1) elroy investors is interested in purchasing the bonds of the judy company. judys
bonds are currently priced at $1,100.00 and have 14 years to maturity. if the bonds have
a 6% coupon rate what is the yield-to-maturity of these annual coupon paying bonds?
a.5.00%
b.4.99%
c.2.50%
d.none of the above
2) gates auto inc. manufactures automobile engines in the united states. gates auto inc.
sells 200 of its 8 – cylinder hoste model engines to a company in canada. the total price
for these engines is c$60,000. gates auto inc. will deliver the engines today and receive
payment in 3 months from the canadian company. when payment is received gates auto
will convert the c$60,000 into u.s. dollars. the spot rate is $0.7865/c$ and if the spot
rate in 3 months is $0.7622/c$, how much will gates auto inc. gain or lose due to
exchange rate movements on this transaction if it does not perform any hedges.
a.they will lose $1,458.29
b.they will gain $1,458.29
c.they will not gain or lose anything on this transaction
d.they will gain $31,530
3) narrbegin: makestuff company
makestuff company
the makestuff companys earnings stream is highly dependent on the cost of a key
commodity input. management believes taxable earnings will be $100,000 if the input
price is low, taxable earnings will be $50,000 if the input price is at a moderate level,
but earnings will be zero if the input price is high. management sees these outcomes as
being equally likely. the company pays a 15% tax rate on the first $50,000 of taxable
earnings, and a 25% rate on all earnings above $50,000.
narrend
what is makestuffs expected after tax earnings if it remains unhedged?
a.$50,000
b.$42,500
c.$80,000
d.$40,833
4) which of the following is not a “con” of the accounting rate of return method?
a.the method makes no adjustment for the time value of money or project risk
b.the depreciation method used impacts both the numerator and denominator
c.it focuses on net income rather than a company’s ability to generate cash
d.the choice of the hurdle rate is arbitrary
e.all of the above are cons of the accounting rate of return method
5) banks perform which of the following functions:
a.collecting payments on checks sent to their corporate customers
b.making payment on the checks written by their customers to other parties
c.providing information-processing services to small- and medium-sized businesses
d.handling large-volume transactions, such as payroll disbursements
e.all of the above
6) which of the following would most likely get a firm in trouble if it sold private
placement securities to this investor?
a.pension fund
b.venture capitalist
c.retiree
d.none of the above
7) which form of invested capital is subject to most of the firms business and financial
risk?
a.debt capital
b.equity capital
c.borrowed capital
d.intellectual capital
8) the largest stock exchange in the world is
a.the london stock exchange
b.the new york stock exchange
c.the nasdaq
d.the paris bourse
9) you are a financial consultant to a company that asks you what effect a change in
leverage has on the firms sustainable growth. assuming all other things remain constant
and if the percentage of assets that are financed with debt increases, then how will that
affect the firms sustainable growth rate?
a.the sustainable growth rate will decrease
b.the sustainable growth rate will increase
c.the effect is indeterminable
d.the sustainable growth rate will neither decrease or increase
10) a limited liability company:
a.combines the pass-through taxation feature of a partnership with the limited liability
feature of an s corporation
b.will probably decline as a form of organization due to its undesirable features
c.are allowed in only a very few states in the u.s.
d.results in personal liability for all partners if one (or more) partner(s) commit
malpractice
e.can only be formed if more than one person is a partner (i.e., no one-person llcs are
allowed)
11) a bond sold in the u.s. by a german based company is an example of a(n)
a.eurobond
b.yankee bond
c.samurai bond
d.none of the above
12) you will receive a stream of payments beginning at the end of year 1 and the
amount will increase by $10 each year until the final payment at the end of year 5. if the
first payment is $50, what amount will you have at the end of year 5 if you can invest
all amounts at a 7% interest rate?
a.$350.00
b.$374.50
c.$394.79
d.$422.43
13) a companys stock currently trades at $15 per share. the company just declared a
20% stock dividend. what should be the stock price after the stock dividend took place?
a.$15.00
b.$12.50
c.$18.50
d.$9.25
14) the spot rate on the british pound is 0.5491 per u.s. dollar, while the risk-free
borrowing rates are 4% in britain and 3% in the united states. what is the fair forward
exchange rate?
a.0.5438 pounds per dollar
b.0.7321 pounds per dollar
c.0.4118 pounds per dollar
d.0.5544 pounds per dollar
15) narrbegin: terry corporation
terry corporation
one year ago, jason purchased 50 shares of terry corporation stock at $20 per share.
today, one year later, the stock pays a $2 per share dividend and the price is now $22
per share.
narrend
refer to terry corporation. what is the total percentage return on the investment for the
one year?
a.9.09%
b.10.00%
c.18.18%
d.20.00%
16) emma corporation finances its operations with $5 million in stock and $4 million in
bonds. if the firm issues $1 million in additional bonds and uses the proceeds to retire
$1 million worth of equity. what will be the firms new debt to equity ratio? (assume
zero taxes and perfect capital markets)
a.1.25
b.0.80
c.0.80
d.1.00