1) Future Value Given an 8 percent interest rate, compute the year 7 future value if
deposits of $1,500 and $2,500 are made in years 2 and 3, respectively, and a withdrawal
of $2,000 is made in year 5 .
A.$1,909.42
B.$3,272.41
C.$3,433.60
D.$5,656.34
2) Given an 8% interest rate, compute the present value of payments made in years 1, 2,
3 and 4 of $900, $800, $700, and $600.
A.$2,409.33
B.$2,515.90
C.$2,591.72
D.$2,611.38
3) This technique for evaluating capital projects tells how long it will take a firm to earn
back the money invested in a project plus interest at market rates.
A.payback
B.discounted payback
C.net present value
D.profitability index
4) This is the average of the possible returns weighted by the likelihood of those returns
occurring.
A.efficient return
B.expected return
C.market return
D.required return
5) HiLo, Inc., doesn’t face any taxes and has $100 million in assets, currently financed
entirely with equity. Equity is worth $50 per share, and book value of equity is equal to
market value of equity. Also, let’s assume that the firm’s expected values for EBIT
depend upon which state of the economy occurs this year, with the possible values of
EBIT and their associated probabilities as shown below:
The firm is considering switching to a 40 percent debt capital structure, and has
determined that they would have to pay a 15 percent yield on perpetual debt. What will
be the break-even level of EBIT?
A.$11.2 million
B.$9.5 million
C.$13.0 million
D.$15.0 million
6) This is the mix of debt and equity that a firm uses to finance its operations.
A.capital structure
B.capital management
C.separation structure
D.break even
7) Which of the following is incorrect regarding the IRR statistic?
A.For independent projects, IRR will give the same accept/reject decision as NPV
B.For the IRR statistic to give a different accept/reject decision from NPV, the cash
flows must be non-normal and the projects must be mutually exclusive
C.To solve for the IRR, one can simply solve the NPV formula for the rate that will
make the NPV equal to zero
D.None of these statements is incorrect
8) Dividend Initiation and Stock Value A firm does not pay a dividend. It is expected to
pay its first dividend of $0.15 per share in 3 years. This dividend will grow at 9 percent
indefinitely. Using a 10 percent discount rate, compute the value of this stock.
A.$12.28
B.$12.40
C.$16.35
D.$16.50
9) Convert each of the following direct quotes to dollar indirect quotes:
1 Korean Won = $0.001556
1 Malaysian Ringgit = $0.3419
1 Thai Baht = $0.03999
$1 equals:
A.642.67 Won; 2.9248 Ringget; 28.01 Baht
B.662.67 Won; 2.9248 Ringget; 28.01 Baht
C.642.67 Won; 2.7408 Ringget; 25.01 Baht
D.642.67 Won; 2.9248 Ringget; 25.01 Baht
10) Which of the following will decrease the present value of an annuity?
A.The discount rate increases
B.The discount rate decreases
C.The number of periods the annuity is received increases
D.The final payment increases
11) We call the process of earning interest on both the original deposit and on the earlier
interest payments:
A.discounting
B.multiplying
C.compounding
D.computing
12) Currency Exchange Compute the number of dollars that can be bought with 8
million of foreign currency units:
$1 = 7.2501 South African Rand
A.$1,103,433.056
B.$5,800,080.00
C.$8,000,000.00
D.$9,103,200.00
13) All of the following are strengths of payback except ____________________.
A.Its benchmark is not determined by a relevant external constraint
B.It incorporates the time value of money
C.It uses a conservative reinvestment rate
D.None of these
14) HiHo Inc. is evaluating a merger with the following cash flows:
Years 1-3 Incremental Cash Flows: $10 million each year
Value of incremental cash flows after year 3 as of the end of year 3: $30 million
Discount rate = 10%
What is the most HiHo should pay for this merger?
A.$38.53 million
B.$41.09 million
C.$47.41 million
D.$51.27 million
15) Investors buy stock at the
A.dealer price
B.bid price
C.quoted ask price
D.broker price
16) Purchasing Power Parity If the current spot rate between the U.S. dollar and the
Swedish krona was $1 = 7.5423 krona, and if the inflation rate in the United States was
5 percent and in Sweden it was 2 percent, then what would be the expected spot rate in
one year?
A.$0.1366
B.$0.1326
C.$7.7487
D.$0.1356
17) GEN has 1 million shares outstanding and a P/E ratio of 12. Its earnings per share is
$2.00 What is GEN’s market capitalization?
A.$24,000,000
B.$12,000,000
C.$2,000,000
D.$96,000,000
18) Which of the following is incorrect?
