1) roxy international needs $200 million in new equity capital; currently shares are
trading at $50 per share. morgan steely (the investment banker) requires a 6% spread of
the offer price which will be $45 per share and is fully subsribed at that price. the fixes
costs (legal, accounting, etc.) are estimated at $750,000. what is the net price per share
the firm will receive?
a.$47.00
b.$42.00
c.$45.00
d.$42.30
2) narrbegin: total cash budget
bavarian brews schedule of projected cash disbursement
all of bavarian brews sales are credit sales. the company collects 60% of its sales in the
next month and the remainder in the month after that.
the companys purchases are 75% of its sales. of those purchases 15% are paid in cash,
50% are paid in the following month and the remainder in the month after that. the
companys wages and salaries equal 15% of sales each month plus $50. taxes of $125
are due in april. the company is going to purchase new machinery worth $1000 in
march and pay 50% right away and the rest in april. in addition, the company will pay a
$175 dividend in february.
narrend
if bavarian brew starts the year with a cash balance of $500, what is the cash balance at
the end of january? assume that december sales were $450 and november sales were
$550.
a.$483
b.$493
c.$497
d.$500
3) narrbegin: gamma electronics
gamma electronics
gamma electronics is considering the purchase of testing equipment that will cost
$500,000 to replace old equipment. assume the new machine will generate after-tax
savings of $250,000 per year over the next four years.
narrend
refer to gamma electronics. whats the payback period for the investment?
a.1.8 years
b.2.0 years
c.2.5 years
d.2.8 years
4) suppose a professional sports team convinces a former player to come out of
retirement and play for three seasons. they offer the player $2 million in year 1, $3
million in year 2, and $4 million in year 3. assuming end of year payments of the salary,
how would we find the value of his contract today if the player has a discount rate of
12%?
a.pv =
b.pv =
c.pv =
d.pv =
5) a bond sold by foreign corporations to u.s. investors is called a(n)
a.eurobond
b.foreign bond
c.yankee bond
d.none of the above
6) gamma electronics is considering the purchase of testing equipment that will cost
$500,000. the equipment has a 5-year lifetime with no salvage value. assume the new
machine will generate after-tax savings of $100,000 per year for the five years.
if the firm has a 15% cost of capital, what is the equivalent annual cost of the
equipment?
a.$32,924
b.$42,746
c.$49,158
d.$37,863
7) emma international has earnings per share of $3.29; just paid dividend $1.25 and
expects a roi next year (and the foreseeable future) of 14%. if the stock has a beta of
1.2, and the current risk -free and market premium is 4% and 5% respectively, what is
the intrinsic value of the stock?
a.$ 90.567
b.$ 94.758
c.$ 102.984
d.not enough information
8) a firm has outstanding debt of $100 million. suppose it voluntarily agrees to pay all
creditors in full in six periodic installments. this is
a.an extension
b.a composition
c.a combination of the two in (a) and (b)
d.a cram-down
9) one of the tasks for financial managers when identifying projects that increase firm
value is to identify those projects where
a.benefits are at least equal to the projects costs
b.taking the project will increase the book value of the firms common stock
c.taking the project will decrease the book value of the firms debt outstanding
d.none of the above
10) cashout, inc. has a current share price of $50. if cashout plans to pay a $1 dividend,
then if we ignore the effect of taxes we would expect the price of cashout shares to
change by what amount on the ex dividend date?
a.no change since prices will reflect dividend payments on the announcement date
b.a drop of $1
c.an increase of $1
d.no change since prices are not a function of cash paid to investors
11) narrbegin: needsalift, inc.
needsalift, inc.
you are analyzing the potential acquisition of nothing better! ice creams, inc. by your
firm, needsalift, inc. the ice cream firm is a wholly owned subsidiary of grand lake
investments, which has set a firm selling price of $10,000,000. from your work you
estimate that nothing better! will generate the following incremental cash flows for
needsalift:
to fund the $10 million price, needsalift can use $2 million from internal sources
(retained earnings) with a required return of 15 percent, while the rest would come from
a new debt issue yielding 10 percent. needsalifts tax rate is 40 percent.
narrend
what is the required return on the acquisition of nothing better! for needsalift?
a.15.0%
b.10.5%
c.7.8%
d.11.0%
12) which of the following statements is true?
a.dividend initiations send a weak signal to the market about management’s assessment
of the firm’s long-run ability to general cash
b.dividend initiations send a strong signal to the market about management’s assessment
of the firm’s long-run ability to general cash
c.dividend cuts rarely impact a firm’s stock price
d.dividend increases suggest a temporary increase in a firm’s normal level of
profitability
e.all of the above statements are false
13) based upon a histogram of nominal returns on equities for the last 100 years, we can
conjecture that stock returns follow a ____ distribution.
a.normal
b.skewed
c.uniform
d.binomial
e.none of the above
14) which of the following statements is (are) true?
a.junk bond financing has declined since the 1980s
b.tax considerations may motivate managers to pursue a particular takeover target
c.tax-loss carryforwards can be used to offset taxes due on future income for up to
fifteen years
d.all of the above statements are true
e.only statements (b) and (c) are true
15) roxy is evaluating a treasury bill. it is a $1 million face value with a discount of
2.75% and maturing in 182 days. what is the money market yield?
a.2.789%
b.2.828%
c.2.750%
d.2.788%
16) you are contemplating purchasing a $1,000,000 181 day t-bill that is selling at a
discount of 4.25%. what is the purchase price of the t-bill?
a.$21,368.06
b.$978,631.94
c.$1,000,000
d.$954,621.52
17) purchasing (or procurement) cards are designed to:
a.reduce the cost of low-dollar indirect purchases
b.help combat a common type of check fraud
c.provide a company with outsourcing of its accounts payable or disbursement
operations
d.eliminate nonearning cash balances in corporate checking accounts
18) you want to buy a new plasma television in 3 years, when you think prices will
have gone down to a more reasonable level. you anticipate that the television will cost
you $2,500. if you can invest your money at 8% compounded monthly, how much do
you need to put aside today?
a.$1,895.37
b.$1,968.14
c.$1,984.58
d.$2,158.42
19) you are presented with 4 distinct investment opportunities involving a treasury bill,
a treasury bond, a corporate bond, and a stock. you are told that each of these
investments are expected to produce (after the cash is paid out then no other cash flows
are anticipated) $100 one year from now. which asset should be the least expensive
today, in terms of dollars that you will have to pay for the asset?
a.treasury bills
b.treasury bonds
c.corporate bonds
d.stocks
20) if a company decides to change one input at a time in its net present value analysis,
in order to measure the npv impact of such a change then the firm is performing
a.a monte carlo simulation
b.scenario analysis
c.a sensitivity analysis
d.none of the above