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1) what is the market capitalization of a company?
a.the market value of all outstanding debt
b.the book value of the companys debt
c.the market value of all outstanding shares
d.the book value of the companys total equity
2) narrbegin: bavarian credit terms
bavarian brew credit terms
bavarian brew is producing and selling brewery equipment to microbreweries
nationwide. bavarian is charging $15,000 per unit and all of their sales are on credit.
under the current credit policy bavarian brew expects to sell 500 units. the variable
costs are $6,000/unit and fixed costs are $1,500,000 per year. the company is thinking
about changing their credit terms from net 30 to 3/10 net 30. the effect of this change
would be a 5% increase in unit sales, but also an increase in bad debt expenses from 2%
to 4% of sales. the company expects 75% of its customers to take advantage of the cash
discount. currently the company has an average collection period of 38 days, 30 days
until the customers mail their payments and another 8 days to process the payments
once they arrive. bavarian brews opportunity cost of funds invested in accounts
receivable is 12%.
narrend
what is bavarian brews accounts receivables turnover under the old credit policy?
a.14.61
b.10.43
c.12.69
d.9.61
3) emma incorporated has ebit of $875,000 for the current year. the firm has $350,000
of debt outstanding with a coupon rate of 7 percent. investors require a return of 15
percent on the firm, and the firm has a corporate tax rate of 40%. what is the present
value of the firms tax shields?
a.$ 24,500
b.$350,000
c.$140,000
d.$ 52,500
4) consider the cash receipts projections of emma inc. that is developing a cash budget
for october , november and december; sales in august and september were $200,000 and
$500,000 respectively. the forecast sales are $800,000, $900,000 and $200,000 for
october, november and december respectively. 15 % of sales are cash sales and 85% are
credit sales; collects about 60% of each months sales in the next month but waiting until
the following month for the remaining 25% of sales. bad debts are negligible. the firm
is expectsing cash dividend of $25,000 in december from a subsidiary.what are the
accounts receivable collected in november? (in thousands)
a.$470
b.$605
c.$765
d.$135
5) when a firm introduces a new product and some of the new products sales come at
the expense of the firms existing products, this is known as:
a.sunk costs
b.incremental costs
c.marginal costs
d.cannibalization
6) bulldog electronics corporation finances its operations with $75 million in stock with
a required return of 12 percent and $45 million in bonds with a required return of 8
percent. suppose the firm issues $15 million in additional bonds at 8 percent, using the
proceeds to retire $15 million worth of equity. if the wacc remains the same, what will
be the firms new cost of equity? (assume zero taxes and perfect capital markets)
a.12.50%
b.13.00%
c.14.00%
d.14.40%
7) if a firm has been experiencing increased sales while its inventory levels have
decreased, then
a.its inventory turnover is decreasing, and its average age of inventory is increasing
b.its inventory turnover is decreasing and its average age of inventory is decreasing
c.its inventory turnover is increasing and its average age of inventory is increasing
d.its inventory turnover is increasing and its average age of inventory is decreasing
8) if you are a stock trader and your trading proceeds are not subject to taxes, what
strategy below would work best if you expected that the drop in share price after the
ex-dividend date is less than the amount of the dividend?
a.buy the shares immediately before the ex-dividend date and then sell them
immediately after the ex-dividend date
b.sell the shares immediately before the ex-dividend date and then buy them back
immediately after the ex-dividend date
c.buy the shares immediately before the ex-dividend date and then buy more of them
immediately after the ex-dividend date
d.none of the above
9) which of the following is not the responsibility of the lead underwriter for an equity
issuance?
a.price stabilization of the issue
b.exercises discretion over the distribution of shares for sale among the syndicate and
the selling group
c.must buy the shares in the green shoe option
d.many times serves as the market maker for trading in the issuers securities
10) which of the following describes a visual representation of the sequential choices
that managers face over time with regard to a particular investment?
a.sensitivity analysis
b.monte carlo simulation
c.decision tree
d.scenario analysis
e.breakeven analysis
11) an annuity can best be described as
a.a set of payments to be received during a period of time
b.a stream of payments to be received at a common interval over the life of the
payments
c.an even stream of payments to be received at a common interval over the life of the
payments
d.the present value of a set of payments to be received during a future period of time
12) what is the effective annual rate of 12% compounded monthly?
a.12%
b.11.45%
c.12.68%
d.12.25%
13) which of the following is a source of discretionary or external financing?
a.a new debt issue
b.accounts payable
c.a new equity issue
d.both a and c
14) the free cash flow hypothesis predicts that
a.dividend increases should be viewed as good news by investors
b.firms in industries that generate large amount of cash flow should also have the
highest dividend payout ratios
c.managerial compensation should be designed to pursue value-maximizing dividend
policies
d.all of the above
15) roxy international has an ebit of $15,000, debt with a market value of $25,000 and a
required return on assets of 12%. assuming a corporate tax rate of 40%, what is firm's
value?
a.$266,666,667
b.$182,666,667
c.$106,666,667
d.$100,000,000
16) which of the following statements is true?
a.in an annuity due payments occur at the end of the period
b.in an ordinary annuity payments occur at the end of the period
c.a perpetuity will mature at some point in the future
d.one cannot calculate the present value of a perpetuity
17) according to the capm (capital asset pricing model), the security market line is a
straight line. the slope of this line should be equal to
a.zero
b.the expected risk premium on the market portfolio
c.the risk-free rate
d.the expected return on the market portfolio
18) in examining the question as to whether or not capital structures are randomly
selected, we generally find that:
a.capital structures show strong industry patterns
b.within industries, the most profitable companies borrow the least
c.corporate and personal income taxes influence capital structures, but taxes alone
cannot explain differences in leverage across firms, industries or countries
d.shareholders consider leverage-increasing events to be "good news" and
leverage-decreasing events to be "bad news."
e.all of the above
19) you purchased a 10-year, 6% coupon bond (the bond makes semi-annual payments)
last year based upon a discount rate of 6%. one year later the discount rate has fallen to
5.5%. what is your total return on the bond?
a.6.000%
b.3.512%
c.9.512%
d.none of the above
20) what is the accounting capitalized value of an operating lease that involves
payments of $8,000 per year (at the end of each year) for 12 years with no possibility of
purchase at the end of the lease term. assume that the firm is in the 35% marginal tax
rate and the pre-tax cost of debt for the firm is 12%?
a.$96,000.00
b.$49,554.99
c.$39,596.96
d.$32,210.75
