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1) you are the manager of a company that has an equal chance of earning either $20,000
or $40,000 before taxes. your firm is subject to a 20% tax rate on the first $30,000 and
35% on all income earned beyond that point. if you are offered a costless hedge to
achieve guaranteed before tax earnings of $30,000, what is the expected benefit to
hedging?
a.$24,000
b.$23,250
c.$750
d.none of the above
2) a $100 investment yields $112.55 in one year. the interest on the investment was
compounded quarterly. from this information, what was the stated rate or apr of the
investment?
a.12.55%
b.12.25%
c.12.15%
d.12.00%
3) a firm has estimated the npv of a new product release as -$100,000. however, if the
product is a failure, the firm estimates it can sell off the equipment to help cash flow. an
analyst estimates the value of abandoning the product release at $125,000. the cost of
capital for the firm is 10%. what is the project value for the firm?
a.-$100,000
b.$10,000
c.$25,000
d.$225,000
4) which of the following represents career opportunities in finance?
a.corporate finance
b.investment banking
c.consulting
d.all of the above
5) once starting a new business an entrepreneur should concentrate on:
a.becoming wealthy
b.generating positive cash flow
c.immediately seeking out venture capitalists
d.generating as much sales as possible
6) louis is considering a new litter box factory with the following cash flows, if the
discount rate is 10%, what is the npv?
a.$1,872.73
b. $4,494.70
c. $9,942.54
d. $8,278.92
7) a call option on interest rates is called an
a.interest rate collar
b.interest rate floor
c.interest rate cap
d.interest rate swap
8) what was the key impact to the jobs and growth tax reconciliation act of 2003?
a.it greatly reduced the risk and liability of owning a small business
b.it provided tax credits and incentives for corporations to maintain their operations in
the united states
c.it reduced the effect of double taxation on corporate earnings by lowering the tax rate
on corporate dividends
d.it reduced taxes in an effort to keep social security solvent through 2040
9) the central predictions of the agency cost/contracting model of dividend payments
include:
a.dividend initiations and increases should lead to increases in the firm's stock price
when announced
b.firms and industries that generate the largest amounts of free cash flow should have
the highest dividend payout ratios
c.managerial compensation contracts will be designed to entice managers to pursue a
value-maximizing dividend policy
d.all of the above
e.only (a) and (b)
10) your family has invested in a security over the last 100 years. the expected return
during that period has been .15 and the variance of the returns has been .048. your
investment advisor told you that the security had a 95th percentile performance (with
respect to its historical performance) this period. what was the actual return during the
period?
a.15.0%
b.19.8%
c.37.0%
d.58.8%
11) the shoe club expects to sell 10,000 shoes per month next year. if it costs shoe club
$15 every time it processes a shoe order and the cost of holding a pair of shoes is about
$3 per year, then what is the optimum number of pairs of shoes to order for the shoe
club?
a.1,095.45
b.1,000.00
c.316.23
d.100.00
12) you will receive a stream of annual $70 payments to begin at the end of year 0 until
the final payment at the end of year 5. what amount will you have at the end of year 5 if
you can invest all amounts at a 11% interest rate?
a.$350.00
b.$420.00
c.$553.90
d.$614.83
