The interest rates we observe in the economy differ from the risk-free rate because of:
A.the real rate of interest.
B.diversification.
C.risk premiums.
D.all the above
Zeta Inc.€s cost of capital is 12% and the risk-free rate is 5%. It plans to invest in a new
project. The cash flow projections ($000) for the project are given below. Calculate the
certainty equivalent NPV ($000).
A.($19.78)
B.$19.78
C.$12.20
D.($12.20)
The stock of a target company is considered “in play” when:
A.an acquiring company begins working on a takeover plan.
B.an acquiring company makes a tender offer.
C.it becomes known that a company is an acquisition target.
D.a tender offer is endorsed by the target’s management.
E.the acquiring company announces that it wants the target company.
Munson Machinery is considering the purchase of a machine that will provide a
positive cash flow of $26,000 in year 1 and $35,000 in years 2 and 3. The cost of
machine disposal is expected to be $1500 at the end of year 3. Munson requires a
fourteen percent rate of return on expansion projects of this nature. What is the most
Munson should pay for the machine?
A.$72,350
B.$82,479
C.$86,005
D.$94,500
A firm’s management is planning to improve inventory turnover to 9.0 next year. Next
year’s revenues are expected to be $150M. The firm’s cost ratio (COGS as a percent of
sales) is 30%. What figure should be planned for next year’s inventory balance?
Calculate using ending balances and the COGS formulation of inventory turnover.
A.$4M
B.$5M
C.$6M
D.$7M
_____ is related to a company’s cost structure rather than to its capital structure.
A.Fixed/variable cost leverage
B.Operating leverage
C.Financial leverage
D.Capital leverage
Which bond rating is below investment grade?
A.B
B.Cbb
C.Aaa
D.Baa
The MIRR is an interest rate that:
A.equates the present value of outflows with the present value of the future value of all
inflows of a project.
B.equates the present value of all cash inflows with the cost of capital of a project.
C.is used to determine the rate of reinvestment of a project with multiple cash outflows.
D.is used to determine the net present value of a project.
The maximization of shareholders wealth is measured by increases in:
A.profits.
B.earnings.
C.stock price.
D.sales.
Call provisions usually arise when the issuing company wants the option to:
A.retire the bonds earlier than planned because it has more capital than it needs.
B.require the retirement of bonds if market interest rates rise substantially above the
coupon rate.
C.retire high interest rate bonds replacing them with lower cost debt when interest rates
drop.
D.refund their debt because interest rates are escalating.
Generally, what minimum level of ownership guarantees control of a firm?
A.10%
B.25%
C.40%
D.51%
The risk remaining after extensive diversification is primarily:
A.unsystematic risk.
B.systematic risk.
C.coefficient of variation risk.
D.standard deviation risk.
Last year Quality’s earnings per share were $2.34 and it paid a dividend of $1.10. What
was Quality’s dividend payout ratio?
A.21.2%
B.42.7%
C.47%
D.53%
A project generates a revenue of $100.00 today for a service to be performed one year
from today at a cost of $110.00. Which discount rate will make the NPV greater than
zero?
A.8% APR
B.9% APR
C.10% APR
D.11% APR
At an effective interest rate of 12%, a single sum invested today will double itself in
approximately:
A.8 years.
B.12 years.
C.6 years.
D.insufficient data to determine answer.
The income statement line item that shows the performance of operating activities
without consideration of financing is:
A.net income.
B.EBIT.
C.EBT.
D.total assets.
A firm has 4 million common shares outstanding and expects earnings of $20 million
next year. If it has a dividend payout ratio of 40%, what will be the yearly dividend per
share for next year?
A.$8 per share
B.$20 per share
C.$1.6 per share
D.$2 per share
Non-amortized debt requires:
A.both interest and principal to be paid annually.
B.principal to be repaid annually and interest to be paid semiannually.
C.interest to be paid regularly and principal to be repaid at maturity.
D.None of the above
____ increases the risk in financial planning.
A.Aggressive optimism
B.Stretch planning
C.Top-down planning
D.Both a & b
E.All of the above
Which of the following is not affected by a change in interest expenses?
A.Gross margin and ROE
B.ROE and EPS
C.EBIT and EBT
D.Gross margin and EBIT