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1) capital budgeting:
a.is the area in which managers have the greatest scope to create (or destroy) value for
shareholders
b.involves identifying potential investments, analyzing those investments and
identifying which of those will create shareholder value and implement and monitor
those investments
c.involves identifying potential investments, analyzing those investments and
identifying which of those are expected to increase net income and implement and
monitor those investments
d.both (a) and (b)
e.none of the above
2) narrbegin: bavarian-bavarian merger
bavarian-bavarian merger
bavarian brew is planning on acquiring bavarian sausage in a pure exchange merger.
bavarian brews stock is currently trading at $45 and they set the exchange ratio at 1.80.
bavarian sausage has 75 million shares outstanding which are currently trading at $23 a
share.
twelve months after the merger bavarian brews stock price drops to $37.
narrend
after the drop in the stock price for bavarian brew, what is the control premium?
a.252.0%
b.189.6%
c.52.6%
d.124.4%
3) if a corporation is looking for a loan that is too large for any one bank to lend to the
corporation, then what type of loan will the firm most likely have to take out?
a.term loan
b.syndicated loan
c.project finance loan
d.none of the above
4) you need to find the price of a european call option on a stock that does not pay
dividends. the current price of the shares are $50 and the strike price on the option is
$50. the expiration date is 3 months from now and the risk-free rate applicable is 10%
per annum. if the standard deviation of the returns on the stock is 20%, what is the price
of a single call option?
a.$6.53
b.$2.91
c.$2.65
d.$2.00
5) if a firm's ending cash balance exceeds the desired minimum cash balance:
a.the firm has an excess cash balance that it can invest in short-term marketable
securities
b.the firm has a short-term financing need that it can meet using notes payable
c.the firm has an excess cash balance that it can meet using notes payable
d.the firm has a short-tern financing need that it can meet using marketable securities
6) the primary role of the cash manager
a.on the collections side is to minimize collection float and to maximize float on the
payments side
b.on the collections side is to maximize collection float and to minimize float on the
payments side
c.on the collections side is to maximize collection float and to maximize float on the
payments side
d.none of the above
7) the time between receipt of the payment and its deposit into the firms account is
a.mail float
b.processing float
c.availability float
d.clearing float
8) which of the following investments would have the highest future value (in year 5) if
the discount rate is 12%?
a.a five year ordinary annuity of $100 per year
b.a five year annuity due of $100 per year
c.$700 to be received at year 5
d.$500 to be received today (year 0)
9) suppose that you estimate d1=$0.72, d2=$0.76, d3=$0.84, and d4=$0.88 for a stock.
you also estimate that, beginning at year 4, dividends will grow continually at a rate of
2% per year. if the required return to hold the stock is 14.6%, what is the stocks current
price?
a.$6.20
b.$6.25
c.$6.30
d.$6.40
10) which of the following statements are correct?
statement i:a change in a bonds interest rate risk has a greater price impact on bonds
with longer maturities.
statement ii:government bonds have lower default risk than corporate bonds or
municipal bonds.
statement iii:trading volume is greater for corporate bonds than government bonds.
a.statement i only
b.statement ii only
c.statements i and ii only
d.statements ii and iii only
11) which of the following is not considered a factor in determining a companys
dividend payout ratio?
a.industry growth rate
b.capital investment needs
c.profitability
d.all of the above
12) you are interested in leasing an automobile for your company. you find that the
lessor is offering you a 5-year lease on a car when the economic life on this car is
considered to be 5.5 years. what type of lease must this be classified as if you agree to
the terms?
a.lease and saleback
b.capital lease
c.operating lease
d.lease of convenience
13) narrbegin: bavarian credit terms
bavarian brew credit terms
bavarian brew is producing and selling brewery equipment to microbreweries
nationwide. bavarian is charging $15,000 per unit and all of their sales are on credit.
under the current credit policy bavarian brew expects to sell 500 units. the variable
costs are $6,000/unit and fixed costs are $1,500,000 per year. the company is thinking
about changing their credit terms from net 30 to 3/10 net 30. the effect of this change
would be a 5% increase in unit sales, but also an increase in bad debt expenses from 2%
to 4% of sales. the company expects 75% of its customers to take advantage of the cash
discount. currently the company has an average collection period of 38 days, 30 days
until the customers mail their payments and another 8 days to process the payments
once they arrive. bavarian brews opportunity cost of funds invested in accounts
receivable is 12%.
narrend
what is bavarian brews cost of the marginal investment in accounts receivables?
a.$96,534
b.$9,653
c.-$13,642
d.$11,584
14) narrbegin: npv profile
npv profile
the figure below shows the npv profile for two investment projects.
narrend
refer to npv profile. if the hurdle rate is 11%, and the two projects are mutually
exclusive, which project should be accepted?
a.project 1
b.project 2
c.both projects
d.neither project
15) which of the following is not part of the procedure for valuing a risky asset?
a.determining the assets expected cash flows
b.choosing a discount rate that reflects the assets risk
c.calculating the present value
d.determining whether the project is mutually exclusive or not
16) the option that gives the owner the right to buy an asset at a fixed price at or before
a certain date is called a
a.put option
b.call option
c.parity option
d.swaption
17) what is most likely to cause a situation where a callable bond will be called by the
issuer?
a.the value of the bond has dropped by a significant amount
b.the yield on the bond has increased by a significant amount
c.the yield on the bond has decreased by a significant amount
d.any of the above
18) the fictitious widget industry is composed of two firms. one firm is a quality firm
and the other is a less-than-quality firm. given the signaling model of dividends, how
might the quality firm convey to the market that it is the quality firm?
a.tell the market (through analysts) that it is the quality firm
b.cut its dividend payment to signal that it has a large number of quality projects on the
horizon
c.increase its dividend payment beyond what the less-than-quality firm could afford
d.there is nothing that the firm could do to address the situation
19) observing the following term structure; a us treasury bond maturing in 5 years has a
yield of 6% while us treasury bond maturing in 3 years has a yield of 4%; what is the
expected 2 year rate, 3 years from now?
a.10.00%
b. 9.07%
c. 8.86%
d. 9.00%
20) narrbegin: bavarian-bavarian merger
bavarian-bavarian merger
bavarian brew is planning on acquiring bavarian sausage in a pure exchange merger.
bavarian brews stock is currently trading at $45 and they set the exchange ratio at 1.80.
bavarian sausage has 75 million shares outstanding which are currently trading at $23 a
share.
twelve months after the merger bavarian brews stock price drops to $37.
narrend
how many shares will bavarian brew issue in the exchange offer?
a.75 million
b.135 million
c.95 million
d.150 million
