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1) a firm has outstanding debt of $100 million. suppose it voluntarily agrees to pay all
creditors 40 cents on the dollar. this is
a.an extension
b.a composition
c.a combination of the two in (a) and (b)
d.a cram-down
2) narrbegin: commerce company
commerce company
the commerce company is evaluating a project with the following cash flows:
narrend
what is the profitability index of the proposed commerce company project if the
discount rate is 7%?
a..58
b.1.58
c.2.58
d.3.58
3) narrbegin: bavarian brew bond
bavarian brew bond
bavarian brew is thinking about recalling $30 million of 15 year, $1,000 par value
bonds, that were issued ten years ago. the bonds carry a coupon rate of 7.8% and have a
call price of $1,110. initially the bonds generated total proceeds of $28.65 million and
the flotation costs were $500,000. bavarian brew wants to sell $30 million of 5 year,
$1,000 par value bonds with a 5.8% coupon rate to retire the old bonds. the flotation
costs on the new bond issue are estimated to be $525,000. due to having to issue the
new bonds before the old bonds can be retired the company expects a period of 3
months were they have to pay interest on the old and the new bonds. assume a tax rate
of 34%
narrend
refer to bavarian brew bond. what is the tax reduction caused by the unamortized
flotation costs?
a.$500,000
b.$333,333
c.$56,667
d.$256,472
4) narrbegin: bavarian brew bond
bavarian brew bond
bavarian brew is thinking about recalling $30 million of 15 year, $1,000 par value
bonds, that were issued ten years ago. the bonds carry a coupon rate of 7.8% and have a
call price of $1,110. initially the bonds generated total proceeds of $28.65 million and
the flotation costs were $500,000. bavarian brew wants to sell $30 million of 5 year,
$1,000 par value bonds with a 5.8% coupon rate to retire the old bonds. the flotation
costs on the new bond issue are estimated to be $525,000. due to having to issue the
new bonds before the old bonds can be retired the company expects a period of 3
months were they have to pay interest on the old and the new bonds. assume a tax rate
of 34%
narrend
refer to bavarian brew bond. what are the annual after tax interest payments on the old
bond?
a.$1,544,400
b.$2,340,000
c.$795,600
d.$1,858,900
5) narrbegin: bulldog industries
bulldog industries
an analyst seeks to determine the value of bulldog industries. after careful research, the
analyst believes that free cash flows for the firm will be $80 million in 2004 and will
grow at 10% for 2005 and 2006. the free cash flows will grow at a rate of 5% after
2006.
narrend
if bulldog industries has a weighted average cost of capital of 10%, find the market
value of the firm. (assume that we are at january 1, 2004)
a.$2,085.26
b.$1,946.52
c.$1,745.45
d.$1,665.45
6) the spot rate exchange rate for andromedan pixels (anp) is 3.00anp/$. if the risk-free
rate of return in andromeda is 20% per annum while that in the u.s. is 3%, then what
should be the 1-year forward rate for anp/$?
a.$2.57
b.$3.00
c.$3.50
d.$3.60
7) you are an aerospace defense contractor and you routinely work projects for the u.s.
department of defense that generate cash flows that by themselves, do not cover the cost
of capital for the firm. one reason for this may be
a.because you can make up negative npv projects by taking on more volume
b.because the projects have an implicit option to work on non-defense related projects
at a lower direct research cost than projects without defense related work
c.because there is a taxable exemption from doing patriotic work
d.none of the above
8) roxy is buying a house and the mortgage terms are 30 years, monthly payments. if
the interest rate is 7% (apr), the loan is $300,000 loan, what is the amount of the
principal in the third payment?
a.$248.78
b.$199.59
c.$300.00
d.$265.52
9) which of the following is (are) an advantage(s) to leasing rather than purchasing?
a.leasing effectively allows for the depreciation of land
b.a lease does not have a stated interest cost
c.a lessee generally cannot make improvements to the leased property
d.at the end of the lease, the lessor realizes any salvage value of the leased property
10) narrbegin: polyana
polyana shoe store
the polyana shoe store had sales last year of $50,000,000 based upon a cost of goods
sold of $40,000,000. polyana also has inventory, accounts receivable, and accounts
payable of $5,000,000, $7,000,000, and $9,000,000, respectively.
narrend
what is polyanas cash conversion cycle period?
a..365 days
b.2.740 days
c.14.600 days
d.133.225 days
11) undetermined corporation currently has a 10% weighted average cost of capital. it is
concerned that its after-tax cost of debt will increase in the near future by 2%. if
undetermined finances its projects with 30% debt, then what will the new weighted
average cost of capital for undetermined be?
a. 12.0%
b. 13. %
c. 10.6%
d. none of the above
12)
