FE 801 Quiz | Course Paper

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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