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1) markus needman, inc. just paid a 30% stock dividend to its shareholders. if the price
of the companies shares was $100 before the dividend, what should the price of the
shares be now? if helpful, assume that the company had 500 shares outstanding before
the stock dividend?
a.$100.00
b.$76.92
c.$70.00
d.none of the above
2) the difference between a lockbox system and a mail-based system is
a.that a mail-based system is more secure
b.that a lockbox system is really a post office box that is emptied by the firms bank
c.that a lockbox system requires a larger in-house collection system for the firm
d.none of the above
3) which of the following statements is true?
a.when one writes a naked call option it means they do not own shares of the underlying
stock
b.when one writes a naked call option it means they do own shares of the underlying
stock
c.buying or selling naked options is an example of hedging
d.buying or selling naked options is an example of speculation
e.both (a) and (d) are true
4) narrbegin: bavarian credit terms
bavarian brew credit terms
bavarian brew is producing and selling brewery equipment to microbreweries
nationwide. bavarian is charging $15,000 per unit and all of their sales are on credit.
under the current credit policy bavarian brew expects to sell 500 units. the variable
costs are $6,000/unit and fixed costs are $1,500,000 per year. the company is thinking
about changing their credit terms from net 30 to 3/10 net 30. the effect of this change
would be a 5% increase in unit sales, but also an increase in bad debt expenses from 2%
to 4% of sales. the company expects 75% of its customers to take advantage of the cash
discount. currently the company has an average collection period of 38 days, 30 days
until the customers mail their payments and another 8 days to process the payments
once they arrive. bavarian brews opportunity cost of funds invested in accounts
receivable is 12%.
narrend
what is bavarian brews total variable cost of annual sales under the new credit policy?
a.$3,150,000
b.$3,000,000
c.$2,500,000
d.$3,750,000
5) convertible securities are attractive to venture capital investors because
a.they allow for the venture capitalist to exercise control without majority ownership of
the firms equity
b.they provide seniority for the venture capitalist relative to the entrepreneur
c.they allow the venture capitalist in the upside of firm success
d.all of the above
6) emma plans to buy four-month treasury bills in two months. currently the price on
six-month treasury bills is $975,568 per million. the risk-free rate is 5.4%. what is the
fair forward price per $1 million?
a.$981,477
b.$1,038,347
c.$1,011,398
d.$993,822
7) observing the following term structure; a us treasury bond maturing in 1 year has a
yield of 5% while us treasury bond maturing in 2 years has a yield of 6%; what is the
expected 1 year rate, 1 year from now?
a.7.00%
b.7.01%
c.7.30%
d.5.66%
8) an important consideration in the lease versus purchase decision is
a.the loss of the depreciation tax shield if leased
b.the benefit of the lease payment as a tax deduction
c.the effect on financial structure and future funding needs
d.all of the above
9) 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 increase in bad debt expense?
a.$2,200,000.00
b.$ 176,000.00
c.$ 396,000.00
d.$ 220,000.00
10) a project generates the following sequence of cash flows over two years:
assume that cash flows after the second year grow at 2% annually in perpetuity, and the
discount rate is 12%. what is the npv of the project?
a.$56.4m
b.$54.8m
c.$47.7 m
d.$50.4m
11) a producer of specialty electronic components is located in arkansas, while many of
its customers are located in california, texas, and florida. this company may seek to use
a.electronic invoice presentment and bill paying
b.lock boxes
c.concentration banks
d.all of the above
12) if an outside party files a bankruptcy petition on a firm that owes the outside party a
debt, then that is called
a.a voluntary reorganization
b.an involuntary reorganization
c.a liquidation
d.none of the above
13) some individuals and families buy staple items such as paper goods from warehouse
clubs in large quantities. in such a situation, what is an example of holding costs?
a.there are no holding costs
b.the opportunity cost associated with having your money tied up in inventory
c.the transportation costs of going to the store
d.both (b) and (c)
