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1) bavarian sausage is expected to pay a $1.57 dividend next year and investors expect
that dividend to grow by 5% each year forever. if the required return on the stock
investment is 14%, what should be the price of the stock today.
a.$18.32
b.$17.44
c.$11.21
d.$25.37
2) would it be reasonable for a successful manufacturing firm, started as a sole
proprietorship or partnership to eventually adopt the corporate organizational form?
a.no, the tax burden (double taxation) is too costly
b.no, the reporting burdens are too costly
c.no, once started as a sole proper ship or partnership, firms are not allowed to change
their form
d.yes, the competitive disadvantages to sole proprietorship or partnership are too
burdensome
3) which statement is true about a firm that earns zero economic profit?
a.the firm is competing in a non-competitive environment
b.the market must have high entry barriers to other firms
c.the npv of projects the firm considers equals zero
d.the accounting income for projects equals zero
4) a firm has a capital structure of 25% debt and 75% equity. debt can be issued at a
return of 9%, while the cost of equity for the firm is 12%. the firm is considering a $50
million expansion of their production facility. the project has the same risk as the firm
overall and will earn $10 million per year for 7 years. what is the npv of the expansion
if the tax rate facing the firm is 40%?
a.-$1.9 million
b.-$1.4 million
c.$0.4 million
d.$1.4 million
5) narrbegin: silly sally
silly sally, inc.
silly sally, inc. forecasts the following sales levels: january, $420; february, $435;
march, $450; and april, $470. historically, 40% of its sales are for cash. of the remaining
sales, 80% are collected in one month, 15% are collected in the second month, while
the rest remain uncollected. november sales were $380 and december sales were $500.
(all values $000)
purchases are made at 60% of the next months sales forecast, and are paid for in the
month of purchase. other cash outlays are: rent, $10 monthly; wages and salaries, $50
monthly; a tax payment of $30 in march; an interest payment of $15 in march; and a
planned purchase of $20 of new fixed assets in january.
narrend
refer to silly sally, inc. what are forecasted total cash collection for january?
a.$420
b.$442
c.$168
d.$240
6) choc-lattes corp. earned $5.00 per share in 2006, and paid a dividend of $2.00 per
share. if it earns $5.50 in 2007 and managers seek to increase the dividend to $2.75, its
payout ratio will be
a.55%
b.50%
c.45%
d.40%
7) which of the following make(s) the planning process more complex than simply
accepting all projects that look promising?
a.limits on capital
b.limits on production capacity
c.limits on human resources
d.all of the above
8) the payback method is more likely to be used by:
a.younger cfos
b.older cfos
c.cfos without an mba
d.b. and c
9) which of the following statements regarding employee stock options (eso) is false?
a.most esos are at the money when issued
b.they are typically issued with only a few months until expiration
c.many firms do not let employees exercise their options until a vesting period has
passed
d.esos are most valuable when the price of the underlying asset is well above the stock
price
10) suppose a firm forecasts sales growth larger than its sustainable growth rate, but
plans to add fewer assets than the current asset to sales ratio implies. if other aspects of
the firms performance remain constant, the pro forma external funds required (efr)
a.will likely be larger than the sustainable growth rate implies
b.will likely be smaller than the sustainable growth rate implies
c.will likely be the same as the sustainable growth rate implies
d.cannot be determined from this information
11) npv and irr may give conflicting decisions for mutually exclusive projects because:
a.the risk of the projects may differ
b.the scale of the projects may differ
c.the discount rates on the projects may differ
d.all of the above
12) narrbegin: cash budget
bavarian brews schedule of projected cash disbursement
all of bavarian brews sales are credit sales. the company collects 60% of its sales in the
next month and the remainder in the month after that.
narrend
what are the bavarian brews cash collections in april?
a.$528
b.$618
c.$702
d.$835
13) bavarian sausage, inc. has preferred stock outstanding. this stock pays a semiannual
dividend of $1.25. if the next dividend is paid six months from now and the annual
required return is 10%, what should be the value of the preferred stock?
a.$6.25
b.$25
c.$12.50
d.$50.00
14) louis internationa is considering retiring a $180 million bond issue sold to the
public 15 years ago. the original maturity was 25 years. if the bonds were initially sold
at 97, then what is the dollar amount of the unamortized discount that would be
accelerated at retirement?
a.$ 216,000
b.$2,160,000
c.$5,400,000
d.$5,616,000
15) what do you call the portion of your total return on a stock investment that is caused
by an increase in the value of the stock.
a.dividend yield
b.risk-free return
c.capital gain
d.none of the above
16) one major flaw in decision trees is that:
a.the risk of many investments changes as one moves from one point in the decision
tree to another
b.establishing the base case scenario requires many iterations
c.the necessary computing power to run a decision tree is expensive
d.all of the above
e.none of the above
