FIN 346 Test 2 | Course Paper

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1) narrbegin: big diesel incorporated

big diesel incorporated

consider the following historical returns for big diesel incorporated:

yearreturn

19995%

20009%

2001-8%

20025%

200320%

narrend

refer to big diesel incorporated. what is the standard deviation of the returns over the

five year time period?

a.8.97%

b.9.25%

c.9.74%

d.10.03%

2) you want to buy a new car. the car you picked will cost you $32,000 and you decide

to go with the dealers financing offer of 5.9% compounded monthly for 60 months.

unfortunately, you can only afford monthly loan payments of $300. however, the dealer

allows you to pay off the rest of the loan in a one time lump sum payment at the end of

the loan. how much do you have to pay to the dealer when the lump sum is due?

a.$14,000.00

b.$21,890.43

c.$25,455.37

d.$22,071.75

3) if a deli meat distributor were to acquire a meat processing plant, that would be an

example of

a.a forward integration merger

b.a backward integration merger

c.a horizontal merger

d.none of the above

4) the good espresso machine, inc. sells 5,000 machines per year. if it typically takes 5

days to process and receive an order, then at what level of inventory should the firm

place an order?

a.2.74 machines

b.13.70 machines

c.68.49 machines

d.684.9 machines

5) which of the following would disqualify a corporation from electing the s corporate

form?

a.there are 82 shareholders

b.the corporation only has one class of stock

c.the corporation is a holding company

d.the corporation eventually expects to be a c corporation

6) which of the following is an example of macro political risk?

a.the current government is overthrown by a radical militia group

b.restricting the amount of assets that steel companies may control in their territories

c.raising the level of taxes for oil firms

d.removing tax subsidies received by paper manufacturers

7) suppose sarah can borrow and lend at the risk free-rate of 3%. which of the following

four risky portfolios should she hold in combination with a position in the risk-free

asset?

a.portfolio with a standard deviation of 15% and an expected return of 12%

b.portfolio with a standard deviation of 19% and an expected return of 15%

c.portfolio with a standard deviation of 25% and an expected return of 18%

d.portfolio with a standard deviation of 12% and an expected return of 9%

8) bavarian sausage just paid a $1.57 dividend and investors expect that dividend to

grow by 5% each year forever. if the required return on the stock investment is 14%,

what should be the price of the stock today.

a.$11.21

b.$18.32

c.$17.44

d.$25.37

9) a firm plans on paying a constant dividend of $2 per share into the foreseeable future.

if investors seek a 12% return to hold the firms stock, what is fair value for the

companys stock?

a.$13.67

b.$15.67

c.$16.67

d.$18.67

10) bavarian sausage wants to issue a 10-year coupon bond. the face value of the bond

is $1,000 and the bond makes semiannual coupon payments. outstanding bavarian

sausage 8% bonds with a remaining maturity of 10 years are currently trading at

$1,145. these bonds also have a face value of $1,000 and make semiannual payments. if

bavarian sausage wants the new bonds to sell at par, what should be the coupon rate on

these bonds?

a.8.00%

b.6.05%

c.7.25%

d.9.35%

11) you are a financial manager with jcn, co. and you have used a forward contract to

hedge a yen 100,000,000 payment the company expects to receive in 90 days. your

contract calls for you to deliver yen at 109.75 yen per u.s. dollar. suppose the spot rate

at that time is 111.25 yen per u.s. dollar. did you gain or lose on the hedge? how much?

a.gain, $66,666.67

b.loss, $66,666.67

c.gain, $12,285.33

d.loss, $12,285.33

12) the term that describes winding up a firm’s operations, selling off its assets, and

distributing the proceeds to creditors is

a.voluntary reorganization

b.composition

c.liquidation

d.workout

e.none of the above

13) when a firm operates at less than full capacity

a.managers should charge the cost of accelerating new capacity development against the

current proposal for using excess capacity

b.treating that excess capacity as a free asset is a good idea in both the long- and

short-run

c.treating that excess capacity as a free asset may accelerate the need for more capacity

in the future

d.all of the above are true

e.both (a) and (c) are true

14) narrbegin: exhibit 22-1 liquidation

exhibit 23-1

narrend

if the company has $3,000,000 in funds to distribute to unsecured creditors, what

percentage of their claims are going to be satisfied if case ii occurs?

a.70.59%

b.53.49%

c.100%

d.46.51%

15) louis bonds have 15 years to maturity, with a coupon rate of 4%, paid annually; if

the bonds sell for $1100, what is the yield to maturity of louis bonds?

a.3.15%

b.2.03%

c.4.00%

d.4.26%

16) narrbegin: igbb

its gonna be big (igbb)

its gonna be big (igbb) is seeking venture capital investment of $8 million. the founder

and the venture capital fund agree the firm is worth $15 million today, and the venture

capital investor asserts it requires a 35% (compounded annually) expected return. igbb

and the venture capital investor foresee an ipo in four years, at which time igbb is

expected to be valued at $90 million.

narrend

suppose the venture capital investors share of the equity in igbb is 25%, and that in four

years at the ipo the firm is valued at $120 million. what annual (compounded) return

did the venture capital investor earn?

a.46%

b.39%

c.30%

d.26%

17) a few years after graduating from college, you decide to get an mba. this endeavor

sets you back $100,000 in loans. luckily, you have the option to consolidate these loans

at 5%. you opt for a 30-year payback period with monthly installments due at the end of

each month. what is the monthly payment on the consolidated loan?

a.$536.82

b.$542.10

c.$544.86

d.$3,552.94

18) what is a key provision regarding ceos in the sarbanes-oxley act of 2002?

a.ceos cannot hold options in the firms they direct

b.ceos total compensation cannot exceed a limit set by the sec

c.ceos are personally liable for any mistakes on company financial filings

d.ceos are prohibited from commenting on company filings to the sec

19) your fathers pension recently vested and he is told that if he never works another

day in his life, he will receive a lump sum of $1,500,000 on his 65th birthday (exactly

15 years from today). assume that your father needs to permanently retire today. what

could he sell the rights to his lump sum for, today, if the correct discount rate for such a

calculation is 6%?

a.$625,897.59

b.$1,415,094.34

c.$154,444.15

d.none of the above

20) suppose you plan on buying a stock today and holding it for one year. the stock will

pay you a dividend exactly in one year on the day you will sell. you believe the selling

price in one year will be $27.10, while the stock will also pay a dividend of $2.40 in

one year. if you require 16.60% return to invest in the stock, what is a fair price to pay

today?

a.$25.50

b.$25.30

c.$23.24

d.$21.18