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1) the issue of corporate capital structure has similarities to college students' financial
situations because:
a.many students use borrowed funds to finance their education
b.most finance students will ultimately work for a major corporation and will make
decisions as to how the firm finances its investment in assets
c.using debt to finance ones education is similar to issuing stock to finance investment
in a firms assets
d.both (a) and (c)
2) in italy the annualized rate on a three-month government bond is 4% and in canada
the rate is 5%. the current spot rate is 0.6542/c$. calculate the 3-month forward rate
needed for interest rate parity to hold.
a.0.6526/c$
b.0.6480/c$
c.0.6558/c$
d.0.6605/c$
3) arizona truck company (atc) is considering the replacement of an old truck. the old
truck can be sold for $7,800 now. if it is sold in one year, the resale price will be
$5,500, but atc will spend $2,500 just before selling the truck to make it attractive to a
buyer. assume a cost of capital of 12%. what is the total cost of keeping the old truck
for one more year? express the cash flow in terms of its future value one year from now.
a.$5,121
b.$5,736
c.$4,800
d.$5,376
e.none of the above
4) a bond where the investor is granted the right to receive payment in shares of
underlying stock rather than in cash is called a
a.junk bond
b.zero-coupon bond
c.convertible bond
d.bearer bond
5) what is the present value of $25 to be received at the end of each year for the next 6
years if the discount rate is 12%?
a.$125.00
b.$113.06
c.$102.79
d.none of the above
6) which of the following encourages managers to act in the shareholders interests?
a.performance based compensation
b.audits
c.threat of hostile takeovers
d.all of the above
7) narrbegin: bavarian credit terms
bavarian brew credit terms
bavarian brew is producing and selling brewery equipment to microbreweries
nationwide. bavarian is charging $15,000 per unit and all of their sales are on credit.
under the current credit policy bavarian brew expects to sell 500 units. the variable
costs are $6,000/unit and fixed costs are $1,500,000 per year. the company is thinking
about changing their credit terms from net 30 to 3/10 net 30. the effect of this change
would be a 5% increase in unit sales, but also an increase in bad debt expenses from 2%
to 4% of sales. the company expects 75% of its customers to take advantage of the cash
discount. currently the company has an average collection period of 38 days, 30 days
until the customers mail their payments and another 8 days to process the payments
once they arrive. bavarian brews opportunity cost of funds invested in accounts
receivable is 12%.
narrend
what is bavarian brews bad debt expense under the old credit policy?
a.$125,000
b.$100,000
c.$150,000
d.$175,000
8) narrbegin: exhibit 17-2
exhibit 23-2
coffee; 37,500 lbs per contract, $ per lb. may 2004
narrend
refer to exhibit 23-2. suppose that yesterday you purchased one september coffee
futures contract at the settle price. at the end of todays trading day what is the change in
the value of your contract?
a.$3,000
b.-$3,000
c.$3,750
d.-$3,750
9) suppose you bought 10 smith enterprise put options with a strike price of $52 at
$2.75 per option. if the price of smith stock is $48, what is your net profit (or loss)?
ignore transaction costs.
a.$40
b.$0
c.$12.50
d.-$27.50
10) a particular stock has an expected return of 18%. if the expected return on the
market portfolio is 13%, and the risk-free rate is 5%, whats the stocks capm beta?
a.1.000
b.1.625
c.2.250
d.1.385
11) financial synergies are largely the anticipated result of
a.vertical mergers
b.horizontal mergers
c.conglomerate mergers
d.forced mergers
12) an investor that writes a naked call could be considered:
a.bullish
b.bearish
c.neutral
d.risk averse
13) for the zero growth model:
a.because the valuation formula reduces to the equation for the present value of a
perpetuity the process is essentially the same for valuing preferred stock
b.because the valuation formula reduces to the equation for the future value of a
perpetuity the process is essentially the same for valuing preferred stock
c.because the valuation formula reduces to the equation for the present value of an
ordinary annuity, the process is essentially the same for valuing preferred stock
d.because the valuation formula reduces to the equation for the future value of an
ordinary annuity, the process is essentially the same for valuing preferred stock
14) suppose you bought 10 smith enterprise call options with a strike price of $52 at
$2.75 per option. if the price of smith stock is $56, what is your net profit (or loss)?
ignore transaction costs.
a.$0
b.$12.50
c.-$27.50
d.$40
15) an asset that falls into the 3-year macrs asset class is fully depreciated over:
a.2 years
b.3 years
c.4 years
d.5 years
16) the expected outcomes of emma stock are below; what is the expected variance of
emma stock?
a.2.252%
b.0.051%
c.2.303%
d.0.053%
17) a supplier has offered you credit terms of 3/10 net 30. what is the implied rate of
interest in the terms?
a.56.44%
b.37.08%
c.5.69%
d.3.09%
18) 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 irr of the project?
a.22.79%
b.-10.01%
c.19.47%
d.27.36%
19) narrbegin: bavarian-bavarian merger
bavarian-bavarian merger
bavarian brew is planning on acquiring bavarian sausage in a pure exchange merger.
bavarian brews stock is currently trading at $45 and they set the exchange ratio at 1.80.
bavarian sausage has 75 million shares outstanding which are currently trading at $23 a
share.
twelve months after the merger bavarian brews stock price drops to $37.
narrend
after the drop in the stock price for bavarian brew, what is the transaction value of the
merger?
a.$4.995 billion
b.$2.775 billion
c.$3.585 billion
d.$5.239 billion
20) the adoption of the euro was a result of the ____ treaty.
a.versailles
b.maastricht
c.gatt
d.nafta
e.mercosur
