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1) narrbegin: miller juice
miller juice
miller juice is a young company that currently does not pay a dividend. the company
retains all their earnings to finance their growth. however, ten years from now the
company is expected to start paying a $1.50 dividend. according to research reports the
dividend should then grow by 5% annually forever.
narrend
if the required return on the stock investment is 13%, what should be millers stock price
today?
a.$19.69
b.$6.24
c.$15.62
d.$10.37
2) which of the following statements is true concerning the term "venture capital?
a.in the united states the term refers to all professionally managed, equity-based
investments in private, entrepreneurial growth companies while in europe the term
refers to early-and expansion-stage financing
b.in the united states the term refers to all professionally managed, equity-based
investments in private, entrepreneurial growth companies while in europe the term
refers to later-stage financing
c.in europe the term refers to all professionally managed, equity-based investments in
private, entrepreneurial growth companies while in the united states the term refers to
early-and expansion-stage financing
d.the terms refer to the same thing in both europe and the united states
3) narrbegin: exhibit 22-1 liquidation
exhibit 23-1
narrend
if the company has $3,000,000 in funds to distribute to unsecured creditors, what
percentage of their claims are going to be satisfied if case iii occurs?
a.129.03%
b.100%
c.82.56%
d.17.44%
4) weoweyou, inc. has a 12-year bond outstanding that makes 9.5% annual coupon
payments. if the appropriate discount rate for such a bond is 7%, what the appropriate
price for the bond?
a.$1,200.73
b.$1,000.00
c.$1,198.57
d.$754.56
5) emma is evaluating a lock-box system that will reduce float by 4 days. the firm has
annual sales of $52 million and an opportunity cost of 15%.if the lock-box system is
adopted, what is the amount of funds released?
a. $ 85,479.45
b. $ 142,465.75
c. $ 21,369.86
d. $ 569,863.01
6) you have the choice of introducing either stock x or stock y into your fully
diversified portfolio. both stocks have 5 units of systematic risk while stock x has 6
units of unsystematic risk and stock y has 8 units of unsystematic risk. which stock
offers the greatest opportunity from diversification?
a.stock x
b.stock y
c.both stock offer the same opportunity
d.there is not enough information to determine the answer
7) last year sample corp. had earnings of $3 a share based upon a common share book
value of $25 per share. if sample paid a dividend of $1.50 last year then estimate
samples growth rate.
a.6%
b.12%
c.50%
d.none of the above
8) what market is where transactions that generate new cash flow for the firm occur?
a.primary market transactions
b.secondary market transactions
c.commodities market transactions
d.initial public offering transactions
9) with respect to the owner of a putable bond,
a.the value of the put increases as interest rates increase
b.the value of the put increases as interest rates decrease
c.the value of the put increases as the value of the stock decreases
d.none of the above
10) the irr method assumes that the reinvestment rate of cash flows is
a.the cost of capital
b.the irr
c.essentially arbitrary
d.zero
11) the total return of an asset captures
a.income paid by an asset over time
b.the capital gain or loss on the asset over time
c.the book value of the asset over time
d.a and b are both correct
12) the stock of alpha company has an expected return of 15.5% and a beta of 1.5, and
gamma company stock has an expected return of 13.4% and a beta of 1.2. assume the
capm holds. whats the expected return on the market?
a.12%
b.7%
c.10.3%
d.11.2%
13) over the last 3 years you have earned 5%, 7%, and 9% on your portfolio. what is the
standard deviation of the returns of that portfolio?
a..07
b..02
c..0004
d.none of the above
14) if you deposit $9,000 at the beginning of each year in an account earning 8%
interest, what will be the value of the account in 25 years?
a.$609,216.17
b.$657,953.46
c.$710,589.74
d.$774,823.46
15) the greater the number of unrelated divisions that a conglomerate firm operates in
creates
a.a smaller herfindahl index number
b.a larger herfindahl index number
c.a herfindahl index number that does not necessarily change
d.there is not enough information to determine
16) consider the following details for a bond issued by bravo incorporated.
issue date8/5/2000
maturity date8/5/2030
coupon rate (annual coupons)9%
face value$1,000
suppose that todays date is 8/5/2004, what should the current trading price be for this
bond if investors want a 12% annual return?
a.$658.09
b.$763.13
c.$908.88
d.$1,000.00
17) if the spot rate for the yen/ dollar is ¥110.00 and the one-month forward rate is
¥111.00 then the yen trades at an annual
a.forward discount of .009091 to the dollar
b.forward premium of .009091 to the dollar
c.forward discount of .109091 to the dollar
d.forward premium of .109091 to the dollar
18) narrbegin: tax trade off theory
narrend
a graphical representation of the trade-off model is shown. various components of the
graph are labeled. which of the following corresponds to line 2?
a.present value of interest tax shields on debt
b.present value of expected bankruptcy and agency costs
c.value of levered firm with bankruptcy costs
d.value of levered firm in the absence of bankruptcy and agency costs
e.value of firm under all-equity financing
19) kelley group is considering an investment of $2 million in an asset with an
economic life of four years. the cash revenues and expenses in year 1 are expected to be
$1.8m and $0.5m respectively. both revenues and expenses are expected to grow at 3
percent per year. the asset will be fully depreciated to zero using the straight line
method over its economic life. the salvage value of the asset is expected to be $0.3m at
the end of the fourth year. kelley group also needs to add net working capital of $0.1m
immediately, and this capital will be recovered in full at the end of the projects life. the
tax rate is 40%. what is the investments cash flow in year 4?
a.$1.1323m
b.$1.4523m
c.$1.3323m
d.$1.3579m
20) louis international is considering easing credit standards to increase sales, and
potentially profits. currently the firm sells 200,000 units at a sales price of $125 per unit
and variable cost of $103 per unit. currently the average collection period is 15 days
and the bad debt expense is 3% of sales. the required return on investment is 18%. if
credit standards are eased, the sales will increase to 250,000 units; the acp will increase
to 35 days; and the bad debt expense will increase to 5% all else will remain the
same.what the current average in investment in accounts receivable?
a.$1,027,397.26
b.$ 846,575.34
c.$5,707,762.56
d.$ 564,383.56
