FC 53023

Type

Quiz

Book Title

Fundamentals of Corporate Finance Standard Edition 9th Edition

ISBN 13

978-0073382395

February 27, 2019

A lockbox system:

A. entails the use of a bank which is centrally located to collect payments on a

nationwide basis.

B. is designed to deposit a customer's check into the firm's bank account prior to

recording the receipt of that check to a customer's account.

C. is used to reduce the disbursement float of a firm.

D. is efficient regardless of the locations selected for lockbox destinations.

E. automatically records payments to a customer's account when the customer's check is

received at the lockbox location.

Western Beef Exporters is considering a project that has an NPV of $32,600, an IRR of

15.1 percent, and a payback period of 3.2 years. The required return is 14.5 percent and

the required payback period is 3.0 years. Which one of the following statements

correctly applies to this project?

A. The net present value indicates accept while the internal rate of return indicates

reject.

B. Payback indicates acceptance.

C. The payback decision rule could override the accept decision indicated by the net

present value.

D. The payback rule will automatically be ignored since both the net present value and

the internal rate of return indicate an accept decision.

E. The net present value decision rule is the only rule that matters when making the

final decision.

Global Communications has a 7 percent, semiannual coupon bond outstanding with a

current market price of $1,023.46. The bond has a par value of $1,000 and a yield to

maturity of 6.72 percent. How many years is it until this bond matures?

A. 12.26 years

B. 12.53 years

C. 18.49 years

D. 24.37 years

E. 25.05 years

Josh's, Inc. has 7,000 shares of stock outstanding with a par value of $1.00 per share

and a market value of $32 a share. The balance sheet shows $76,000 in the capital in

excess of par account, $7,000 in the common stock account, and $64,800 in the retained

earnings account. The firm just announced a 10 percent stock dividend. What is the

value of the capital in excess of par account after the dividend?

A. $50,600

B. $54,300

C. $76,000

D. $97,700

E. $101,400

Money market securities have which of the following characteristics?

I. long maturities

II. low default risk

III. high degree of liquidity

IV. low rates of return

A. I and III only

B. II and III only

C. I and IV only

D. II, III, and IV only

E. I, II, III, and IV

Which one of the following statements related to Chapter 7 bankruptcy is correct?

A. A firm in Chapter 7 bankruptcy is reorganizing its operations such that it can return

to being a viable concern.

B. Under a Chapter 7 bankruptcy, a trustee will assume control of the firm's assets until

those assets can be liquidated.

C. Chapter 7 bankruptcies are always involuntary on the part of the firm.

D. Under a Chapter 7 bankruptcy, the claims of creditors are paid prior to the

administrative costs of the bankruptcy.

E. Chapter 7 bankruptcy allows a firm to restructure its equity such that new shares of

stock are generally issued prior to the firm coming out of bankruptcy.

You want to have $35,000 saved 6 years from now to buy a house. How much less do

you have to deposit today to reach this goal if you can earn 5.5 percent rather than 5

percent on your savings? Today's deposit is the only deposit you will make to this

savings account.

A. $733.94

B. $791.18

C. $824.60

D. $845.11

E. $919.02

Assume the spot exchange rate for the Hungarian forint is HUF 215. Also assume the

inflation rate in the United States is 4 percent per year while it is 9.5 percent in

Hungary. What is the expected exchange rate 5 years from now?

A. 269

B. 276

C. 281

D. 294

E. 299

It will cost $6,000 to acquire an ice cream cart. Cart sales are expected to be $3,600 a

year for three years. After the three years, the cart is expected to be worthless as the

expected life of the refrigeration unit is only three years. What is the payback period?

A. 1.48 years

B. 1.67 years

C. 1.82 years

D. 1.95 years

E. 2.00 years

Tedder Mining has analyzed a proposed expansion project and determined that the

internal rate of return is lower than the firm desires. Which one of the following

changes to the project would be most expected to increase the project's internal rate of

return?

A. decreasing the required discount rate

B. increasing the initial investment in fixed assets

C. condensing the firm's cash inflows into fewer years without lowering the total

amount of those inflows

D. eliminating the salvage value

E. decreasing the amount of the final cash inflow

How many days on average does it take Precision Tool to sell its inventory? (Use 2009

values)

A. 164.30 days

B. 187.77 days

C. 219.63 days

D. 247.46 days

E. 283.31 days

Given the following information, what is the value of d2 as it is used in the

Black-Scholes option pricing model?

A. -1.1346

B. -0.8657

C. -0.8241

D. -0.7427

E. -0.7238

M&M Proposition I with no tax supports the argument that:

A. business risk determines the return on assets.

B. the cost of equity rises as leverage rises.

C. the debt-equity ratio of a firm is completely irrelevant.

D. a firm should borrow money to the point where the tax benefit from debt is equal to

the cost of the increased probability of financial distress.

E. homemade leverage is irrelevant.

New York Deli's has 7 percent preferred stock outstanding that sells for $36 a share.

This stock was originally issued at $50 per share. What is the cost of preferred stock?

A. 13.68 percent

B. 14.00 percent

C. 14.29 percent

D. 19.44 percent

E. 19.80 percent

If a firm equates its pro forma sales growth to the rate of sustainable growth, and has

positive net income and excess capacity, then the:

A. maximum capacity level will have to increase at the same rate as sales growth.

B. total assets will have to increase at the same rate as sales growth.

C. debt-equity ratio will increase.

D. retained earnings will increase.

Deep Mining and Precious Metals are separate firms that are both considering a silver

exploration project. Deep Mining is in the actual mining business and has an aftertax

cost of capital of 12.8 percent. Precious Metals is in the precious gem retail business

and has an aftertax cost of capital of 10.6 percent. The project under consideration has

initial costs of $575,000 and anticipated annual cash inflows of $102,000 a year for ten

years. Which firm(s), if either, should accept this project?

