1) 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 net profit (loss) from the proposed change in credit terms?
a.$61,472
b.$177,188
c.$13,660
d.$225,000
2) narrbegin: abc logistics
abc logistics
the managers of abc logistics (abc) have decided to expand the companys operations
into a few new markets. to fund this opportunity, abc has decided to launch a seasoned
equity offering to raise new equity capital. abc currently has 12 million shares
outstanding, and yesterdays closing market price was $40.00 per abc share. the
company plans to sell 3 million newly issued shares in its seasoned offering. the
investment banking firm of armstrong incorporated has agreed to underwrite the new
stock issue for a 4 percent discount from the offering price, which abc and armstrong
have agreed should be $0.50 per share lower than abcs closing price the day before the
offering is sold.
narrend
if abcs stock price closes at $39.00 the day before the offering, calculate the return
earned by abcs existing stockholders on their shares from the time before the seasoned
offering was announced through the time it was actually sold for $38.50 per share.
a.-3.75%
b.-2.00%
c.1.25%
d.3.75%
3) which of the following approaches to estimating an assets expected return assumes
that the future and the past share much in common?
a.historical
b.probabilistic
c.risk-based
d.all of the above
4) the globe incorporated has ebit of $20 million for the current year. on the firm
balance sheet, there is $80 million of debt outstanding that carries a coupon rate of 8
percent. investors seek a return of 12 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.$32,000,000
b.$30,000,000
c.$24,000,000
d.$6,400,000
5) you purchased stock of blue mcbrushes corp one year ago for $85 and generated a
total return of 20% during that time. if you just sold the stock for $89.50, then what
were the total dividends that you received during the year?
a.$12.50
b.$12.73
c.$13.18
d.none of the above
6) if we are able to eliminate all of the unsystematic risk in a portfolio then, what is the
result?
a.a risk-free portfolio
b.a portfolio that contains only systematic risk
c.a portfolio that has an expected return of zero
d.such a portfolio cannot be constructed since there will always be unsystematic risk in
any portfolio
7) louis international recently conducted an ipo, louis received $22 per share and the
offer price was $25 per share and the stock price rose to $35 per share. what was the
underwriter discount?
a.8.57%
b.13.64%
c.28.57%
d.12.00%
8) within a limited partnership context, what are the conditions on a limited partner?
a.there is a limit to the amount of capital that a limited partner can contribute, as
mandated by law
b.there is a limit to the number of limited partners that the firm may take on as investors
c.the limited partner must remain a low level employee and cannot ever serve in a
managerial role in the firm
d.a limited partner may not take any active role in the operation of the business
9) the 1-year risk-free rate of return in hobbiton is 10% and the 1-year risk-free rate of
return in gondor is 20%. if the real rate of return on a 1-year risk-free investment in
hobbiton is 0%, the what should be the expected rate of inflation in gondor?
a.5.00%
b.20.00%
c.30.00%
d.none of the above
10) which of the following is not a career opportunity in corporate finance?
a.financial analyst
b.mortgage banker
c.cash manager
d.controller
11) consider the cash receipts projections of roxy inc. that is developing a cash budget
for october , november and december; sales in august and september were $600,000 and
$500,000 respectively. the forecast sales are $400,000, $300,000 and $200,000 for
october, november and december respectively. 20 % of sales are cash sales and 80% are
credit sales; collects about 70% of each months sales in the next month but waiting until
the following month for the remaining 10% of sales. bad debts are negligible. the firm
is expectsing cash dividend of $10,000 in december from a subsidiary. what are the total
cash receipts in october? (in thousands)
a.$330
b.$490
c.$255
d.$ 60
12) narrbegin: big thompson credit terms
big thompson industries (bti)
big thompson industries (bti) currently produces and sells 50,000 units of a motor relay
used in high-end electronics. all sales are on credit, for a price of $750 per unit to all
customers. these motor relays incur $525 in variable costs and $3,000,000 in fixed costs
per year. with current credit standards, btis average collection period is 30 days.
managers are considering a relaxation in standards, and forecast a 6 percent increase in
sales, along with an increase in the average collection period to 45 days. additionally,
bad debt expense is expected to increase from 1.5 percent to 2.5 percent of sales.
investments of this type are expected to earn a 14% return. assume a 365 day year
narrend
refer to big thompson. what is the forecasted increase in profits from increased sales if
credit standards are changed?
a.$2,250,000
b.$450,000
c.$1,575,000
d.$675,000
13) currently, a $1 million, 91-day t-bill sells at a 2.5% discount. what is the money
market yield?
a.2.500%
b.2.516%
c.2.551%
d.2.532%
14) which of the following statements regarding the binomial model is false?
a.it requires that we make assumptions about the probabilities of up and down
movements in the underlying stock’s price
b.more complex versions of the binomial model can accommodate a wide range of final
stock values
c.it prices options through the principle of ‘no arbitrage
d.it argues that the value of identical assets should be selling at identical prices
15) bavarian sausage stock has an average historical return of 16.3% and a standard
deviation of 5.3%. in which range do you expect the returns of bavarian sausage 68% of
the time.
a.5.7%:26.9%
b.5.3%:16.3%
c.11.0%:21.6%
d.6.2%:18.5%