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1) roxy is considering a new cat food factory with the following cash flows, if the
discount rate is 10% what is the pi?
a.0.960
b.0.956
c.0.938
d.0.917
2) a put option with a $35 strike price on bavarian sausage stock will expire in one year.
if you know that the risk free rate is 6%, that the stock currently sells at $38 and the call
on the same stock has a value of $6.85, what is the price of the put?
a.$6.85
b.$1.87
c.$3.00
d.$0
3) another term for junk bonds is
a.low-risk bonds
b.low-yield bonds
c.high-yield bonds
d.vulture bonds
4) herbilux botanicals forecasts the following cash flows at the end of each year for a
project. if the firm's discount rate is 9%, what is the present value of the project?
a.$7,634,980
b.$8,015,517
c.$8,736,914
d.$12,268,998
5) what is the goal of financial management?
a.maximize corporate profits
b.maximize shareholder wealth
c.minimize costs
d.maximize earnings
6) narrbegin: bavarian brew
bavarian brew
bavarian brew, an unlevered firm, has an expected ebit of $500,000. the required return
on assets for the firms assets is 10%. the company has 250,000 shares outstanding. the
company is considering raising $1 million in debt with a required return of 6% and
would use the proceeds to repurchase outstanding stock.
narrend
refer to bavarian brew. if the corporate tax rate equals 34% and the personal tax rate on
interest income equals 40%, for which tax rate on dividend income is the gain from
leverage equal to zero?
a.15.2%
b.9.1%
c.12.6%
d.6.6%
7) narrbegin: bavarian brewhouse
bavarian brewhouse
capital structure information for bavarian brewhouse
narrend
as a result of a companys 15% increase in sales their ebit increased by 25%. what is the
companys operating leverage?
a.2.33
b.1.67
c.1.50
d.3.33
8) yield spreads are quoted in terms of basis points. which of the following is true for
basis points?
a.10 basis points = 10%
b.100 basis points = 1%
c.1 basis point = 1%
d.100 basis points = 100%
9) after careful research, you find the present value of the free cash flows of a firm to be
$100 million. the market value of the firms preferred stock is $15 million, while the
market value of the firms debt is $40 million. if the firm has 2 million shares of stock
outstanding, what is the equity value per share?
a.$20.00
b.$22.50
c.$27.50
d.$30.00
10) montigo magic petroleum corporation is interested in selling common stock to raise
capital for a new oil well. the firm has contacted first bank of manhattan, a large
underwriting firm, which believes that the stock can be sold for $40 per share. the
underwriter also believes, after careful research, that its administrative costs will be
2.75 percent of the sale price and its selling costs will be 2.40 percent of the sale price.
if the underwriter requires a profit equal to 1.25 percent of the sale price, how much
will the spread have to be in dollars to cover the underwriters costs and profit?
a.$0.64
b.$1.80
c.$2.16
d.$2.56
11) the system where a country pegs its currency to that of another currency is called
a.a floating exchange rate system
b.a fixed exchange rate system
c.a managed floating rate system
d.none of the above
