1) bavarian sausage just paid a $1.57 dividend. if the required return on the stock
investment is 14%, and the stock currently sells for $34.37, what is the implied
dividend growth rate for this company?
a.9.02%
b.6.39%
c.12.68%
d.9.43%
2) if we start with the m&m perfect capital markets assumption and then relax the no
tax assumption on corporations, then we would expect for firms that go from no
leverage to some leverage to
a.have the levered version of the firm at least as valuable as the no-leverage firm
b.have the no-leverage version of the firm at least as valuable as the levered firm
c.change in value depending upon the level of personal taxes
d.none of the above
3) the following information is given on three mutually exclusive projects. assume a
cost of capital of 15%. which project has the highest pi?
a. project 1
b.project 2
c.project 3
d.all projects
4) smith enterprise has a one year credit line of $5,000,000 with second bank. on
average smith uses half of the credit line. second bank charges a .67% commitment fee
on the unused portion of the line and the interest rate is set at libor +2%. assuming that
the libor is currently at 4.3%, what is smiths effective borrowing rate?
a.6.97%
b.6.30%
c.7.21%
d.5.98%
5) your friend wants you to invest in his new sporting goods store. for an initial
investment, he will pay you $2,000 per year for the next twenty years. all payments are
at the end of the year. you realize that this is a very risky investment and want a 20%
return on each invested dollar. how much are you willing to loan him today for his new
store?
a.$5,946
b.$9,739
c.$10,000
d.$17,027
6) suppose a particular investment project will require an initial cash outlay of
$1,000,000 and will generate a cash inflow of $500,000 in each of the next three years.
what is the projects irr? suppose a companys hurdle rate is 15%, should it accept the
project?
a.23%; reject the project
b.23%; accept the project
c.15%; reject the project
d.15%; accept the project
7) you own 100 shares of a stock with a current price of $50 and you also own a put
option of 100 shares of the stock with a strike price of $45. what is the minimum value
of your portfolio at expiration? ignore the original cost of the put option for your
calculation.
a.$50
b.$45
c.$5
d.$0
8) old balance common stock has a par value totaling $12,000,000, additional
paid-in-capital totaling $30,000,000 as well as retained earnings of $40,000,000. if old
balance is located in a state where the most stringent capital-impairment restrictions
exist, what is the maximum dividend that old balance could pay to its shareholders?
a.$82,000,000
b.$70,000,000
c.$40,000,000
d.$30,000,000
9) widgetmaker has discovered that its fixed costs are $100,000 per month. if
widgetmaker sells its widgets for $35 per unit based upon a cost of $15 per unit to
manufacture (variable costs) then how many widgets per year must widgetmaker sell in
order to break-even?
a.5,000
b.34,286
c.60,000
d.none of the above
10) diversifying among different suppliers is an example of:
a.capital budgeting
b.financial management
c.external financing
d.risk management
e.corporate governance
11) you notice that you can purchase an option for $5. the price of the underlying stock
is currently $42. what is the option premium for this option?
a.$5
b.$37
c.$42
d.$47
12) the result that dividend policy is irrelevant can be critiqued if we consider
a.differential tax rates between dividends and capital gains
b.that certain shareholders would rather receive dividends instead of capital gains
c.that shareholders do not have the ability to produce their own dividends
d.all of the above
13) stanley saeli is an investor who is bullish on lsl corporation. currently, lsl corp. is
trading at $51. to profit from his position, saeli decides to sell put options on lsl corp.
that have a strike price of $45 and 1 year until expiration. the premium that he would
receive on the option is $2.50. what is the most that saeli can expect to gain per put
option?
a.$6
b.$45
c.$2.50
d.$42.50
14) bilbao vizgaggins owns shares in a company that does not pay dividends.
unfortunately, vizgaggins requires a $100,000 dividend this period. if vizgaggins owns
10,000 shares in the company and they are worth $200 per share, what can he do to
produce the effect of the required dividend (ignore all tax effects)?
a.sell 500 shares of his stock
b.sell 5000 shares of his stock
c.buy 500 more shares of the stock
d.there is nothing that he can do