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1) a voluntary reorganization of debts whereby a firms debt obligations are reorganized
according to a creditors pro-rata share of the debting firms total debt, is called
a.a composition
b.an extension
c.creditor control
d.none of the above
2) narrbegin: exhibit 17-1
exhibit 23-1
s&p 500 index; $250 index may 2004
narrend
refer to exhibit 23-1. what is the highest value at which the june contract has ever been
quoted?
a.$257,150
b.$207,262
c.$261,050
d.$278,695
3) emma bonds will mature in 8 years; the coupon rate of the bond is 6% paid
semiannually, if the discount rate is 9% what is the bonds current yield?
a.4.47%
b.4.53%
c.7.22%
d.6.00%
4) narrbegin: stock returns
narrend
what is the average return for stock a?
a.12.6%
b.13.8%
c.5.00%
d.8.26%
5) narrbegin: bavarian brew lease
bavarian brew lease
bavarian brew wants to lease a new bottling machine. the company obtains a 10 year
lease requiring annual payments of $15,000 at the beginning of the year. the firm is
expected to exercise its option to purchase the machine at the termination of the lease
for $10,000 at the end of year 10. the company is in the 35% tax bracket.
narrend
what is the annual after tax cash flow for bavarian brew from the lease?
a.$15,000
b.$9,750
c.$5,250
d.$12,550
6) consider a forward contract to buy a ten-year bond in one year; currently the
eleven-year bond has a coupon rate of 6%, paid semi-annually with a price of $980. the
current and effective risk-free rate of interest is 5%. what is the fair forward price?
a.$1,029.05
b.$969.05
c.$933.33
d.$968.26
7) pink sheets refer to:
a.the confirmation notice an investor receives notifying them that their transaction has
occurred
b.the unregulated section of the market where companies are not required to file with
the sec
c.an electronic quotation system linking the market makers that trade the shares of
small companies that is regulated by the sec
d.the biggest dealer market that uses an electronic trading system to facilitate dealer
transactions.
e.none of the above
8) what is the most important federal law regarding the issue of new securities?
a.securities act of 1923
b.securities act of 1933
c.securities act of 1943
d.securities act of 1953
9) a negative cash conversion cycle basically means
a.the firm is illiquid, with serious cash flow problems
b.the firm collects on sales more slowly than it pays its payables
c.the firm collects on sales more quickly than it pays its payables
d.the firms current cash balance is negative
10) narrbegin: bavarian merger
bavarian merger
bavarian brew is planning on acquiring bavarian sausage in a pure exchange merger.
bavarian brews stock is currently trading at $35 and they set the exchange ratio at 0.80.
bavarian sausage has 75 million shares outstanding which are currently trading at $18 a
share.
narrend
how many shares will bavarian brew issue in exchange for bavarian sausages shares.
a.75 million
b.60 million
c.100 million
d.50 million
11) the yield curves typical shape suggests
a.short term debt will carry higher interest rates than long term debt
b.short term debt will carry about the same rates as long term debt
c.short term debt will carry lower rates than long term debt
d.nothing about the differences in rates due to maturity difference
12) roxy incorporated expects non-normal dividend growth over the next three years;
that is a 20% growth rate for three years followed by growth of 10% thereafter. if the
last dividend paid was $3.00 and the appropriate discount rate is 16%; what is the price
of the stock today?
a.$ 73.24
b.$ 95.04
c.$ 70.10
d.$ 60.89
13) a newly appointed cfo of a company tells you that he needs to determine the
required return on unlevered equity should his firm completely deliver. he further tells
you that the required return on assets is 10% and that his cost of debt is 3% based upon
a current borrowed amount of $50,000,000 but he doesnt know the market value of his
equity. what is the required return on equity should his firm eliminate all of its debt?
a.10.0%
b.11.5%
c.13.0%
d.it is impossible to tell
14) if the standard deviation of a diversified portfolio is 20% and if the stocks in that
portfolio are positively correlated, then what would we expect the average standard
deviation of stocks in that portfolio to be?
a.less than 20%
b.20%
c.greater than 20%
d.you would need to know the percentage of each stock invested in that portfolio to
determine the answer
15) roxy internationa is considering retiring a $280 million bond issue sold to the public
15 years ago. the original maturity was 25 years. if the bonds were initially sold at 98,
then what is the after-tax cash flow effect, today, of the accelerated amortization if roxy
is in the 35% marginal tax bracket?
a.$224,000
b.$1,960,000
c.$784,000
d.$78,400
16) 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 8%; what is the
expected 2 year rate, 3 years from now?
a. 3.07%
b. 8.07%
c. 2.36%
d. 4.35%
17) emmacat industries estimates that the scratching post project wonder post will have
the following end of the year cash flows. what is the present value of the inflows of
wonder post if the annual rate of interest is 10% compounded continously?
a.$3,102.32
b.$3,199.11
c.$3,208.22
d.$3,206.73
18) which of the following statements is true?
a.because expected returns on stocks exceeds expected returns on bonds, stocks should
actually outperform bonds in any given year
b.because expected returns on stocks exceeds expected returns on bonds, it is more
reasonable to expect that stocks will outperform bonds in any given year
c.expected return is the return one will actually receive
d.both (a) and (c)
e.all of the above statements are true
19) burdell scientific incorporated finances its operations with $40 million in stock with
a required return of 12 percent and $10 million in bonds with a required return of 6
percent. suppose the firm issues $15 million in additional bonds at 8 percent, using the
proceeds to retire $15 million worth of equity. if the wacc remains the same, what will
be the firms new cost of equity? (assume zero taxes and perfect capital markets)
a.15.60%
b.15.00%
c.14.40%
d.13.80%
20) the risk-free rate is 5% and the expected return on the market portfolio is 13%. a
stock has a beta of 0, what is its expected return?
a.0%
b.5%
c.13%
d.none of the above
