1) what type of corporation allows shareholders to be taxed as partners while retaining
their limited liability status?
a.j corporation
b.llp corporation
c.s corporation
d.series 6 corporation
2) a firm that tends to finance permanent assets with long-term debt and seasonal assets
with short-term borrowing is following
a.an aggressive financing strategy
b.a conservative financing strategy
c.a matching financing strategy
d.none of the above
3) emma international is considering easing credit standards to increase sales, and
potentially profits. currently the firm sells 500,000 units at a sales price of $22 per unit
and variable cost of $13 per unit. currently the average collection period is 25 days and
the bad debt expense is 2% of sales. the required return on investment is 12%. if credit
standards are eased, the sales will increase to 600,000 units; the acp will increase to 35
days; and the bad debt expense will increase to 3% all else will remain the same. what
is the profit (or loss) associated with easing credit standards?
a.$724,000.00
b.$511,671.23
c.$212,328.77
d.$687,671.23
4) a preauthorized electronic withdrawal for the payers account is known as
a.a depository transfer check
b.an automated clearinghouse debit transfer
c.a wire transfer
d.none of the above
5) a firm has just instituted a regular dividend for the first time in its history. that action
might be interpreted in the market as
a.a signal the it believes that it will be able to permanently sustain the future dividends
b.a signal that its growth opportunity set might be slowing
c.a signal that it is a high quality firm
d.all of the above
6) when determining the stock price if a firm never plans to pay a dividend:
a.then it cannot have value
b.then there must be an expectation that the firm will distribute cash to the investors at
some point in the future
c.a very precise process is used that requires little in terms of future estimates of cash
flows
d.all of the above
e.none of the above
7) which of the following is not a stakeholder?
a.competitors
b.tax collection agencies
c.suppliers
d.customers
8) narrbegin: polyana
polyana shoe store
the polyana shoe store had sales last year of $50,000,000 based upon a cost of goods
sold of $40,000,000. polyana also has inventory, accounts receivable, and accounts
payable of $5,000,000, $7,000,000, and $9,000,000, respectively.
narrend
what is polyanas average age of inventory?
a..125 days
b.8.000 days
c.36.500 days
d.45.625 days
9) the accounting rate of return:
a.uses net cash flows
b.does not take into account the time value of money
c.uses an objectively determined hurdle rate
d.all of the above
10) 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 $14 a share.
narrend
for smith and miller, what is the value of the post merger firm if cash is used?
a.$-5,000
b.$725,000
c.$720,000
d.$250,000
11) what is the value of the transaction at the time of the offer for milner
manufacturing?
a.$87,500,000
b.$33,000,000
c.$50,000,000
d.$57,750,000
12) narrbegin: earthcom
earthcom
on october 4th, 2000, long distance company, earthcom, issued bonds to finance a new
wireless product. the bonds were issued for 30 years (mature on october 4th, 2030),
with a face value of $1,000, and semiannual coupons. the coupon rate on these bonds is
8% apr. over the last 4 years, the company has experienced financial difficulty as the
long distance market has grown more competitive.
narrend
refer to earthcom. suppose that today (october 4th, 2002), earthcom admits to fraud in
reporting revenues over the last 3 years. the price of earthcom immediately tumbles to
$500. what is the new yield-to-maturity on earthcom bonds? (express as an apr)
a.16.04%
b.16.21%
c.18.12%
d.20.77%
13) a new one-year bond pays interest of 1.04%. a new two-year bond pays interest of
1.46%. using expectations theory of term structure and assuming the market is in
equilibrium, what interest rate does the market expect a new one year bond to have one
year from now?
a.0.42%
b.1.18%
c.1.25%
d.1.88%
14) if you were to purchase the shares of a firm one month after its ipo as well as the
shares of a comparable sized (matched) firm on the same day and then hold both shares
for five years, you would expect
a.that the return of the ipo firms stock to be greater than that of the matched firm
b.that the return of the matched firms stock to be greater than that of the ipo firm
c.that the return of the two stocks to be equal
d.that since the two firms are likely to be uncorrelated the relation cannot be predicted
15) a financial publication states that stone cold stock had a return of 15% last year. if
the price of stone cold went from $20 to $20.75 over the last year, what dividend was
paid?
a.$2.00
b.$2.15
c.$2.25
d.$2.36
16) the process of identifying firm-specific risk exposures and managing those
exposures is called
a.capital management
b.risk management
c.financial management
d.none of the above