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1) narrbegin: efn 1
narrend
if smith pays out 75% of net income as dividends and sales are expected to grow by
25%, what are the external funds required?
a.$133.06
b.$66.88
c.$121.88
d.$225.58
2) if company x intends to distribute shares of its wholly owned subsidiary to its current
shareholders in an effort to make the subsidiary a publicly traded company, then
company x is contemplating a(n)
a.equity carve-out
b.spin-off
c.lbo
d.none of the above
3) if a wheat mill were to acquire a bread making company, that would be an example
of
a.a forward integration merger
b.a backward integration merger
c.a horizontal merger
d.none of the above
4) venture capital funded firms often use stock options in their compensation plans
a.to hide compensation costs from investors
b.to attract and retain talented employees with lower cash outlays
c.to transfer risk to the venture capital investors
d.to enhance the future venture capital fund returns
5) the spot rate exchange rate for andromedan pixels (anp) is 3.00anp/$. if the risk-free
rate of return in andromeda is 20% per annum while that in the u.s. is 3%, then what
amount of u.s. dollars should you be able to convert 3,000,000 anp into 1-year from
now if you choose to begin hedging today?
a.$1,165,049
b.$1,000,000
c.$858,333
d.$833,333
6) suppose that over the last 20 years, company xyz has averaged a return of 13%. over
the same period, the treasury bond rate has averaged 4%. the current estimate of the
treasury bond rate is 6.5%. using the historical approach, what is the estimate of xyzs
expected return.
a.13.0%
b.16.5%
c.15.5%
d.19.5%
7) narrbegin: exhibit 17-1
exhibit 23-1
s&p 500 index; $250 index may 2004
narrend
refer to exhibit 23-1. how many june contracts were outstanding at the end of the
trading day?
a.3,338
b.8,621
c.183,158
d.125,845
8) narrbegin: npv profile
npv profile
the figure below shows the npv profile for two investment projects.
narrend
refer to npv profile. if gamma company has a hurdle rate of 11%, and the two projects
are independent, which project should gamma company invest?
a.project 1
b.project 2
c.both project 1 and project 2
d.neither project
9) the present value of an ordinary annuity is $2,000. the annuity features monthly
payments from an account that pays 12% apr (with monthly compounding). if this was
an annuity due, what would be the present value? (assume that same interest rate and
same payments)
a.$1,785.71
b.$1,980.20
c.$2,020.00
d.$2,080.00
10) a merger that combines companies with similar but not identical lines of business is
called a
a.product extension merger
b.pure conglomerate merger
c.vertical merger
d.none of the above
11) in a chapter 11 setting, a firm
a.must be liquidated
b.can be reorganized, but only if all creditors unanimously agree to the plan
c.may have the terms of its debt relaxed
d.none of the above
12) consider a forward contract to buy a ten-year bond in one year; currently the
eleven-year bond has a coupon rate of 7%, paid semi-annually with a price of $1,060.
the current and effective risk-free rate of interest is 5%. what is the fair forward price?
a.$1,113.05
b.$1,042.14
c.$1,043.05
d.$1,009.52
13) what is a fiduciary?
a.someone who performs ratio analysis for a corporation
b.someone who invest and manages money on someone elses behalf
c.someone who manages the release of a initial public offering
d.someone who evaluates the performance of individual bonds
14) which of the following is the most likely method of financing for a high technology
entrepreneurial firm?
a.equity
b.mortgage bonds
c.debentures
d.junk bonds
15) you are about to embark on a project that has an equal 50% probability of
generating a $10,000 windfall or a loss of $4,000. however, an insurance company
comes to you saying they will sell you an indemnification policy for the event that you
incur the $4,000 loss. if the insurance company is basing their charge for the policy on
real option analysis, what will they charge you for the policy?
a.$1,000
b.$2,000
c.$4,000
d.none of the above
16) bavarian brewhouse is planning on going public. under the underwriting agreement
the underwriting discount is $1.25. if the offering price of the stock is set at $12.50 per
share and the company is planning on issuing 1 million shares, what are the total
proceeds that bavarian will receive?
a.12,500,000
b.11,250,000
c.13,750,000
d.10,875,000
17) in a world without taxes, distress costs, or agency problems, calculate the value of
lever co. if its perpetual ebit is expected to be $1,000,000 per year based upon total debt
of $200,000. the firms cost of debt is 5% and its required return on firms assets is 10%.
a.$19,800,000
b.$10,000,000
c.$9,900,000
d.none of the above
18) large corp. anticipates issuing $5,000,000 of debt to repurchase equity. if large can
issue the debt to yield 8% per year, then what is the single year increase in cash flow to
large if it issues the debt and is subject to a 34% marginal tax rate?
a.$136,000
b.$400,000
c.$2,720,000
d.none of the above
19) economic failure occurs when
a.a firm fails to earn a return that is greater than its cost of debt
b.a firm fails to earn a return that is greater than its cost of equity capital
c.a firm fails to earn a return that is greater than its cost of capital
d.both a and c
20) factors to consider when granting credit to customers include:
a.the variable costs of the products the firm is selling on credit
b.the credit limit being offered to the customer
c.the ability of the customer to repay
d.all of the above
e.(b) and (c) only
