1) narrbegin: needsalift, inc.
needsalift, inc.
you are analyzing the potential acquisition of nothing better! ice creams, inc. by your
firm, needsalift, inc. the ice cream firm is a wholly owned subsidiary of grand lake
investments, which has set a firm selling price of $10,000,000. from your work you
estimate that nothing better! will generate the following incremental cash flows for
needsalift:
to fund the $10 million price, needsalift can use $2 million from internal sources
(retained earnings) with a required return of 15 percent, while the rest would come from
a new debt issue yielding 10 percent. needsalifts tax rate is 40 percent.
narrend
what is the value of the proposed acquisition to needsalift?
a.$9,771,379
b.$10,666,344
c.$8,500,678
d.$10,596,175
2) a collection system that is characterized by many collection points with each having
a depository account at a local bank is called
a.field banking system
b.mail based collection system
c.electronic invoice presentment and payment system
d.electronic bill presentment and payment system
3) which of the following is an example of unsystematic risk?
a.ibm posts lower than expected earnings
b.the fed raises interest rates unexpectedly
c.the rate of inflation is higher than expected
d.none of the above
4) you plan to buy a 2 year zero coupon bond one year from today. if the risk free rate is
5.6% and a three year zero-coupon bond currently sells for $843.25, what should be the
forward price?
a.$890.47
b.$943.25
c.$925.89
d.$1045.72
5) an investor seeks a 4% real return on his investment in a stock fund. if there is 3%
inflation in the economy, what nominal return must this stock fund provide to meet his
objective?
a.1%
b.4%
c.7.12%
d.9.71%
6) narrbegin: needsalift aprs
needsalift, inc. aprs
needsalift, inc. has $10 million in funds to distribute to its unsecured creditors. two sets
of possible claims are presented below.
narrend
for case i, what settlement will the unsecured bondholders receive?
a.nothing
b.$2 million
c.$1.43 million
d.$1 million
7) the purchase of additional resources by a business enterprise is known as a(n):
a.statutory merger
b.subsidiary merger
c.acquisition
d.consolidation
e.takeover
8) between 1981 and 2002, the median level of current assets as a portion of total assets
for large firms has
a.decreased
b.remained the same
c.increased
d.not been studied
9) in order to be eligible for s status, a firm must
a.have 100 or fewer shareholders
b.be a financial intermediary
c.have been incorporated for more than 5 years
d.not have more than one line of business
10) which of the following is not an advantage of cash concentration?
a.it creates a large pool of funds for use in making short-term cash investments
b.concentrating the firm’s cash in one account improves the tracking and internal
control of the firm’s cash
c.it results in having fewer investment opportunities to choose from
d.all of the above are advantages
11) you are a french wine producer who has a contract to sell $10,000,000 worth of
wine in the u.s. for dollars 6 months in the future. if you would like to hedge this
position, what could you do to hedge the currency risk involved in transaction?
a.buy dollars and sell euros in the forward market
b.sell dollars and buy euros in the forward market
c.buy euros and sell dollars in the spot market
d.sell dollars and buy euros in the spot market
12) 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 cost savings from the reduced investment in accounts
receivables if they implement the new credit terms?
a.$13,660
b.$113,836
c.$19,493
d.$98,521
13) narrbegin: exhibit 4-1
exhibit 4-1
in the financial section of your local paper, you see the following bond quotation:
narrend
given exhibit 4-1, what is the current coupon yield of the big city bond? assume that
todays date is august, 2004.
a.6.14%
b.6.34%
c.6.58%
d.6.71%
14) since the tax relief act of 2003, if a corporation or partnership has pre-tax earnings
of $110,000 while the corporation is subject to a 35% income tax rate and an investor is
subject to a 35% personal tax rate and a 15% capital gains tax rate, then what is the
advantage to being a partnership (compared to a corporation) if all of the proceeds are
paid out to investors in either legal form?
a.($22,500)
b.$0
c.$10,725
d.$24,725
15) a call feature
a.allows the bondholder to redeem the bond prior to maturity
b.allows the bond issuer to redeem the bond prior to maturity
c.allows the bondholder to increase the coupon rate on the bond at specific points in
time over the bonds life
d.forces the bond issuer to buy back the bond prior to maturity at the bondholders
discretion