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1) narrbegin: bavarian merger
bavarian merger
bavarian brew is planning on acquiring bavarian sausage in a pure exchange merger.
bavarian brews stock is currently trading at $35 and they set the exchange ratio at 0.80.
bavarian sausage has 75 million shares outstanding which are currently trading at $18 a
share.
narrend
refer to bavarian merger. if you owned 250 shares of bavarian sausage what would be
the value of your stock holdings after the merger?
a.$3,600
b.$4,500
c.$7,000
d.$8,750
2) william and theodore have decided to start a travel business called excellent
adventures. since their business primarily involves time-travel their clients may be
harmed during a small but significant portion of the travels. consequently, william and
theodore would like a business form that will shield their personal wealth from any
legal claims that the firm might be subject to after one of the travel mishaps. if william
and theodore are the only investors in this u.s. domiciled firm, which legal form of
organization would be best for excellent adventures to protect both william and
theodore?
a.sole proprietorship
b.partnership
c.limited partnership
d.corporation
3) which finance career classification involves analyzing a firms business processes and
strategies as well as recommending a change in practice in order to make a firm more
competitive?
a.corporate finance
b.commercial banking
c.investment banking
d.consulting
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 is the npv of the proposed bond refinancing?
a.$907,484
b.-$907,484
c.-$895,453
d.$895,453
5) if a company prefers to finance its required assets with a small portion of short-term
borrowings, then that firm is utilizing a(n)
a.conservative financing strategy
b.aggressive financing strategy
c.matching strategy
d.none of the above
6) narrbegin: far corporation
far corporation
far corporation is considering a new project to manufacture widgets. the cost of the
manufacturing equipment is $150,000. the cost of shipping and installation is an
additional $15,000. the asset will fall into the 3-year macrs class. the year 1-4 macrs
percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. sales are expected
to be $300,000 per year. cost of goods sold will be 80% of sales. the project will require
an increase in net working capital of $15,000. at the end of three years, far plans on
ending the project and selling the manufacturing equipment for $35,000. the marginal
tax rate is 40% and far corporations appropriate discount rate is 12%.
narrend
refer to far corporation. what is the operating cash flow for year 3?
a.$55,470
b.$60,000
c.$48,798
d.$37,686
7) which of the following statements concerning non-u.s. ipos is false?
a.they are, on average, much smaller than those on the nasdaq or nyse
b.they offer significant first-day returns
c.it is difficult, on average, to find enough interested investors for non-u.s. ipos
d.taxation issues such as capital gains tax rules significantly impact how issues are
priced and which investors are targeted for the offer
e.all of the above statements are true
8) what is the present value of an operating lease that involves payments of $8,000 per
year (the end of the year) for 5 years with no possibility of purchase at the end of the
lease term. assume that the firm is in the 35% marginal tax rate and the pre-tax cost of
debt for the firm is 7%?
a.$32,801.58
b.$22,796.11
c.$21,321.03
d.$35,070.93
9) the roots of the american venture capital industry can be traced to
a.the american research and development company
b.the american reinvestment and development company
c.the alternative direct and reinvestment company
d.none of the above
10) narrbegin: dsss corporation
dsss corporation
dsss corporation is considering a new project to manufacture widgets. the cost of the
manufacturing equipment is $125,000. the cost of shipping and installation is an
additional $10,000. the asset will fall into the 3-year macrs class. the year 1- 4 macrs
percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. sales are expected
to be $225,000 per year. cost of goods sold will be 60% of sales. the project will require
an increase in net working capital of $10,000. at the end of three years, dsss plans on
ending the project and selling the manufacturing equipment for $25,000. the marginal
tax rate is 40% and dsss corporations appropriate discount rate is 15%.
narrend
refer to dsss corporation. what is the operating cash flow for year 3?
a.$54,797
b.$64,798
c.$70,803
d.$10,487
11) you are the owner of a natural gas well that can produce exactly (at todays prices)
$1,000,000 worth of gas per year for exactly 5 years. you also know (with certainty)
that the correct discount rate for these revenues is 10%. an oil and gas production firm
offers you $5,000,000 today for the natural gas well. what is the implied value of the
real option to not produce or not to produce natural gas?
a.$0
b.$604,607
c.$1,209,213
d.$2,418,426
12) a floating-rate, hard-currency loan made by a large number of international banks to
international corporate and government borrows is known as:
a.eurocurrency loan
b.treasury bill
c.syndicated loan
d.term loan
e.stock purchase warrant
13) the expected outcomes for louis stock are below; what is the expected standard
deviation of louis stock?
a.2.885%
b.0.083%
c.2.968%
d.0.088%
14) bonds that received investment-grade ratings when first issued but later fell to junk
status are known as:
a.disgraced stars
b.shamed debt
c.fallen angels
d.dead wood
15) purchasing power parity implies that if the law of one price holds at all times then
a.differences in interest rates are associated with expected changes in exchange rates
b.differences in expected inflation rates between two countries are associated with
expected changes in exchange rates
c.foreign exchange rates are fixed
d.neither a or b is correct
16) narrbegin: miller venture capital
miller venture capital
miller venture capital made a $5 million investment in bavarian sausage technology
(bst) 8 years ago and in return received 1 million shares of convertible preferred stock
that can be converted into 2 shares of common stock. after all stock has been converted
bst will have 15 million shares outstanding. in addition, the company is planning on
issuing an additional 3 million shares in an ipo.
narrend
refer to miller venture capital. what fraction of bsts common stock will miller own after
the ipo?
a.15.24%
b.11.11%
c.45.32%
d.23.56%
17) which of the following statements is false?
a.the main virtue of the payback method is its simplicity
b.some managers believe the payback method implicitly accounts for the riskiness of
longer-term projects
c.some managers may prefer the payback method because it leads to accepting projects
that payback quickly which may be ideal for them in terms of building their short-term
career
d.the payback method considers all cash flows for a project, even those occurring after
the payback period
e.both (a) and (d) are false
18) narrbegin: exhibit 6-2
exhibit 6-2
you purchased a bond last year that pays an 8% annual coupon with a face value of
$1,000. at the time of purchase, the bond had a yield to maturity of 10% and had 10
years until maturity. today, the bond trades at a yield to maturity of 9%.
narrend
refer to exhibit 6-2. what was the dollar return of this investment over the last year?
a.$80
b.$93
c.$143
d.$160
