1) which of the following statements is true?
a.generally the ipo market collectively raises about half as much external capital as very
large corporations in the u.s
b.ipos generally represent less than 10% of all new common equity raised yearly by u.s.
corporations
c.there is little competition in the u.s. stock markets for ipo listings
d.all of the above statements are true
e.only statements (a) and (c) are true
2) narrbegin: smith int’l investment
smith enterprises international investment
smith enterprises is considering opening a new manufacturing plant in france. the cost
of the new plant will be 25 million and the plant is expected to generate after tax cash
flows of 10 million at the end of each year for the next 4 years. after that the plant will
be worthless. the current /$ exchange rate is 0.8166/$. the expected rate of inflation for
the u.s is 2.5% per year. the risk free rate in the u.s. is 4% and the risk free rate in france
is 6%.
narrend
if you are a u.s. based company making sales in europe, you would benefit from
a.a strengthening u.s. dollar
b.a weakening u.s. dollar
c.a weakening euro
d.none of the above
3) suppose a firm has a z score of 1.6, and the following financial characteristics:
working capital to total assets ratio of 0.05, retained earnings to total assets ratio of
0.10, market value of equity to book value of equity ratio of 1.1, and sales to total assets
ratio of 0.4. what must be its ebit to total assets ratio?
a.0.15
b.0.10
c.0.05
d.0.0
4) additional features offered by bonds may include:
a.a call feature which allows the issuer to redeem the bond at a predetermined price
prior to maturity
b.the issuer’s right to forgo interest payments to the bondholders without repercussion in
the event that the firm is undergoing financial difficulty
c.the ability of the bondholder to convert to a predetermined number of shares of the
issuer’s common stock
d.all of the above
e.both (a) and (c)
5) louis plans to buy two-month treasury bills in four months. currently the price on
six-month treasury bills is $962,456 per million. the risk-free rate is 5.2%. what is the
fair forward price per $1 million?
a.$1,007,459
b.$1,042,088
c.$1,016,007
d.$995,114
6) narrbegin: kramerica, inc.
kramerica, inc.
kramerica inc. just paid its investors a dividend of $2.00. this growing company expects
dividends to grow at 20% for the next 2 years. after year 2, dividends are expected to
grow constantly at 5% per year. investors require a 15% return on kramerica stock.
narrend
what is the equation to price kramerica stock?
a.p0
b.p0
c.p0
d.p0
7) the expectations theory ignores several factors including the idea that:
a.investors may have a preference for investing in longer-term bonds due to the added
risk they offer over shorter-term bonds
b.investors may have a preference for investing in shorter-term bonds due to the added
risk offered by longer-term bonds
c.some investors such as pension funds have a desire to match the maturity of their
liabilities
d.all of the above
e.both (b) and (c)
8) a clause in a borrowing agreement that requires the firm to maintain a given level of
debt- equity is
a.a negative covenant
b.a positive covenant
c.an active covenant
d.none of the above
9) narrbegin: swerling company
swerling company
swerling company is considering a project with the following cash flows.
narrend
what is the net present value of the proposed swerling company project if the discount
rate is 6%?
a.$572
b.$1,572
c.$10,572
d.$100,572
10) in the u.s., firms that need to raise capital externally, prefer to issue
a.common stock
b.preferred stock
c.debt
d.hybrid securities
11) narrbegin: npv profile
npv profile
the figure below shows the npv profile for two investment projects.
narrend
refer to npv profile. whats the irr for project 2?
a.12%
b.14%
c.18%
d.cannot tell from the given information
12) drewfus corp. is currently trading at $30. call options with a strike price of $25 and
6 months to expiration are trading at $7 and call options with a strike price of $35 and 6
months to expiration are trading at $2. if investor andy reutter buys a $25 call and
simultaneously sells a $35 call what is his maximum gain on the position.
a.$10
b.unlimited
c.$3
d.$5
13) a firm may be legally prevented from paying dividends if
a.it has a debt obligation due within the next month
b.its assets are greater than its liabilities
c.it is legally insolvent
d.it needs to save cash for projects