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1) omega corp has an roe of 15%; has just paid a dividend of $1.55; a pays 0% of its
earnings out in dividends, and the appropriate discount rate is 20%; what is the current
stock price?
a.$ 7.75
b.$ 11.88
c.$ 35.65
d.$ 42.78
2) the part of credit policy that dictates how delinquent accounts should be handled is
called
a.setting the credit terms
b.determining credit standards
c.developing a collection policy
d.none of the above
3) maximizing profit as the managers goal has several flaws, including:
a.earnings figures focus on past performance rather than current or future performance
b.the timing of the profits may be ignored
c.focusing on earnings does not mean that the firm will necessarily have enough cash
on hand to pay its bills
d.risk is ignored
e.all of the above
4) the section of the bankruptcy reform act of 1978 that outlines the procedures for
reorganizing a failed or failing firm is
a.chapter 7
b.chapter 11
c.chapter 13
d.none of the above
5) a top-down approach to sales forecasting begins with
a.a firmwide sales objective
b.a departmental head forecast
c.a talk with the customer
d.none of the above
6) what is the process through which a customer's payment is posted to its account and
the outstanding invoices are cleared as paid?
a.payment pattern monitoring
b.aging of accounts receivable
c.cash application
d.just-in-time system
e.none of the above
7) an option that gives the owner the right to buy or sell an asset at a fixed price only on
the expiration date, is called a(n)
a.european option
b.american option
c.asian option
d.exotic option
8) a cramdown procedure is used when
a.a reorganization plan fails to meet the standard for approval by all classes under the
unanimous consent procedure
b.the firm is clearly insolvent and the existing equity has no value
c.either a or b
d.none of the above
9) an advantage of the probabilistic approach to estimating an assets returns is:
a.history always repeats itself
b.it does not require one to assume that the future will look like the past
c.recent history is more important than future risk
d.exact probabilities are easy to estimate
10) you are evaluating a company and have found a new way to calculate the present
value of bankruptcy costs, agency costs of outside equity as well as debt. you find that
the agency costs of outside equity is $100 while the agency cost of outside debt is
$1,000,000. the costs of bankruptcy are also $1,000,000. what type of firm does most
likely describe?
a.a firm with too little leverage
b.a firm with too much leverage
c.a firm with too much equity
d.a firm that should disregard its agency costs
