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1) harder points one has just paid a dividend of $1.50, has a required return of 17% and
a current stock price of $50.65. what is the expected growth rate?
a.13.63%
b.14.04%
c.14.44%
d.cannot be determined
2) a firm has a capital structure of 40% debt and 60% equity. the firm has bonds
outstanding with a face value of $20 million. the bonds pay, on average, a 8% annual
coupon and have an average maturity length of 7 years. the market value of the bonds is
110% of face value and the tax rate facing the firm is 40%. the firm has common stock
with a beta of 1.25. the risk free rate on treasury bonds is 2%, while the market risk
premium is 8%. what is the wacc for the firm?
a.8.69%
b.9.13%
c.9.68%
d.11.15%
3) narrbegin: swerling company
swerling company
swerling company is considering a project with the following cash flows.
narrend
what is the payback period of the proposed swerling company project?
a.1.28years
b.2.28 years
c.3.28 years
d.4.28 years
4) the bell company has issued floating interest rate bonds whereby bell pays libor + 2%
on $50,000,000 notional value. bell enters into a swap agreement where bell receives
libor - 3% from a bank but pays 2% to the bank, both also on a $50,000,000 notional
value. what is bells net interest cost on the borrowing?
a.2%
b.5%
c.7%
d.libor - 3%
5) 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 5?
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
6) which of the following is not one of the five basic corporate finance functions?
a.external financing function
b.capital budgeting function
c.risk management
d.auditing
7) while external funding needs can be approximated by subtracting cash dividend
payments from cash flow from operations, the decision is not simple because
a.dividend policy is not fixed
b.there are legal costs to raising capital externally than by retaining internal cash flow
c.the securities act of 1933 only allows external capital to be raised during certain
months of the year. if a firm needs funds at another time it must use internal sources.
d.none of the above
e.both (a) and (b)
8) consider the adjusted closing prices for louis stock
what is the holding period return for louis?
a.18.68%
b.13.00%
c.15.60%
d.16.70%
9) which of the following is the best bonding expenditure to help limit agency costs?
a.auditing the managers work on a monthly basis
b.a contract whereby the manager will forfeit a portion of his deferred compensation in
the event of poor performance
c.granting the manager a large number of options that will become valuable if the firm
performs well
d.paying the manager a bonus if the firm performs well
10) narrbegin: exhibit 22-1 liquidation
exhibit 23-1
narrend
if the company has $3,000,000 in funds to distribute to unsecured creditors, what is the
settlement that is received by the holders of the subordinated debentures in case iii?
a.$1,250,000
b.$958,250
c.$745,400
d.$1,075,268
11) state company had determined its earnings before interest and taxes (ebit) in four
possible states of the world. in the great state, ebit will be $3,000,000 and in the good,
normal and poor states ebit will be $2,000,000, $1,500,000, and $1,000,000 in that
order. if each state has an equal probability of occurring, then what is state companys
expected ebit?
a.$3,000,000
b.$2,500,000
c.$1,875,000
d.none of the above
12) if the spot rate for jupiter ringlets (jpr) is 3 usd per ringlet and the risk-free rates of
return are 1% and 2%, respectively for the jupiter and u.s. economy, then what should
the 1-year forward rate be for jpr/usd? round to the nearest 4th decimal place.
a.3.0297
b.3.0000
c..3301
d.none of the above
13) you are considering buying carpet for your university; grade a carpet costs $25.25 a
square yard and lasts 5 years and grade b costs $18.25 a square yard and lasts 3 years;
grade c costs $12.10 a yard and lasts 2 years; which carpet should be chosen if the
discount rate is 5%? assume that due to a large endowment given by the state's"carpet
king" the university is committed to continued carpet use. what is the eac of grade c
carpet?
a. $ (4.44)
b. $ (4.36)
c. $ (4.22)
d.none of the above
14) bank a has debt that is backed with secured assets of company b, who is currently
liquidating its assets in bankruptcy. if bank a is owed $10,000,000 and the liquidation of
the assets will provide $8,000,000, then what happens to the remaining $2,000,000?
a.the $2,000,000 will be lost in the bankruptcy process
b.the $2,000,000 will have to be repaid through the automatic securitization of other
assets
c.the $2,000,000 will become an unsecured or general credit amount in the liquidation
process
d.none of the above