A. Company A only

B. Company B only

C. both Company A and Company B

D. neither Company A or Company B

E. cannot be determined without further information

How much are you willing to pay for one share of Jumbo Trout stock if the company

just paid a $0.70 annual dividend, the dividends increase by 1.6 percent annually, and

you require a 10 percent rate of return?

A. $8.29

B. $8.33

C. $8.47

D. $8.53

E. $8.59

You own 600 shares of a NASDAQ listed stock that you wish to sell. Which of the

following are options available to you for this purpose?

I. sell the shares to a dealer at the dealer's bid price

II. sell directly to another individual via an ECN

III. offer the shares yourself on NASDAQ via an ECN

IV. have a broker offer the shares for sale on the NYSE

A. I and II only

B. III and IV only

C. II and III only

D. I, II, and III only

E. II, III, and IV only

What is the effective annual rate of 14.9 percent compounded continuously?

A. 15.59 percent

B. 15.62 percent

C. 15.69 percent

D. 15.84 percent

E. 16.07 percent

The pre-tax cost of debt:

A. is based on the current yield to maturity of the firm's outstanding bonds.

B. is equal to the coupon rate on the latest bonds issued by a firm.

C. is equivalent to the average current yield on all of a firm's outstanding bonds.

D. is based on the original yield to maturity on the latest bonds issued by a firm.

E. has to be estimated as it cannot be directly observed in the market.

Northern Lights is trying to decide whether to lease or buy some new equipment. The

equipment costs $51,000, has a 5-year life, and will be worthless after the 5 years. The

company has a tax rate of 34 percent, a cost of borrowed funds of 8.75 percent, and

uses straight-line depreciation. The equipment can be leased for $14,100 a year. What is

the amount of the annual depreciation tax shield?

A. $3,468

B. $5,878

C. $6,936

D. $8,407

E. $10,200

Theo's Bar & Grill needs $147,000 a week to pay bills. The standard deviation of the

weekly disbursements is $9,600. The firm has established a lower cash balance limit of

$40,000. The applicable interest rate is 3.5 percent and the fixed cost of transferring

funds is $45. Based on the BAT model, what is the optimal average cash balance?

A. $36,199

B. $49,568

C. $70,100

D. $99,136

E. $112,400

Treasury bonds are:

A. issued by any governmental agency in the U.S.

B. issued only on the first day of each fiscal year by the U.S. Department of Treasury.

C. bonds that offer the best tax benefits of any bonds currently available.

D. generally issued as semi-annual coupon bonds.

E. totally risk-free.

The stream of customer orders coming in to the NYSE trading floor is called the:

A. paper trail.

B. trading volume.

C. order flow.

D. bid-ask spread.

E. commission trail.

Farmer Mac owns a large orange grove in Florida. The value of his business is directly

related to the price of oranges. Which one of the following is a graphical representation

of this price-value relationship?

A. exchange line

B. net present value profile

C. risk profile

D. market line

E. return grid

What is a prospectus?

A. a letter issued by the SEC authorizing a new issue of securities

B. a report stating that the SEC recommends a new security to investors

C. a letter issued by the SEC that outlines the changes required for a registration

statement to be approved

D. a document that describes the details of a proposed security offering along with

relevant information about the issuer

E. an advertisement in a financial newspaper that describes a security offering

The cash flow of a firm which is available for distribution to the firm's creditors and

stockholders is called the:

A. operating cash flow.

B. net capital spending.

C. net working capital.

D. cash flow from assets.

E. cash flow to stockholders.

Trish receives $480 on the first of each month. Josh receives $480 on the last day of

each month. Both Trish and Josh will receive payments for next three years. At a 9.5

percent discount rate, what is the difference in the present value of these two sets of

payments?

A. $118.63

B. $121.06

C. $124.30

D. $129.08

E. $132.50

A firm currently has $600 in debt for every $1,000 in equity. Assume the firm uses

some of its cash to decrease its debt while maintaining its current equity and net

income. Which one of the following will decrease as a result of this action?

A. equity multiplier

B. total asset turnover

C. profit margin

D. return on assets

E. return on equity

The home currency approach:

A. discounts all of a project's foreign cash flows using the current spot rate.

B. employs uncovered interest parity to project future exchange rates.

C. computes the net present value (NPV) of a project in the foreign currency and then

converts that NPV into U.S. dollars.

D. utilizes the international Fisher effect to compute the NPV of foreign cash flows in

the foreign currency.

E. utilizes the international Fisher effect to compute the relevant exchange rates needed

to compute the NPV of foreign cash flows in U.S. dollars.

You own a convertible bond with a face value of $1,000 and a market value of $1,034.

The bond can be converted into 14 shares of stock. What is the conversion price?

A. $71.43

B. $72.00

C. $72.67

D. $73.86

E. $74.33

What is the definition of a syndicate?

A. a venture capitalist

B. a group of attorneys providing services for an IPO

C. block of investors who control a firm

D. a bank that loans funds to finance the start-up of a new firm

E. a group of underwriters sharing the risk of selling a new issue of securities

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