Match the following:
1>Debentures A. Bonds that are backed by the value of
specific assets
2>Subordinated Debt B. Bonds that are not backed by the value of
specific assets
3>Secured Bonds C. Bonds having a “junior” position relative to
more ‘senior” debt
4>Convertible Bonds D. Bonds that permit their holders to share in
the appreciation of the company’s stock
Scenario analysis for a proposed new project has resulted in the following:
An abandonment option would change the NPV in the worst case to ($500). The
project’s expected NPV if the abandonment option is included is:
A.$190.
B.($290).
C.$290.
D.None of the above
Mr. Moore is 35 years old today and is beginning to plan for his retirement. He wants to
set aside an equal amount at the end of each of the next 25 years so that he can retire at
age 60. He expects to live to about 80, and wants to be able to withdraw $25,000 per
year from the account on his 61st through 80th birthdays. The account is expected to
earn 10 percent per annum for the entire period of time. Determine the size of the
annual deposits that must be made by Mr. Moore.
A.$212,850
B.$23,449
C.$2,164
D.$8,514
In a financial merger, the acquisition is intended to:
A.achieve technical expertise in developing existing products.
B.achieve economies of scale in operations and administration.
C.enhance reputation of the combined firm.
D.buy an undervalued target and sell its pieces off at a profit.
Using the Gordon Model, which of the following statements is most correct?
A.A stock’s intrinsic value cannot be calculated if its growth rate is zero.
B.A stock’s intrinsic value cannot be calculated if its growth rate is negative.
C.A stock’s intrinsic value cannot be calculated unless dividend payments are assumed
currently or in the future.
D.b. and c. above are correct.
E.All of the above statements are correct.
Which of the following creates a demand in the U.S. for a foreign country’s currency?
A.Demand for that country’s goods and services in the U.S.
B.US investors’ demand for the stocks of companies in that country
C.US firms’ interest in making direct investments in that country
D.Both a. and b. are correct.
E.All of the above are correct.
Which is equivalent to EBIT assuming the firm has no leverage?
A.EBT
B.Net income
C.Net income + Depreciation
D.Gross Margin + Depreciation
Muggles Manufacturing has asked you to calculate the company’s current ratio. All you
have is the partial balance sheet below, the year’s sales revenue, and two ratios also
shown below. Using that information, calculate Muggles’ current ratio.
Sales = $3,000
Cost Ratio = 45%
Inventory Turnover (COGS/Inv) = 5.0
A..35
B..85
C.1.65
D.2.25
Ten years ago J-Bar Company purchased a lathe for $250,000. It was being depreciated
on a straight-line basis to an estimated $25,000 salvage value over a 15-year period.
The firm is considering selling the old lathe and purchasing a new one. The new lathe
would cost $500,000. The firm’s marginal tax rate 40 percent. Determine the net
investment required to purchase the new lathe, if the old lathe is sold for $100,000.
A.$380,000
B.$397,500
C.$400,000
D.None of the above
Betas are determined:
A.from the slope of the SML.
B.by regressing the return on the market against the return on stock X and taking the
slope of the regression line.
C.by estimating the future reaction of the stock to market changes.
D.by examining portfolio returns.