. when you checked the /$ exchange rate again yesterday one dollar was trading
at 0.8026. by how much did the value of the dollar appreciate (depreciate)?
a.appreciated by 3.56%
b.depreciated by 3.56%
c.appreciated by 2.35%
d.depreciated by 2.35%
8) which statement is true regarding diversification?
a.the greater the systematic risk, the greater the return required by the investor
b.the greater the diversifiable risk, the greater the return required by the investor
c.we are able to remove all systematic risk if enough stocks are added to a portfolio
d.systematic risk is diversifiable
9) a bond pays an annual coupon rate of 7% with a face value of $1,000. the bond is
scheduled to mature in two years and currently trades at $920.00. what is the coupon
yield of the bond currently?
a.7.00%
b.7.61%
c.14.00%
d.15.22%
10) narrbegin: sea grove beach co.
sea grove beach company
sea grove beach company needs to raise $30 million of new equity capital. its common
stock is currently selling for $44 per share. the investment bankers require an
underwriting spread of 7 percent of the offering price, and the companys legal,
accounting, and printing expenses associated with the seasoned offering are estimated
to be $500,000.
narrend
what is the net price per share that sea grove beach company will receive from this
offering?
a.$40.24
b.$40.92
c.$42.24
d.$43.93
11) federally chartered corporations established as a result of the small business
administration act of 1958
a.institutional venture capital funds
b.corporate venture capital funds
c.small business investment companies
d.financial capital funds
