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1) momoney co. wants to increase its sustainable growth rate to 10%. if it maintains its
15% profit margin, 25% retention ratio, and 0.25 liabilities to equity ratio, what must its
total asset turnover value be?
a.0.42
b.0.65
c.1.94
d.2.37
2) you own stock in a company that just announced a 3-1 stock split. if shares currently
trade at $15 a share, what should the stock price be after the stock split?
a.$15
b.$5
c.$45
d.$30
3) a project under consideration for a firm has several possible outcomes shown in the
table below. given the assumptions below, what is the expected npv for the project?
a.-$9.00
b.-$3.00
c.-$0.75
d.$1.20
4) emmacat industries estimates that the scratching post project wonder post will have
the following end of the year cash flows. what is the future value of the inflows at the
end of the 4th year if the annual rate of interest is 10%?
a.$4,761.84
b.$4,328.99
c.$4,213.83
d.$4,155.98
5) what are the basic type of leases available to businesses?
a.operating leases
b.financial leases
c.capital leases
d.all of the above
6) what is the future value of cash flows 1-5 at the end year 5, assuming a 6% interest
rate (compounded annually)?
a.$13,879.36
b.$13,093.74
c.$9,7844.40
d.$11,548.48
7) narrbegin: exhibit 17-2
exhibit 23-2
coffee; 37,500 lbs per contract, $ per lb. may 2004
narrend
refer to exhibit 23-2. how many december coffee futures contracts were outstanding at
the end of the trading day?
a.17,832
b.6,379
c.1,397
d.7,776
8) if a firm is subject to capital rationing, when choosing a set of potential investments
the firm should rank the projects by:
a.npv and choose the best ones until funding is exhausted
b.irr and choose the best ones until funding is exhausted
c.pi and choose the best ones until funding is exhausted
d.arr and choose the best ones until funding is exhausted
9) narrbegin: thompson manufacturing
thompson manufacturing
thompson manufacturing is considering two investment proposals. the first involves a
quality improvement project, and the second is about an advertising campaign. the cash
flows associated with each project appear below.
quality
narrend
refer to tompson manufacturing. suppose the hurdle rate of the firm is 10%. calculate
the cash flows of the incremental project by subtracting the cash flows of the second
project from the cash flows of the first project. what is the irr of the incremental
project?
a.20.7%
b.23.1%
c.17.9%
d.10.0%
10) narrbegin: commerce company
commerce company
the commerce company is evaluating a project with the following cash flows:
narrend
what is the net present value of the proposed commerce company project if the discount
rate is 7%?
a.$10,000
b.$9,347
c.$6,921
d.$5,847
11) you have the choice between investing in a corporate bond or a municipal bond with
a yield of 8%. if your marginal tax rate is 28%, what should be the yield on the
corporate bond in order to be competitive?
a.8.00%
b.5.76%
c.13.64%
d.11.11%
12) luois international has an ebit of $2 million, debt with a market value of $3 million
and a required return on assets of 11%. assuming no taxes, what is the firm 's value?
a.$10,909,091
b.$29,272,727
c.$18,181,818
d.$27,272,727
13) roxy bonds will mature in 16 years, the coupon rate of the bond is 5% paid
semiannually, if the appropriate discount rate is 7%; what is the value of the bond?
a.$ 747.07
b.$ 811.06
c.$ 809.31
d.$1,178.74
14) 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 net benefit for bavarian sausage from using the wire transfer?
a.$53.01
b.$137.89
c.$60.95
d.$121.89
15) amazing growth company shares currently trade at $108 per share. there are 24
million shares outstanding. if the shares are split 3-for-1, how many shares will be
outstanding, and what value per share will they have (ignoring any other market
changes)?
a.8 million shares; $324 per share
b.8 million shares; $36 per share
c.48 million shares; $54 per share
d.72 million shares; $36 per share
16) which of the following is (are) legally mandated subsidies to corporations in
bankruptcy?
a.the ability to reject collective bargaining agreements
b.the right to cease the obligation to pay interest to prebankruptcy creditors
c.the right to terminate underfunded pension plans
d.all of the above
17) a positive cash conversion cycle means that:
a.trade credit is providing enough financing to cover the firm's entire operating cycle
b.the firm collects on sales more slowly than it pays its payables
c.the firm collects on sales more quickly than it pays its payables
d.trade credit does not provide enough financing to cover the firm's entire operating
cycle
18) which statement is false concerning capital structure?
a.firms with large amounts of tangible assets tend to use a lot of debt in their capital
structures
b.when corporate profits are taxed at the corporate and personal level, the benefits of
leverage are greatly reduced
c.modern trade off theory predicts that a firms optimal debt level is set by trading off
the tax benefits of leverage against the agency costs of increased debt
d.debt is used more frequently abroad (such as germany and england) as international
laws tend to favor debtors
19) narrbegin: exhibit 9-2
exhibit 9-2
the following data are projected for a possible investment project:
narrend
refer to exhibit 9-2. the project requires an initial investment of $300,000. working
capital is anticipated to be variable at 10% of revenues; the working capital investment
must be made at the beginning of each period, and will be recaptured in full at the end
of year 4. the tax rate is 40%.
what is the net cash flow to the firm in year 1?
a.$400
b.$82,400
c.$68,400
d.$80,400
e.$2,400
