1) narrbegin: smith credit ln -w/o comp
smith enterprise credit line (w/o comp)
smith enterprise has an one year credit line of $5,000,000 with second bank. on average
smith uses $3,250,000 of the credit line. second bank charges a .45% commitment fee
on the unused portion of the line and the interest rate is set at libor +1.5%. assume that
the libor is 6.3%
narrend
refer to smith enterprise credit line (w/o comp). what would be the effective borrowing
rate if you exhausted your line of credit?
a.8.04%
b.7.80%
c.8.48%
d.8.21%
2) louis international has earnings per share of $2.25; just paid dividend $1.05 and
expects a roi next year (and the foreseeable future) of 16%. if the stock has a beta of
1.8, and the current risk -free and market premium is 2% and 5% respectively, what is
the intrinsic value of the stock?
a.$46.200
b.$42.568
c.$45.584
d.not enough information
3) louis international is considering easing credit standards to increase sales, and
potentially profits. currently the firm sells 200,000 units at a sales price of $125 per unit
and variable cost of $103 per unit. currently the average collection period is 15 days
and the bad debt expense is 3% of sales. the required return on investment is 18%. if
credit standards are eased, the sales will increase to 250,000 units; the acp will increase
to 35 days; and the bad debt expense will increase to 5% all else will remain the same.
what is the cost associated with the increased investment in accounts receivable?
a.$152,383.56
b.$444,452.05
c.$152,383.56
d.$292,068.49
4) fidget inc. is currently worth $10,000,000. it is told that if it issues $1,000,000 of
perpetual debt (and uses the proceeds to repurchase equity) the value of the firm will
increase by $290,000. if the total bankruptcy costs and agency costs combine to be a
cost of $20,000, what is fidgets marginal corporate tax rate? ignore personal taxes.
a.29%
b.30%
c.31%
d.none of the above
5) which answer describes an analysis of what happens to npv estimates when we
change the values of one variable at a time?
a.forecasting simulation
b.monte carlo simulation
c.sensitivity analysis
d.scenario analysis
6) your firm rents office space for $250,000 per year, due at the beginning of each year.
if your firm’s hurdle rate is 10%, what is the present value of five years’ worth of rent?
a.$871,713.00
b.$947,696.69
c.$1,042,466.36
d.$1,250,000.00
7) which of the following is not a strategy that corporations can use to transfer
exchange rate risk?
a.forward contracts
b.option contracts
c.currency swaps
d.operate and sell in only one country
8) agreements fiving the venture capitalists the right to demand that a portfolio
companys managers arrange a public offering of shares in the company
a.repurchase rights
b.stock option plans
c.demand registration rights
d.participation rights
9) narrbegin: commerce company
commerce company
the commerce company is evaluating a project with the following cash flows:
narrend
what is the discounted payback period of the proposed commerce company project if
the discount rate is 7%?
a.3.09 years
b.3.19 years
c.3.39 years
d.3.59 years
10) suppose rising gas prices cut into consumer spending, and wal-mart, target, and
other retailers experience a slow-down in sales. this slow-down is an example of
a.an economic exposure
b.a transaction exposure
c.a translation exposure
d.an alternatives exposure
11) which of the following statements is true?
a.while finance teaches that investments with higher risk should have higher returns
there is no historical evidence in the capital markets to suggest this relationship exists
b.finance teaches that investments with higher risk should have higher returns and
historical evidence in the capital markets suggests this relationship exists
c.when individuals decide how to invest their money they must weigh the expected
benefits (returns) against the costs of additional risk
d.both (a) and (c) are true
e.both (b) and (c) are true