1) suppose a firm experiences a seasonal pattern in its sales, in addition to a long-term
upward trend. which of the following financing plans has the potential to be less costly
to the firm?
a.a conservative strategy
b.an aggressive strategy
c.a matching strategy
d.they are equally likely to be low-cost
2) which of the following is the highest in the priority of claims in chapter 7?
a.secured creditors
b.unsecured creditors
c.preferred shareholders
d.common shareholders
3) which statements are true regarding risk and return?
a.statement i only
b.statements i and iii only
c.statements ii and iii only
d.statements i and ii only
4) you estimate the following cash flows for nicks incorporated: d1=$0.83, d2=$0.87,
d3=$0.96, and p3=$27.40. if the required return to hold nicks stock is 15.1%, what is
the price today for nicks stock?
a.$18.31
b.$18.85
c.$19.98
d.$20.35
5) narrbegin: makestuff company
makestuff company
the makestuff companys earnings stream is highly dependent on the cost of a key
commodity input. management believes taxable earnings will be $100,000 if the input
price is low, taxable earnings will be $50,000 if the input price is at a moderate level,
but earnings will be zero if the input price is high. management sees these outcomes as
being equally likely. the company pays a 15% tax rate on the first $50,000 of taxable
earnings, and a 25% rate on all earnings above $50,000.
narrend
what is makestuffs tax liability if the input price is at the moderate level?
a.$7500
b.$10,000
c.$12,500
d.none of the above
6) the relevant tax rate for capital budgeting purposes is the:
a.average tax rate
b.maximum tax rate
c.minimum tax rate
d.marginal tax rate
7) perfect capital markets describe markets without frictions such as
a.taxes
b.trading costs
c.problems transferring information between managers and investors
d.all of the above
8) one of the most time-consuming aspects of preparing for an equity offering is:
a.preparing the necessary documents for filing with regulators
b.putting on the road show so that managers can pitch their business plan to prospective
investors
c.oversubscribing the offering
d.none of the above
9) which form of business organization allows shareholders to be taxed as partners
while still retaining their limited liability status?
a.corporation
b.partnership
c.s corporation
d.sole proprietorship
10) if a venture capital investment contract provides for the protection of the venture
capital groups ownership stake if the firm sells new equity under duress, then the
contract has a(n)
a.demand registration rights provision
b.stock option plan
c.ownership rights agreement
d.ratchet provision
11) if you are looking for the exchange rate to convert u.s. dollars to euros today, then
you would need to be looking at
a.the spot exchange rate
b.the forward exchange rate
c.the future exchange rate
d.the dot exchange rate
12) narrbegin: igbb
its gonna be big (igbb)
its gonna be big (igbb) is seeking venture capital investment of $8 million. the founder
and the venture capital fund agree the firm is worth $15 million today, and the venture
capital investor asserts it requires a 35% (compounded annually) expected return. igbb
and the venture capital investor foresee an ipo in four years, at which time igbb is
expected to be valued at $90 million.
narrend
what share of igbbs equity is necessary for the venture capital investor to achieve its
required return?
a.45%
b.40%
c.35%
d.30%
13) louis internationa is considering retiring a $180 million bond issue sold to the
public 15 years ago. the original maturity was 25 years. if the bonds were initially sold
at 97, then what is the after-tax cash flow effect, today, of the accelerated amortization
if louis is in the 35% marginal tax bracket
a.$ 756,000
b.$ 75,600
c.$1,890,000
d.$ 216,000
14) everything else being equal a higher corporate tax rate…
a.will increase the wacc of a firm with debt and equity in its capital structure
b.will not affect the wacc of a firm with debt in its capital structure
c.will decrease the wacc of a firm with some debt in its capital structure
d.will decrease the wacc of a firm with only equity in its capital structure
15) what are the broad types of capital?
a.equity
b.debt
c.assets
d.both (a) and (b)
16) narrbegin: bavarian brewhouse ipo
bavarian brewhouse ipo
bavarian brewhouse is planning an ipo. under the terms of the ipo, bavarian brewhouse
will issue 8 million shares at an offer price of $25 per share. the underwriter charges an
9% underwriting fee and direct costs are estimated to be $7 million. the stock is
expected to trade at $30 at the end of the first trading day.
narrend
what are the total underwriting fees for this bavarian brewhouse ipo?
a.$18 million
b.$7 million
c.$25 million
d.$10 million
17) which of the following would disqualify a corporation from electing the s corporate
form?
a.there are 82 shareholders
b.the corporation only has one class of stock
c.the corporation is a holding company
d.the corporation eventually expects to be a c corporation
18) a fund based on the efficient market hypothesis is most likely
a.a passive portfolio
b.an active portfolio
c.an index portfolio
d.none of the above