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1) if the board of directors of a target seeks an alternative, friendly, acquirer, then it is
said to be using which takeover defense?
a.just say no
b.standstill
c.white squire
d.white knight
2) the risk that a firms value will fluctuate due to exchange price movements
a.transactions exposure
b.translation exposure
c.economic exposure
d.political risk
3) which statement is false regarding wacc and its components?
a.the cost of debt is usually less than the cost of equity
b.the wacc should be used as the discount rate for all projects that the firm considers
c.for an all-equity firm, the cost of equity equals the wacc
d.the wacc may increase if the firm seeks external financing for a project
4) narrbegin: smart products eoq
smart products
assume a 365 day year.
smart products buys 300,000 units of a crucial input per year from a supplier that
fulfills its orders within two days of receiving them. smart products submits its orders
directly to the supplier through a web interface, so its lead time is the suppliers two day
turnaround time. each order costs smart products about $500 to place, while carrying
costs are about $60 per unit per year. the company seeks to maintain a five day usage
level in a safety stock.
narrend
what is smart products economic order quantity (eoq) for this input?
a.2236 units
b.707 units
c.822 units
d.1581 units
5) narrbegin: bavarian brew bond
bavarian brew bond
bavarian brew is thinking about recalling $30 million of 15 year, $1,000 par value
bonds, that were issued ten years ago. the bonds carry a coupon rate of 7.8% and have a
call price of $1,110. initially the bonds generated total proceeds of $28.65 million and
the flotation costs were $500,000. bavarian brew wants to sell $30 million of 5 year,
$1,000 par value bonds with a 5.8% coupon rate to retire the old bonds. the flotation
costs on the new bond issue are estimated to be $525,000. due to having to issue the
new bonds before the old bonds can be retired the company expects a period of 3
months were they have to pay interest on the old and the new bonds. assume a tax rate
of 34%
narrend
refer to bavarian brew bond. what is the initial investment in the new bond issue?
a.$2,635,767
b.$3,542,433
c.$2,178,000
d.$2,845,433
6) uncle fester puts $50,000 into a bank account earning 6%. you can't withdraw the
money until the balance has doubled. how long will you have to leave the money in the
account?
a.9 years
b.10 years
c.11 years
d.12 years
7) why might a financial manager prefer using option contracts instead of futures or
forward contracts to hedge?
a.futures and forwards require a premium be paid up front, while options do not
b.options provide protection against adverse price movements but allow the user to
profit if the price of the underlying asset moves favorably
c.options create an obligation to perform, while futures and forwards do not
d.futures and forwards all have greater default risk than options
8) the ratio of interest to principal repayment on an amortizing loan
a.increases as the loan gets older
b.decreases as the loan gets older
c.remains constant over the life of the loan
d.changes according to the level of market interest rates during the life of the loan
9) narrbegin: exhibit 6-1
exhibit 6-1
suppose that an investor bought a bond last year for $980. the bond pays a 7% annual
coupon and has a face value of $1,000. today, the same bond is selling for $960.
narrend
refer to exhibit 6-1. if the investor sells the bond this morning, what is the total dollar
return of the investment?
a.-$40
b.$30
c.$50
d.$70
10) future semiconductor is considering the purchase of photolithography equipment
that will cost $3 million. the equipment requires maintenance of $5,000 at the end of
each of the next five years. after five years it will be sold for $500,000. assume a cost of
capital of 15% and no taxes. what is the present value of the cost of the equipment?
what is the equivalent annual cost of the equipment?
a.$3,016,761; $899,947
b.$2,516,760; $750,789
c.$2,407,106; $718,077
d.$2,768,172; $825,789
11) narrbegin: exhibit 14-1
exhibit 13-1
you currently hold 100 shares of bavarian sausage, inc. stock which you purchased
three months ago at $25.50 and which is currently trading at $28. the stock will pay a
$3.75 dividend in a few days and the ex-dividend day is tomorrow. your personal tax
rate on dividend income is 25% and the capital gains tax is 15%.
narrend
refer to exhibit 14-1. if you decide to sell the stock after you received the dividend and
the dividend is fully reflected in the ex-dividend price, what is the total after tax dollar
return on the investment?
a.$2800
b.$2725
c.$2425
d.$2550
12) louis is evaluating a treasury bill. it is a $1 million face value with a discount of
3.25% and maturing in 182 days. what is the money market yield?
a.3.250%
b.3.250%
c.3.304%
d.3.350%
13) which of the following is the best bonding expenditure to help limit agency costs?
a.auditing the managers work on a monthly basis
b.a contract whereby the manager will forfeit a portion of his deferred compensation in
the event of poor performance
c.granting the manager a large number of options that will become valuable if the firm
performs well
d.paying the manager a bonus if the firm performs well
