1) narrbegin: millers drugstore
millers drugstore
millers drugstore has an ebit of $15,000, debt with a market value of $25,000 and a
required return on assets of 12%.
narrend
assuming a corporate tax rate of 35%, what is millers drugstores value?
a.$125,000
b.$25,000
c.$133,750
d.$75,000
2) put-call parity says that the price on a portfolio of ____ must equal the price of a
portfolio of ____.
a.a bond and call option; one share of common stock and one put option
b.one share of common stock and a call option; a bond and one put option
c.one share of preferred stock and a bond; a call option and one put option
d.one put option and one share of preferred stock; a bond and one call option
3) 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 average collection period?
a..140 days
b.7.140 days
c.51.100 days
d.63.875 days
4) zuma corporation just paid a dividend of $5.23 and has an expected growth rate of
5% for the foreseeable future, if the discount rate is 17% what is the appropriate stock
price today?
a.$43.58
b.$45.59
c.$45.76
d.$48.86
5) pensions are well-suited to the institutional venture capital fund area of investing
because
a.pension fund managers are able to take more risk like venture capital fund managers
b.pension fund managers are able to hold investments with longer time horizons like
venture fund managers
c.pension fund managers do not face investor scrutiny like other fund managers
d.pension fund managers need high risk/high return investments to boost fund returns as
the baby boom generation reaches retirement
6) suppose a firm experiences a seasonal pattern in its sales, in addition to a long-term
upward trend. which of the following financing plans has the potential to be less risky
to the firm?
a.a conservative strategy
b.an aggressive strategy
c.a matching strategy
d.they are equally likely to be low-risk
7) the spot rate for the u.s. dollar relative to the euro is $47/. the spot rate for the u.s.
dollar relative to the canadian dollar is $0.765/c$. what is the cross exchange rate for
the c$ and ?
a.c$1.922/
b.1.922/c$
c.c$0.5204/
d.0.5204/c$
8) which of the following roles does finance play in long-term planning?
a.assessing the likelihood that a given strategic objective can be achieved
b.evaluating the firm’s existing and prospective sources of funding
c.preparing and updating cash budgets to ensure the firm does not face a liquidity crisis
d.all of the above
e.(b) and (c) only
9) marsha start is looking to restart a home economics related business after an
unfortunate incarceration. she forecasts that sales for june, july, and august will be
$100,000, $150,000, and $100,000, respectively. start expects for cash sales to make up
25% of the sales in each month with 90% of the credit sales collected in the month after
the sale and the remainder 2 months after the sale. what is starts estimated total cash
collections for august?
a.$20,000
b.$101,750
c.$133,750
d.none of the above
10) what is the future value of a 5-year ordinary annuity with annual payments of $250,
evaluated at a 15 percent interest rate?
a.$670.44
b.$838.04
c.$1,250
d.$1,685.60
11) narrbegin: “flip” shares 2
“flip” shares 2
three companies went public last month with initial public offerings (ipo). an investor
was able to purchase shares of each company at the offer price and then flip the shares
at the end of the day for the full return. the shares of each company sold for a $20 offer
price. the number of shares purchased and the first day return are shown below.
stockshares
boughtfirst day
narrend
refer to “flip” shares 2. what was the return on this investment at the end of the first
day? (ignore any tax implications for this question)
a.11.38%
b.11.61%
c.11.88%
d.12.33%
12) let the expected inflation in the united sates be 4% and the expected inflation in
costa rica is 7.8 %; also suppose that the united states one-year, risk-free rate is 5%
what must the risk-free rate in costa rica be to maintain interest rate parity?
a.8.84%
b.8.19%
c.5.39%
d.12.80%
13) you are bidding on a contract in a foreign currency and you are not sure if you will
win the bid. however, the analysis in your bid will be flawed if the foreign currency
exchange rate changes between now and when you know whether you have won the
contract. the best course of action to hedge your position is
a.long a currency futures contract
b.short a currency futures contract
c.purchase an option to sell foreign currency for your currency
d.sell an option to sell foreign currency for your currency
14) which type of public market is good for the future of entrepreneurial firms as they
mature into potential ipos?
a.a healthy capital market for small stocks
b.a healthy capital market for large stocks
c.a weak small capital market
d.neither as these firms are not publicly traded yet
15) a coffee table in canada sells for c$13 the same coffee table sells for $92 in the
united states. the expected inflation rate for the next year in canada is 10% and the
expected one year inflation rate for the united states is 8%. what must the exchange rate
be currently for purchasing power parity to hold now, and what must the exchange rate
change to in order for purchasing power parity to hold in one year.
a.$0.6866/c$ and $0.6741/c$
b.c$0.6866/$ and c$0.6741/$
c.$1.4565/c$ and $1.484/c$
d.none of the above
16) which of the following statements is true?
a.when conducting sensitivity analysis all variables except one are held constant
b.when conducting sensitivity analysis a ‘base-case’ set of assumptions must be
established
c.scenario analysis is a more complex form of sensitivity analysis
d.both (a) and (b) are true
e.all of the above are true
17) which of the following statements is false?
a.p/e ratios are widely reported in the financial press and they are very easy to interpret
b.as the value of the dividend growth rate rises, the p/e ratio falls
c.a firm with a higher p/e ratio always has greater growth prospects than a firm with a
lower p/e ratio
d.all of the above statements are false
e.only (b) and (c) are false
18) your cost of capital is 8% and you are offered a discount of 1% for early payment,
otherwise the entire amount is due in 60 days. how many days after purchase will cause
you to be indifferent between taking the discount and not taking the discount?
a.46.08 days
b.21.69 days
c.13.91 days
d.60 days
19) consgrough, inc. has increased its annual common dividend by 3% in each of the
years that the company has existed. if you believe that the company can continue to do
so indefinitely, then what is the required rate of return if the price of consgrough is
$171.67 and the dividend that it paid yesterday was $5?
a..029
b..03
c..06
d.none of the above