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1) monte corporation just paid a dividend of $4.25 and has an expected growth rate of
15% for the foreseeable future, if the discount rate is 18% what is the appropriate stock
price today?
a.$141.67
b.$162.92
c.$162.74
d.$146.07
2) 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 1?
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
3) narrbegin: exhibit 9-1
exhibit 9-1
a project requires an initial investment in equipment and machinery of $10 million. the
equipment is expected to have a 5-year lifetime with no salvage value and will be
depreciated on a straight-line basis. the project is expected to generate revenues of $5.1
million each year for the 5 years and have operating expenses (not including
depreciation) amounting to 1/3 of revenues.
narrend
refer to exhibit 9-1. assume the tax rate is 40%, and the cost of capital is 10%. what is
the present value of cash inflows from year 1 to year 5? what percentage of this present
value is attributed to the tax benefits accruing from depreciation?
a.$12.89m; 24%
b.$10.77m; 28%
c.3.18m; 95%
d.7.73m; 39%
e.$10.77m; 24%
4) antitrust laws were relatively strictly enforced until whose presidential
administration?
a.clinton
b.george w. bush
c.carter
d.reagan
e.ford
5) which of the following statements is true?
a.the irr method ignores the time value of money
b.the hurdle rate used with the irr method is determined subjectively and therefore is
arbitrary
c.many managers have difficulty comprehending the rate of return answer determined
by the irr method
d.multiple irrs can result for some projects which can lead to a difficulty for the irr
method
e.both (b) and (d) are true
6) a bank account has a rate of 12% apr with quarterly compounding. what is the ear for
the account?
a.3.00%
b.12.00%
c.12.36%
d.12.55%
7) financial distress can be particularly dangerous to firms that produce r&d-intensive
goods and services because:
a.most of the expenses incurred in production are sunk costs
b.it is unlikely to be able to fund future r&d expenditures if it is in financial distress
meaning that it is probably not going to be able to produce cutting-edge products in the
future
c.intangible assets such as patents and trademarks are unlikely to survive the
bankruptcy or financial distress intact
d.all of the above
e.both (a) and (b)
8) an investor that purchases a put option on abc stock is hoping that abc stock will:
a.fall below the put strike price at expiration
b.rise above the put strike price at expiration
c.equal the put strike price at expiration
d.none of the above
9) why do shareholders bear most of the risk of running a firm?
a.they only have a residual claim on the firms cash flows
b.they receive a salary from the company
c.they are guaranteed a fixed payout each quarter
d.shares can be taken away at any time without notice
10) which agency oversees fair reporting of financial information to investors of
publicly traded stocks?
a.sec
b.irs
c.nyse
d.nasdaq
11) in which form of business organization is a agency problem most likely to occur?
a.sole proprietorship
b.corporation
c.partnership
d.limited liability company
12) which of the following option positions has a loss potential that is unlimited.
a.a long call
b.a naked short call
c.a short put
d.a long straddle
