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1) a share of preferred stock pays a $2 annual dividend, but pays the dividend in four
equal quarterly installments. investors seek a 12% annual percentage return on the
investment. what price should the preferred stock trade?
a.$4.17
b.$6.67
c.$8.50
d.$16.67
2) narrbegin: smith int'l investment
smith enterprises international investment
smith enterprises is considering opening a new manufacturing plant in france. the cost
of the new plant will be 25 million and the plant is expected to generate after tax cash
flows of 10 million at the end of each year for the next 4 years. after that the plant will
be worthless. the current /$ exchange rate is 0.8166/$. the expected rate of inflation for
the u.s is 2.5% per year. the risk free rate in the u.s. is 4% and the risk free rate in france
is 6%.
narrend
refer to smith enterprises international investment. what is the 3-year $/ forward
exchange rate?
a..7861
b..7719
c.1.2955
d.1.2721
3) as a limited partner in a venture capital limited partnership, today you committed to
investing $70 million dollars. what amount must you contribute immediately?
a.$70 million
b.$80 million
c.$90 million
d.probably less than $70 million
4) predictable corp has increased its annual dividend each year of its life by 2% (and
will continue to do so indefinitely). if predictable paid its annual dividend yesterday of
$8 and the cost of capital is currently 4%, then by what amount will the stock price
decrease by if the cost of capital increases to 5%?
a.$408.00
b.$272.00
c.$136.00
d.none of the above
5) what is one of the most important lessons from capital market history?
a.risk does not matter
b.there is a positive relationship between risk and return
c.you are always better off investing in stock
d.t-bills are the highest yielding investment
6) assume that you purchase shares of a company that recently executed an ipo at the
post-offering market price of $50 per share, and you hold the shares for one year. you
then sell your shares for $50 per share. the company does not pay dividends, and you
are not subject to capital gains taxation. what net return did you earn on your share
investment?
a.2.50%
b.4.81%
c.5.00%
d.7.50%
7) which of the following is not a career opportunity in corporate finance?
a.financial analyst
b.mortgage banker
c.cash manager
d.controller
8) you have written a call option on 1 share of a stock that is currently worth $30. you
expect the price of the stock to either move to $40 or $20 over the next year. if the
one-year risk-free interest rate is 5% and the strike price on the option is $25, what
should have been the proceeds of the option?
a.$15.72
b.$8.22
c.$.72
d.$0
9) if a company prefers to finance its required assets with a larger portion of short-term
debt, then that firm is utilizing a(n)
a.conservative financing strategy
b.aggressive financing strategy
c.matching strategy
d.none of the above
10) narrbegin: panama city
panama city beach company
panama city beach company needs to raise $60 million of new equity capital. its
common stock is currently selling for $70 per share. the investment bankers require an
underwriting spread of 5 percent of the offering price, and the companys legal,
accounting, and printing expenses associated with the seasoned offering are estimated
to be $200,000.
narrend
what is the net price per share that panama city beach company will receive from this
offering?
a.$66.00
b.$66.20
c.$66.50
d.$67.00
11) if gm were to merge with wal-mart, this would be called a
a.vertical merger
b.product extension merger
c.pure conglomerate merger
d.none of the above
12) bavarian sausage stock has an average historical return of 16.3% and a standard
deviation of 5.3%. what is the probability that the return on bavarian sausage will be
less than 11%?
a.84%
b.50%
c.16%
d.32%
13) a provision in the venture capital funds investment contract that limits the firms
ability to sell assets without prior investor approval is an example of
a.a ratchet provision
b.a negative covenant
c.a positive covenant
d.a participation rights provision
14) if you were evaluating a investment over a 10-year period that paid 8%
compounded semiannually:
a.you would not need to make any special adjustments because the semiannual
compounding will not impact the investment's future value
b.you would need to divide the number of years by two and multiply the interest rate by
two to properly adjust for the semiannual compounding
c.you would need to divide the interest rate by two and multiply the number of years by
two to properly adjust for the semiannual compounding
d.none of the above
15) ryan t. gates buys a call option on hoste enterprise for $3. the call option has a strike
price of $35 and 6 months to expiration. if the price of hoste enterprise is $33 in 6
months how much is the call option worth at expiration.
a.$3
b.$2
c.$-2
d.$0
16) narrbegin: bavarian brew
bavarian brew
bavarian brew, an unlevered firm, has an expected ebit of $500,000. the required return
on assets for the firms assets is 10%. the company has 250,000 shares outstanding. the
company is considering raising $1 million in debt with a required return of 6% and
would use the proceeds to repurchase outstanding stock.
narrend
what is the value of bavarian brew before restructuring? assume no corporate taxes.
a.$500,000
b.$5,000,000
c.$1,000,000
d.$3,300,000
17) narrbegin: smith int'l investment
smith enterprises international investment
smith enterprises is considering opening a new manufacturing plant in france. the cost
of the new plant will be 25 million and the plant is expected to generate after tax cash
flows of 10 million at the end of each year for the next 4 years. after that the plant will
be worthless. the current /$ exchange rate is 0.8166/$. the expected rate of inflation for
the u.s is 2.5% per year. the risk free rate in the u.s. is 4% and the risk free rate in france
is 6%.
narrend
refer to smith enterprises international investment. what is the expected rate of inflation
in france?
a.4.47%
b.5.00%
c.6.52%
d.3.56%
18) the rate at which a firm can grow without issuing any new shares of stock while
keeping its dividend policy, financial policy, and profitability constant is the
a.optimal growth rate
b.marginal growth rate
c.sustainable growth rate
d.theoretical growth rate
