1) ____ represents the amount of cash that would remain if a firm’s assets were sold and
all liabilities were paid.
a.book value
b.market value
c.liquidation value
d.present value
e.none of the above
2) if a 9%, $100,000 loan has a balance of $83,724 and an annual payment of $13,965
is to be made, what will the allocation of principal and interest be?
a.$9,000 interest, $4,965 principal
b.$7,535 interest, $6,430 principal
c.$6,430 interest, $7,535 principal
d.$4,965 interest, $9,000 principal
3) narrbegin: exhibit 7-5
exhibit 7-5
narrend
given exhibit 7-5, what is the weight of security 1?
a.42.9%
b.33.3%
c.23.8%
d.cannot be determined with the data given
4) the accounting rate of return is calculated as:
a.sales/stock price
b.net income/stock price
c.sales/book value of assets
d.net income/book value of assets
5) a situation where shareholders refuse financing a good investment, because they
think that only the bondholders will benefit will lead to . . .
a.asset substitution
b.underinvestment
c.overinvestment
d.none of the above
6) the retail company currently has assets of $3,000,000 and accounts payable of
$200,000. the firms sales last year were $10,000,000 with a net profit margin of 1%. if
the firm anticipates next years sales to grow by 8% over that of last year and the firm
pays out 25% of its net income in dividends, then what is the estimated external funds
requirement for retail?
a.$16,000
b.$81,000
c.$143,000
d.$240,000
7) a voluntary reorganization of debts whereby a firms debt obligations are still
expected to be paid in full but at a later than originally scheduled date, is called
a.a composition
b.an extension
c.creditor control
d.none of the above
8) if a firm is going to issue additional equity by offering existing shareholders the
right, or the ability to sell to someone else that right, to purchase the offering then that
is called a
a.general cash offering
b.rights offering
c.seasonal rights offering
d.none of the above
9) you have entered into a fra with a notional amount of $100,000,000 which says that
if 1-year libor is greater than 5% then the bank will pay you and vice versa if the rate is
less than 5%. at the end of the contract you find that 1-year libor is 4.5%. what is the
appropriate cash flow?
a.the bank pays you $500,000
b.you pay the bank $500,000
c.the bank pays you 478,469
d.you pay the bank 478,469
10) suppose the spot price of oil is $49.50 per barrel, while the october futures price is
$51.00 per barrel. for this contract, the basis is
a.$51.00
b.$49.50
c.$1.50
d.$100.50
11) narrbegin: abc logistics
abc logistics
the managers of abc logistics (abc) have decided to expand the companys operations
into a few new markets. to fund this opportunity, abc has decided to launch a seasoned
equity offering to raise new equity capital. abc currently has 12 million shares
outstanding, and yesterdays closing market price was $40.00 per abc share. the
company plans to sell 3 million newly issued shares in its seasoned offering. the
investment banking firm of armstrong incorporated has agreed to underwrite the new
stock issue for a 4 percent discount from the offering price, which abc and armstrong
have agreed should be $0.50 per share lower than abcs closing price the day before the
offering is sold.
narrend
if abcs stock price closes at $46.75 the day before the offering, calculate the total cost of
the seasoned equity offering to abcs existing stockholders as a percentage of the
offering proceeds.
a.32.72%
b.31.65%
c.30.17%
d.29.89%
12) consider the following: the market value of luke-i-am-your-father stock is $60 a
share (with 2,000,000 shares outstanding and the next annual dividend is expected to be
$1.50), the bonds are currently selling for $1050 (semi-annual coupon payments of $45;
maturing in 20 years; 10,000 bonds in the market), the preferred stock currently is $10
per share (paying dividends of $.50 in perpetuity, 100,000 shares outstanding); if the tax
rate is 40%, what is the firms wacc?
a.2.50%
b.3.00%
c.5.33%
d.2.73%
13) sams insurance must choose between two types of printers. both printers meet the
firms quality standard. printer a costs $3,500 and is expected to last 3 years with
operating costs of $380 per year. printer b costs $2,500 and is expected to last 2 years
with operating costs of $400 per year. assume a discount rate of 10%. which printer
should sams insurance purchase? what is the equivalent annual cost of this machine?
a.printer b; $3,194
b.printer a; $1,625
c.printer b; $2,904
d.printer a; $1,787
14) the legal mechanism by which inefficient firms may leave the market is
a.economic darwinism
b.bankruptcy
c.liquidation
d.none of the above
15) which of the following will make it more likely the entrepreneur receives funding
on more attractive terms?
a.the firm is a true start-up, at first stage financing
b.the entrepreneur is new to the venture capital market
c.the firm has a promising product/technology close to launch
d.there are many alternative investments available to the venture capital investor
16) since the tax relief act of 2003, if a corporation 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 after-tax income
that the investor could capture if all of the firms earnings are paid out in dividends?
a.$93,500
b.$71,500
c.$60,775
d.$46,475
17) when evaluating different capital budgeting techniques such as payback, net present
value, internal rate of return, profitability index and accounting rate of return
a.all techniques are equal and there is no reason to prefer one technique over another
b.some techniques have advantages over others
c.corporate managers have ‘stuck with” the same techniques over the last thirty years
d.both (a) and (b)
e.all of the above
18) which of the following statements is false?
a.most acquisitions are hostile
b.even is a bid is considered hostile, ultimately over half of those bids are successful
c.hostile takeovers peaked in the 1980s
d.hostile takeovers are more rare in other countries than they are in the united states