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1) for a stock pricing model, an analyst selects 10% as the sustainable growth rate in
dividends for a firm. given that the firm pays out 40% of net income as dividends each
year, what is the return on shareholder equity for this firm?
a.2.50%
b.4.00%
c.10.00%
d.16.67%
2) some top u.s. multi-national firms have listed their stock in numerous stock markets
outside the u.s. which of the following are reasons for issuing a stock internationally?
a.it broadens the ownership base and helps a company integrate itself into the local
business scene
b.it increases local press coverage and serves as corporate advertising
c.it can make corporate acquisitions easier because shares can be used as an acceptable
method of payment
d.all of the above are viable reasons
e.only (a) and (b) are viable reasons
3) suppose that the one-year risk-free interest rate is 5% in the united states. the current
spot rate is $0.7642/c$ and the one-year forward rate is $0.7834/c$. what must the
canadian one-year risk-free interest rate be in order for interest rate parity to hold?
a.0.929%
b.0.783%
c.2.43%
d.7.64%
4) term loans:
a.are essentially private placements of debt, bypassing an investment banker as an
intermediary
b.are more flexible than publicly-traded debt
c.are often made to finance permanent working capital needs
d.all of the above
e.(a) and (b) only
5) you will receive a stream of annual $70 payments to begin at the end of year 0 until
the final payment at the beginning of year 5. what amount will you have at the end of
year 5 if you can invest all amounts at an 11% interest rate?
a.$350.00
b.$435.95
c.$483.90
d.$614.83
6) fasb statement 141 holds that
a.goodwill is to be amortized over time
b.goodwill can no longer be created in merged financial statements
c.goodwill can be increased or decreased over time after the merger
d.goodwill is to be regularly evaluated for impairment
7) 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 were to sell the stock today, what would be the after tax
proceeds of the sale?
a.$250.00
b.$212.50
c.$2,762.50
d.$2,800.00
8) al bert seeks $15 million from a vc fund. al and the vc agree that the company should
be ready to go public in 6 years. at that time the company should have a net income of
$8.95 million. if comparable firms are expected to be trading at a p/e ratio of 18, what
will be the companys market capitalization at the time of the ipo?
a.$213.67 million
b.$142.25 million
c.$161.10 million
d.$123.78 million
9) which of the following is not a strength of the corporate form of business?
a.unlimited life of the business
b.unlimited access to capital
c.unlimited liability
d.individual contracting
10) place the following in the correct order of priority for selecting short-term
investments:
a.expected return, liquidity, preservation of capital
b.expected return, preservation of capital, liquidity
c.liquidity, expected return, preservation of capital
d.preservation of capital, liquidity, expected return
11) which of the following is a reason why firms do not tend to issue new shares of
common stock to fund new projects?
a.raising new capital via equity may send a unintended negative signal to the market
b.issuing new equity dilutes a managers ownership stake in the firm (unless they
purchase at least an equal proportion of the new shares as they currently own)
c.by rationing capital senior managers hope to weed out investments with an optimistic
bias built into the cash flow projections
d.all of the above are reasons
e.only (b) and (c) are reasons
12) a firm has a capital structure containing 40 percent debt, 10 percent preferred stock,
and 50 percent common stock equity. the firms debt has a yield to maturity of 9.50
percent. its preferred stocks annual dividend is $7.50 and the preferred stocks current
market price is $00 per share. the firms common stock has a beta of 0.90 and the
risk-free rate and the market return are currently 4.0 percent and 13.5 percent,
respectively. the firm is subject to a 40 percent marginal tax rate. the market value of
debt is $100 million. how many shares of preferred stock should be outstanding for the
capital structure to be correct?
a.125,000 shares
b.250,000 shares
c.500,000 shares
d.625,000 shares
13) you initially entered into 6 long pork belly positions in the futures market. you
subsequently went long another 3 contracts and then went short 4 contracts. which of
the following is correct? assume that all of the contracts have the same settlement price
and settlement date.
a.if you do nothing more then you must take delivery on 5 pork belly contracts
b.if you do nothing more then you must deliver 5 pork belly contracts
c.if you do nothing more then you must take delivery on 9 pork belly contracts
d.if you do nothing more then you must deliver 4 pork belly contracts
14) consider a forward contract to buy a ten-year bond in one year; currently the
eleven-year bond has a coupon rate of 10%, paid semi-annually with a price of $1,050.
the current and effective risk-free rate of interest is 4%. what is the fair forward price?
a.$991.01
b.$992.04
c.$1,092.04
d.$1,009.62
15) what do we call the possible conflict of interests between shareholders and
management?
a.agency problem
b.stakeholder problem
c.double taxation
d.shareholders dilemma
16) formal business entities with full-time professionals who seek out and fund
promising ventures are
a.angel capitalists
b.institutional venture capital funds
c.vulture funds
d.business incubators
17) narrbegin: commerce company
commerce company
the commerce company is evaluating a project with the following cash flows:
narrend
what is the payback period of the proposed commerce company project?
a.1.5 years
b.2.7 years
c.3.2 years
d.4.5 years
18) a firm has a capital structure of 40% debt and 60% equity. the firm has bonds
outstanding with a face value of $20 million. the bonds pay, on average, a 8% annual
coupon and have an average maturity length of 7 years. the market value of the bonds is
110% of face value and the tax rate facing the firm is 40%. the firm has common stock
with a beta of 1.25. the risk free rate on treasury bonds is 2%, while the market risk
premium is 8%. a project requires an investment of $10,000 today and will pay $2,500
annually for six years. what is the npv of the project?
a.$825
b.$1,320
c.$1,460
d.$1,540
19) which of the following parties have the proper incentives to make risky, value
increasing investments for the firm?
a.suppliers
b.creditors
c.shareholders
d.managers who are only compensated with a salary
