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1) you will receive a stream of $50 payments beginning at the end of year 1 until the
final payment at the end of year 5. what amount will you have at the end of year 5 if
you can invest all amounts at a 9% interest rate?
a.$194.48
b.$200.00
c.$228.67
d.$299.24
2) you are a financial manager with icn, co. and you have used a forward contract to
hedge a yen 100,000,000 payment the company expects in 90 days. your contract calls
for you to deliver yen at 111.25 yen per u.s. dollar. suppose the spot rate at that time is
109.75 yen per u.s. dollar. did you gain or lose on the hedge? how much?
a.gain, $12,285.33
b.loss, $12,285.33
c.gain, $66,666.67
d.loss, $66,666.67
3) you are provided with the following data on two mutually exclusive projects. the cost
of capital is 15%.
which project should you accept? what is the problem that you should be concerned
with in making this decision?
a.project 1; the timing of cash flows
b.project 2; the timing of cash flows
c.project 1; project scale
d.project 2; project scale
4) which of the following situations would increase the likelihood a firm pays
dividends?
a.rapid growth
b.high capital investment requirements
c.operating in a regulated industry
d.high earnings variability
5) an increase in net working capital represents:
a.a cash inflow
b.a cash outflow
c.an increase in fixed assets
d.a decrease in fixed assets
6) narrbegin: bavarian sausage scenario
bavarian sausage scenario
bavarian sausage is considering starting the production of a new chocolate filled
sausage. the company is not sure yet what the exact sales potential and costs of the
product will be. bavarian sausage has determined the following three possible
scenarios:
narrend
what is the percentage change in bavarian sausages breakeven point in the worst case
scenario if it turns out that they can charge $5 per unit?
a.increase by 50%
b.decrease by 50%
c.increase by 100%
d.decrease by 100%
7) florida considers any loan of more than an apr compounded monthly to be usurious.
what is the usurious effective annual rate?
a.18.00%
b.19.25%
c.19.56%
d.22.25%
8) which of the following key financial decisions depends upon the capital budgeting
process of a particular firm?
a.how much capital must the company raise each year?
b.how much of the needed capital must be raised externally rather than through retained
earnings?
c.how much of the external funding should be raised through borrowing from a bank or
another financial intermediary, and how much capital should be raised by selling
securities directly to investors?
d.what proportion of the external funding should be structured as common stock,
preferred stock or long-term debt?
9) stone cold incorporated reported net income of $10 million for 2003. in addition,
shareholder equity for the firm was $80 million at the end of 2003. the company was
able to pay $3 million out as dividends to the shareholders for 2003. after 2003, excess
paid-in-capital was $60 million. given this information, what is the growth rate
available for stone cold?
a.3.75%
b.5.00%
c.7.50%
d.8.75%
10) narrbegin: gamma electronics
gamma electronics
gamma electronics is considering the purchase of testing equipment that will cost
$500,000 to replace old equipment. assume the new machine will generate after-tax
savings of $250,000 per year over the next four years.
narrend
if gamma electronics has a 15% cost of capital, whats the irr of the investment?
a.23.4%
b.15.0%
c.34.9%
d.100.0%
11) you need to purchase apples 1-month from now and would like to hedge against
price movements in apples. the spot price for apples is $5 a bushel and the risk-free rate
is 10%. what is the 1-month forward price for a bushel of apples?
a.$4.96
b.$5.00
c.$5.04
d.$5.50
12) 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 depreciation expense in year 1?
a.$44,996
b.$10,004
c.$60,008
d.$19,994
13) narrbegin: big thompson credit terms
big thompson industries (bti)
big thompson industries (bti) currently produces and sells 50,000 units of a motor relay
used in high-end electronics. all sales are on credit, for a price of $750 per unit to all
customers. these motor relays incur $525 in variable costs and $3,000,000 in fixed costs
per year. with current credit standards, btis average collection period is 30 days.
managers are considering a relaxation in standards, and forecast a 6 percent increase in
sales, along with an increase in the average collection period to 45 days. additionally,
bad debt expense is expected to increase from 1.5 percent to 2.5 percent of sales.
investments of this type are expected to earn a 14% return. assume a 365 day year
narrend
should bti relax its credit standards?
a.yes, the forecast is for a $496,788 net gain
b.yes, the forecast is for a $65,538 net gain
c.no, the forecast predicts a $243,750 net loss
d.no, the forecast predicts a $609,462 net loss
14) a mutual fund that adopts a passive management style is called:
a.an index fund
b.a research fund
c.an active fund
d.a technology fund
15) which of the following statements regarding the binomial model is true?
a.it makes assumptions about the volatility of the underlying stock
b.the first step is forming a risk-free portfolio
c.the objective of the portfolio is to generate the same cash payment in the future
regardless of whether the value of the stock rises or falls
d.all of the above
e.only (b) and (c) are true
16) a component of the average payment period is
a.the time from the purchase of raw materials until the firm places the payment in the
mail
b.the time it takes after the firm places its payment in the mail until the supplier has
withdrawn funds from the firms account
c.both a and b
d.either a or b
17) mefirst corporation has a cumulative preferred share issue that is suppose to pay a
quarterly dividend of $2. mefirst failed to pay 3 consecutive dividends to investors and
then managed to pay a common share dividend the very next quarter. how much cash
must mefirst have paid to each preferred share holder at that time?
a.$2 per share
b.$6 per share
c.$8 per share
d.$10 per share
18) narrbegin: bavarian cash transfer
bavarian sausage cash transfer
bavarian sausage needs to transfer $250,000 from its deposit account into its
concentration account. the company could do it with an edt which would cost $1.50 or a
wire transfer for $17. the wire transfer would result in the funds being deposited in the
concentration account 2 days earlier. the firms opportunity cost is 10% and we assume a
360 day year.
narrend
what is the benefit for bavarian sausage from using the wire transfer?
a.$138.89
b.$69.44
c.$109.57
d.$53.61
19) louis international has earnings per share of $2.25; just paid dividend $1.05 and
expects a roi next year (and the foreseeable future) of 16%. if the appropriate discount
rate is 20% what is the intrinsic value of the stock?
a.$9.157
b.$9.938
c.$15.263
d.not enough information