A.Technical analysis is expected to work if markets are weak-form efficient
B.If markets are strong-form efficient then they must also be weak-form efficient
C.It is not likely that the market is strong-form efficient
D.None of these statements are incorrect
19) Which of the following is a true statement?
A.To estimate the before-tax cost of debt, we need to solve for the Yield to Maturity
(YTM) on the firm’s existing debt
B.To estimate the before-tax cost of debt, we need to solve for the Yield to Call (YTC)
on the firm’s existing debt
C.To estimate the before-tax cost of debt, we use the coupon rate on the firm’s existing
debt
D.To estimate the before-tax cost of debt, we use the average rate on the firm’s existing
debt
20) What annual rate of return is implied on a $5,000 loan taken next year when $7,700
must be repaid in year 8?
A.6.36%
B.7.12%
C.8.54%
D.11.62%
21) In 20XX, the 10-year Treasury rate was 4.5% while the average 10-year Aaa
corporate bond debt carried an interest rate of 6.0%. What is the average default risk
premium on Aaa corporate bonds?
A.0.75%
B.1.5%
C.1.95%
D.2.25%
22) This is a security formalizing an agreement between two parties to exchange a
standard quantity of an asset at a predetermined price on a specified date in the future.
A.derivative security
B.initial public offering
C.liquidity asset
D.trading volume
23) A professionally managed pool of money used to finance new and often high-risk
firms is referred to as _______________________.
A.Venture capital
B.Take-down
C.High-risk investments
D.Small Business Administration Series A funding
24) A corporate bond with an 8.5% coupon has 10 years left to maturity. It has had a
credit rating of A and a yield to maturity of 10%. The firm has recently gotten into some
trouble and the rating agency is downgrading the bonds to BBB. The new appropriate
discount rate will be 11.5%. What will be the change in the bond’s price in dollars?
Assume interest payments are paid semi-annually and par value is $1,000.
A.-$82.13
B.-$95.19
C.-$101.37
D.-$69.85
25) Suppose you have a project whose discounted payback is equal to its termination
date. What can you say for sure about its PI?
A.The discounted payback will be greater than zero
B.It will have a PI and NPV of zero
C.The NPV and IRR will yield the same decision
D.The IRR will just equal the cost of capital
26) Suppose that the 2009 actual and 2010 projected financial statements for Cypress
Corp are initially as shown below. In these tables, sales are projected to rise 15 percent
in the coming year, and the components of the income statement and balance sheet that
are expected to increase at the same 15 percent rate as sales are indicated with an italics
font. Assuming that Cypress Corp wants to cover the AFN with 35 percent equity, 35
percent long-term debt, and the remainder from notes payable, what amount of
additional funds will they need to raise if debt carries a 9 percent interest rate?
A.$4,165 equity; $4,165 long-term debt; $3,570 notes payable
B.$4,165 equity; $3,570 notes payable; $4,165 long-term debt
C.$5,850 equity; $5,850 long-term debt; $0 notes payable
D.none of these answers are correct
27) Calculating Costs of Issuing Stock TriState Corp. recently went public with an
initial public offering in which they received a total of $50 million in new capital
funding. The underwriter used a firm commitment offering in which the offer price was
$30 and the underwriter’s spread was $1.50. TriState also paid legal and other
administrative costs of $950,000 for the IPO. What is the number of shares issued
through this IPO?
A.1,698,333
B.1,787,720
C.1,754,386
D.1,666,667
28) Yield to Maturity A 4.25 percent coupon bond with 8 years left to maturity is
offered for sale at $983.36. What yield to maturity is the bond offering? (Assume
interest payments are paid semi-annually and par value is $1,000.)
A.2.25%
B.2.36%
C.4.25%
D.4.50%
29) The U.S. dollar spot exchange rate with the Canadian dollar is $1 = CA$1.12. The
U.S. dollar and Swiss franc exchange rate is $1 = 1.275. If the cross-rate between the
franc and Canadian dollar is 1 franc = CA$0.9750, which of the following statements is
correct?
A.Starting with U.S. dollars, buy francs and convert them to Canadian dollars and then
back to U.S. dollars
B.Starting with U.S. Dollars, buy Canadian dollars and convert them to Swiss francs
and then back to U.S. dollars
C.Starting with Swiss francs, buy Canadian dollars and convert them to Swiss francs
and then back to U.S. dollars
D.Starting with Canadian dollars, buy U.S dollars and convert them to Swiss francs and
then back to U.S. dollars
30) You hold the positions in the table below. What is the beta of your portfolio? If you
expect the market to earn 12 percent and the risk-free rate is 3.5 percent, what is the
required return of the portfolio?
A.14.21%
B.16.76%
C.13.97%
D.15.38%