1) a disadvantage of the probabilistic approach to estimating an assets returns is:
a.history always repeats itself
b.it does not require one to assume that the future will look like the past
c.recent history is more important than future risk
d.that the range of possible outcomes is often broader than the scenarios used
2) narrbegin: sooie
southern overnight overland interstate express (sooie)
suppose joe palooka bought 1000 shares of southern overnight overland interstate
express (sooie) one year ago for $45 per share. mr. palooka received a $2 per share
dividend, and sooie shares have increased to $49.50. joe needs to adjust his portfolio, so
he sells his sooie shares.
narrend
refer to sooie. what is his after tax return if he faces a 15% tax rate on dividends and
capital gains?
a.11.16%
b.14.44%
c.12.28%
d.13.13%
3) one principle of venture capital funding is:
a.the bulk of venture capitalists invest in a firm in the early stage of the companys
development
b.professional venture capitalists typically require lower returns on companies in the
earlier stages of their development
c.most venture capital funds that invest in a company during its early years do not
remain committed to the firm as it develops
d.the earlier the development stage of the company, the higher must be the expected
return on the venture capitalists investment
4) oak barrel company has net operating income of $10 million. further, the company
has $80 million of debt outstanding with a required rate of return of 7 percent; the
required rate of return on the industry is 11 percent; and the corporate tax rate is 40
percent. what is the gain from leverage if the personal tax rate on stock income is 20
percent and the personal tax rate on debt income is 30 percent?
a.$22.34 million
b.$23.77 million
c.$24.63 million
d.$25.14 million
5) narrbegin: exhibit 8-3 invst prpsals
exhibit 8-3
a firm is evaluating two investment proposals. the following data is provided for the
two investment alternatives.
narrend
refer to exhibit 8-3. if the two projects are mutually exclusive, which project should the
firm choose? what is the problem that the firm should be concerned with in making this
decision?
a.project 1; discount rate
b.project 2; discount rate
c.project 1; project scale
d.project 2; project scale
6) stockholder voting rights include:
a.voting on the amount of dividends the firm will pay to current stockholders
b.voting as to whether or not the firm should file for bankruptcy
c.voting for members on the board of directors
d.voting on whether or not the firm will issue additional debt
e.all of the above
7) agency costs refer to
a.the costs associated with managing the demands of federal agencies
b.the costs involved when converting an entity from a proprietorship to a corporation
c.the costs that arise due to conflicts of interest between shareholders and managers
d.none of the above
8) if the project were financed completely with equity (retained earnings) and the
required return remained unchanged post-acquisition, what is the most needsalift would
be willing to pay for nothing better! ice creams?
a.$9,319,482
b.$8,500,638
c.$10,000,000
d.$9,771,379
9) which of the following term describes the process in bankruptcy designed to allow
businesses that are in temporary financial distress but are worth saving to continue
operating while the claims of creditors are settled using a collective procedure?
a.insolvency
b.workout
c.voluntary settlement
d.reorganization
e.extension
10) narrbegin: bavarian sausage 2
bavarian sausage 2
you bought a share of bavarian sausage stock for $46.50 at the beginning of the year.
during the year the stock paid a $2.75 dividend and at the end of the year it trades at
$44.75.
narrend
refer to bavarian sausage 2 . what is the capital gains yield of your investment?
a.2.15%
b.-3.76%
c.8.06%
d.5.91%