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1) suppose you bought 10 smith enterprise put options with a strike price of $52 at
$2.75 per option. if the price of smith stock is $56, what is your net profit (or loss)?
ignore transaction costs.
a.$40
b.$0
c.-$27.50
d.$12.50
2) if you purchase the right to sell a share of ibm stock for a set price for a fixed period
of time, then you have
a.sold a call option
b.purchased a call option
c.purchased a put option
d.sold a put option
3) you are contemplating purchasing a $1,000,000 181 day t-bill that is selling at a
discount of 4.25%. what is the money market yield of the t-bill?
a.4.34%
b.4.25%
c.4.40$%
d.4.15%
4) declining corporation just paid a dividend of $1.23 and has an expected growth rate
of -5% for the foreseeable future, if the discount rate is 7% what is the appropriate stock
price today?
a.$ 9.74
b.$ 10.25
c.$ 9.67
d.$ 11.43
5) a firm that manufactures dvd players for automakers currently has excess capacity.
the firm expects that it will exhaust its excess capacity in three years. at that time it will
have to invest $2 million to build new capacity. suppose that the firm can accept
additional work as a subcontractor for another company. by doing so, the firm will
receive a net cash inflow of $120,000 immediately and in each of the next two years.
however, the firm will have to begin expansion two years earlier than originally planned
to bring new capacity on line. assume a discount rate of 10%.
what is the npv if the firm accepts the subcontractor job?
a.$328,264
b.-$18,843
c.$12,712
d.$298,422
6) contract terms that adjust downward the par value of stock venture capitalists if the
firm sells new stock
a.repurchase rights
b.ratchet provisions
c.demand registration rights
d.participation rights
7) what market is where transactions that generate new cash flow for the firm occur?
a.primary market transactions
b.secondary market transactions
c.commodities market transactions
d.initial public offering transactions
8) which of the following characteristics would disqualify a firm from being an s
corporation?
a.a firm with 51 different individual shareholders
b.the controlling majority shareholder is a fortune 500 corporation
c.one of the shareholders of the proposed s corporation is an elected official
d.none of the above would disqualify a firm from qualifying as an s corporation
9) 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
what is the gain from leverage for bavarian brew if the corporate tax rate equals 34%. in
addition, assume that the personal tax rate on interest income equals 40% and that there
is no tax on dividend income.
a.-$100,000
b.$100,000
c.$340,000
d.-$340,000
10) value-creating benefits of increased breadth of operations for merged companies
a.economies of scale
b.economies of scope
c.resource complementarities
d.synergy
11) the percentage of taxes owed on an incremental dollar of income is called:
a.the minimum tax rate
b.the marginal tax rate
c.the average tax rate
d.the maximum tax rate
12) suppose the cash manager of smart products just bought a 91-day t-bill for
$992,416.67. what are the discount and bond equivalent yields on this security?
a.3.06%, 3.03%
b.3.03%, 3.06%
c.3.00%, 3.06%
d.3.00%, 3.03%
13) the statement of the firms planned inflows and outflows of cash is called a(n)
a.income statement
b.balance sheet
c.cash budget
d.none of the above
14) narrbegin: dsss corporation
dsss corporation
dsss corporation is considering a new project to manufacture widgets. the cost of the
manufacturing equipment is $125,000. the cost of shipping and installation is an
additional $10,000. the asset will fall into the 3-year macrs class. the year 1- 4 macrs
percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. sales are expected
to be $225,000 per year. cost of goods sold will be 60% of sales. the project will require
an increase in net working capital of $10,000. at the end of three years, dsss plans on
ending the project and selling the manufacturing equipment for $25,000. the marginal
tax rate is 40% and dsss corporations appropriate discount rate is 15%.
narrend
refer to dsss corporation. what is the operating cash flow for year 2?
a.$54,797
b.$64,798
c.$70,803
d.$10,487
15) smith enterprises just paid a 10% stock dividend. if the market price of the stock
was $18 per share before the stock dividend, what do you expect it to be afterwards?
a.$18.00
b.$16.36
c.$19.80
d.$17.20
16) cash flows on an alternative investment that a firm decides not to make are a(n):
a.opportunity cost
b.sunk cost
c.terminal value
d.incremental cash flow
17) if the rate of interest that investors can earn on a 2-year investment is zero then
a.you will repay the same amount of money at the conclusion of a loan that you
borrowed at the beginning of the 2 year loan
b.the cost of using money for 2 years is zero
c.you will receive the same amount of money at maturity that you invested at the
beginning of a 2 year investment
d.all of the above
18) you find that the 6-month forward price for scrap steel is $15 a ton. if the 6-month
risk-free rate is 10%, then what should be the spot price for scrap steel per ton?
a.$14.30
b.$15.00
c.15.73
d.$16.50
