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1) an unsecured bond that only creditworthy firms can issue is called a
a.mortgage bond
b.collateral trust bond
c.debentures
d.junk bond
2) a firm has a capital structure containing 40 percent debt, 10 percent preferred stock,
and 50 percent common stock equity. the firms debt has a yield to maturity of 9.50
percent. its preferred stocks annual dividend is $7.50 and the preferred stocks current
market price is $50.00 per share. the firms common stock has a beta of 0.90 and the
risk-free rate and the market return are currently 4.0 percent and 13.5 percent,
respectively. the firm is subject to a 40 percent marginal tax rate. what is the wacc for
the firm?
a.8.75%
b.8.93%
c.9.16%
d.10.06%
3) a brochure for an investment company reports average nominal returns of 9% per
year. if the economy has averaged 3% inflation over these years, what is the average
real return for this investment company?
a.3.00%
b.5.83%
c.6.00%
d.9.00%
4) most venture capital firms invest capital in order to purchase
a.equity of the entrepreneurial firm
b.debt of the entrepreneurial firm
c.an investment that is convertible into common stock of the entrepreneurial firm
d.none of the above
5) a tips bond issued by the treasury department was issued with an annual coupon of
5%. the bond has a par value of $1,000 and will mature in 10 years. suppose that
inflation during the first year of the bonds life was 3%. what is the new coupon
payment for this bond?
a.$50.97
b.$51.50
c.$53.00
d.$81.50
6) which of the following accounts for the largest portion of trading volume in the
foreign exchange markets?
a.exporters
b.importers
c.investors
d.governments
7) roxy bonds will mature in 16 years; the coupon rate of the bond is 5% paid
semiannually, if bonds currently sell for $1180 what is the bonds current yield?
a.1.76%
b.3.52%
c.2.12%
d.4.24%
8) the current foreign exchange rate is also called the
a.spot rate
b.forward rate
c.main rate
d.none of the above
9) narrbegin: competitive mesh shirts
competitive mesh shirts
competitive mesh shirts is considering a plan to ease its credit terms in order to generate
greater revenues. last year, competitive had sales of 1,000,000 units at a price and
variable cost of $20 and $15, respectively. its current average collection period is 20
days and its percentage of bad debt expense is 2% while it required return on
investment is 10%. if competitive were to ease its credit terms, the firm anticipates that
its sales would increase to 1,200,000 units without a change in price or variable costs.
however, the average collection period is expected to increase to 30 days and bad debt
expense is expected to increase to 3%.
narrend
what is competitives future average investment in accounts receivable?
a.$3,287.67
b.$98,630.14
c.$1,479,452.84
d.not enough information is given
10) to help rank projects in a capital rationing environment, managers often use the:
a.profitability index
b.internal rate of return
c.payback method
d.accounting rate of return
11) narrbegin: npv profile
npv profile
the figure below shows the npv profile for two investment projects.
narrend
refer to npv profile. suppose the two projects require about the same initial investment.
which project generates more cash flows in the early years?
a.project 1
b.project 2
c.there is no difference between the two projects
d.cannot tell from the given information
12) which of the following is not an important consideration when an underwriter is
trying to establish the price for an initial public offering?
a.the underwriters reputation
b.the value of the firm
c.the demand for the securities of the issuer
d.providing the absolute maximum price possible for the issuer of the shares
13) a business with a single owner is called a
a.partnership
b.sole proprietorship
c.corporation
d.limited liability company
14) which of the following credit terms has the highest relevant cost?
a.3/10 net 60
b.2/10 net 30
c.2/15 net 45
d.4/15 net 90
15) bavarian brew has an average age of inventory of 35 days, an average collection
period of 27 days. what is the companys operating cycle?
a.35 days
b.27 days
c.62 days
d.8 days
