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1) suppose that over the last 30 years, company abc has averaged a return of 10%. over
the same period, the treasury bond rate has averaged 3%. the current estimate of the
treasury bond rate is 5%. using the historical approach, what is the estimate of abcs
expected return.
a.13.0%
b.12.5%
c.12.0%
d.11.0%
2) which of the following is not a benefit of using eipp in the business-to-business
market?
a.reduced float to the receiving party
b.lower cost of receivables processing for the receiver and payment initiation and
reconciliation costs for the payer
c.better forecasting for both receiver and payer
d.lower cost of receivables processing for the payer and payment initiation and
reconciliation costs for the receiver
e.all of the above are benefits
3) narrbegin: abc corporation
abc corporation
abc corporation has a capital structure that consists of $20 million in debt and $40
million in equity. the debt has a coupon rate of 10%, while the industry return on equity
is 15%. abc corporation is unsure of the state of the economy in the next year. the tax
rate facing the company is 40%.
narrend
refer to abc corporation. the company is considering the issue of $10 million in new
debt at a rate of 10%. the funds from the new debt will be used to retire $10 million in
equity. currently, there are 1 million shares outstanding trading at $40 per share.
assuming the stock price will remain the same, what is the expected earnings per share
in the next year if the company goes through with the re-capitalization?
a.$1.32
b.$1.56
c.$1.68
d.$1.76
4) in the equation below, the exponent 3 represents
$133.10 = $100 (1 + .1)3
a.the future value of an investment
b.the present value of an investment
c.the annual rate of interest paid
d.the number of periods that the present value is left on deposit
5) smith enterprises stock currently sells for $17.50. a call option on the stock has a
strike price of $15 and currently sells at $4.50. what is the time value of the option?
a.$2.50
b.$0
c.$2.00
d.$4.50
6) if you have an decrease in accounts recieveable of $10,000; an increase in inventory
of $15,000; and an increase in accounts payable of $4,000, what is the change in net
working capital?
a. $ 9,000.00
b. $ (1,000.00)
c. $ 1,000.00
d. $ (19,000.00)
7) having acquired great fortune based on your mastery of finance, you decide to set up
a charity. you'd like to give the finance department of your alma mater $100,000 next
year, and you want to make an annual contribution in perpetuity, with each years
contribution growing by 4%. the university can generate an 8% return on invested
capital. what is the value of a lump-sum donation needed today to accomplish this?
a.$3,561
b.$833,333
c.$1,250,000
d.$2,500,000
8) financial distress can lead to financial and operating "games." which of the following
statements is (are) true?
a.a firm's stockholders may prefer that the firm engage in riskier projects whereas the
firm's bondholders may prefer that the firm invest in low-risk projects
b.the firm may underinvest in projects because the financing must be provided solely by
the stockholders since it is unlikely the firm will be able to borrow additional funds
c.the firm may underinvest in projects because the financing must be provided solely by
the bondholders since it is unlikely the firm will be able to issue additional stock
d.a firm's bondholders may prefer that the firm engage in riskier projects whereas the
firm's stockholders may prefer that the firm invest in low-risk projects
e.both (a) and (b)
9) which party is responsible for filing a reorganization plan to the court in a case of
bankruptcy?
a.the shareholders
b.the debtholders
c.the debtor in possession
d.all of the above
10) narrbegin: bavarian brew eps
bavarian brew eps
bavarian brew, an unlevered firm, has a perpetual ebit of $500,000. the required return
on assets for the firms assets is 10%. the company has 250,000 shares outstanding,
trading at $20 per share. the company is considering raising $1 million in debt with a
required return of 6% and would use the proceeds to repurchase 50,000 shares of
outstanding stock.
narrend
what are bavarian brews earnings per share before the restructuring assume corporate
taxes of 34%
a.$1.32
b.$1.35
c.$1.42
d.$1.45
11) narrbegin: bavarian brew
bavarian brew
bavarian brew, an unlevered firm, has an expected ebit of $500,000. the required return
on assets for the firms assets is 10%. the company has 250,000 shares outstanding. the
company is considering raising $1 million in debt with a required return of 6% and
would use the proceeds to repurchase outstanding stock.
narrend
what is the bavarian brews required return on levered equity after the restructuring?
a.10.25%
b.10.92%
c.6.00%
d.12.75%
12) narrbegin: smith-miler merger
smith-miler merger
smith enterprises can acquire miller, inc for $250,000 in either cash or stock. both
companies are 100% equity financed. the synergy value of the acquisition for smith is
$35,000. currently smith has 25,000 shares outstanding which trade at $29 a share,
whereas miller has 15,000 shares outstanding that trade at $14 a share.
narrend
what is the net value of the acquisition to smith if cash is used?
a.$245,000
b.-$5,000
c.-$250,000
d.$5,000
13) narrbegin: bavarian brew
bavarian brew
bavarian brew, an unlevered firm, has an expected ebit of $500,000. the required return
on assets for the firms assets is 10%. the company has 250,000 shares outstanding. the
company is considering raising $1 million in debt with a required return of 6% and
would use the proceeds to repurchase outstanding stock.
narrend
what is the value of bavarian brew after restructuring? assume corporate taxes of 34%.
a.$5,000,000
b.$5,340,000
c.$3,300,000
d.$1,000,000
14) dk corporation currently does not pay a dividend but plans to makes its first
dividend payment of $2 in 3 years, dk then plans to pay 40% of its roe in dividends
once they commence. if the appropriate is discount rate is 20% and dk expects and roe
of 22%, what is the current stock price today?
a.$ 19.27
b.$ 20.42
c.$ 33.29
d.$ 35.29
15) smith enterprises stock currently sells for $17.50. a call option on the stock has a
strike price of $20 and currently sells at $4.50. what is the intrinsic value of the option?
a.$0
b.$2.50
c.$2.00
d.$4.50
16) emma bonds have 12 years to maturity, with a coupon rate of 9%, paid annually; if
the bonds sell for $1050, what is the yield to maturity of emma bonds?
a. 8.33%
b. 9.00%
c. 7.08%
d. 6.05%
17) a person's fico score can range from:
a.300 to 850
b.300 to 800
c.600 to 850
d.300 to 600
18) alotacash venture capital fund wants to average a 45% return on its investments. of
the 12 total investments 3 have failed (i.e a return of -100%), and 6 generated a zero
return. two other projects yielded a return of 70% and 83%, respectively. what has to be
the return on the last outstanding investment in order for alotacash to reach its
investment goal?
a.852%
b.358%
c.687%
d.152%
