1) private debt can take the form of
a.a private debt agreement arranged between corporate borrowers and financial
institutions
b.an unregistered security offering sold directly to accredited investors
c.both a and b
d.none of the above
2) narrbegin: bavarian brew
bavarian brew
bavarian brew, an unlevered firm, has an expected ebit of $500,000. the required return
on assets for the firms assets is 10%. the company has 250,000 shares outstanding. the
company is considering raising $1 million in debt with a required return of 6% and
would use the proceeds to repurchase outstanding stock.
narrend
what is the value of bavarian brew after the restructuring, if the pv of bankruptcy cost is
$750,000? assume a corporate tax rate of 34%.
a.$5,000,000
b.$5,340,000
c.$4,590,000
d.$4,250,000
3) relative operating costs are reduced for merged companies because of an increase in
size that allows for the reduction or elimination of overlapping resources
a.economies of scale
b.economies of scope
c.resource complementarities
d.synergy
4) roxy international has earnings per share of $4.05; just paid dividend $2.03 and
expects a roi next year (and the foreseeable future) of 15%. if the stock has a beta of
1.1, and the current risk -free and market premium is 4% and 5% respectively, what is
the intrinsic value of the stock?
a.$108.093
b.$100.569
c.$72.729
d.not enough information
5) narrbegin: swerling company
swerling company
swerling company is considering a project with the following cash flows.
narrend
what is the profitability index of the proposed swerling company project if the discount
rate is 6%?
a..03
b.1.03
c.2.03
d.3.03
6) shareholders are said to have a residual claim on the firms assets. what does this
mean?
a.shareholders have limited liability in their investment
b.shareholders do not receive any payoff from the firm until all creditors are paid
c.shareholders are allowed to recover their investment first if the firm experiences
financial distress
d.shareholders have priority in electing the board of directors for the firm
7) for most firms the principle reason for hedging is
a.to reduced the likelihood of financial distress
b.to comply with sec regulations concerning firm risk tolerances
c.to satisfy the owners of the firms shares
d.to satisfy the owners of the firms debt
8) the debtor in possession (dip) is
a.the lenders who are owed money by the bankrupt firm
b.the trustee of the bankrupt firm
c.the bankrupt (filing) firm
d.none of the above
9) the little toy company will start doing business in february and needs to forecast its
total cash receipts for april. its projected total sales are $15,000, $20,000, and $25,000
for february, march and april, respectively. little toy anticipates that 50% of sales will be
for cash and 1/2 of credit sales will be collected the month after sale with the remained
being collected 2 months after the sale. what the forecasted cash receipts to little toy in
april?
a.$21,250
b.$17,500
c.$8,750
d.none of the above
10) the responsibility to assess the feasibility of a strategic plan given a firms existing
and prospective sources of funding falls primarily to the
a.senior management of the firm
b.finance function within the firm
c.accounting function within the firm
d.marketing function within the firm
11) when you retire you expect to live for another 30 years. during those 30 years you
want to be able to withdraw $45,000 at the beginning of each year for living expenses.
how much money do you have to have in your retirement account to make this happen.
assume that you can earn 8% on your investments.
a.$1,350,000.00
b.$506,600.25
c.$547,128.27
d.$723,745.49
12) consider a project with the following stream of cash flows.
whats the irr of the project? if a firms cost of capital is 15%, should the firm accept the
project?
a.10%, 25%, 50%; accept the project
b.10%, 25%, 50%; reject the project
c.0%, 10%, 25%, 50%; accept the project
d.10%, 25%; accept the project
13) would it be reasonable for a successful manufacturing firm, started as a sole
proprietorship or partnership to eventually adopt the corporate organizational form?
a.no, the tax burden (double taxation) is too costly
b.no, the reporting burdens are too costly
c.no, once started as a sole proper ship or partnership, firms are not allowed to change
their form
d.yes, the competitive disadvantages to sole proprietorship or partnership are too
burdensome
14) shelf registration is popular because:
a.the securities can ‘remain on the shelf’ for a decade before they expire
b.only one sec registration needs to be filed for the securities a company “places on the
shelf.”
c.firms can take issue securities “off the shelf” in response to changes in market
conditions
d.all of the above
e.both (b) and (c)
15) if you hold the annual percentage rate constant while increasing the number of
compounding periods per year, then
a.the effective interest rate will increase
b.the effective interest rate will decrease
c.the effective interest rate will not change
d.none of the above
16) the decision as to whether or not a firm will pay dividends is explicitly made by the:
a.stockholders
b.bondholders
c.board of directors
d.chief financial officer
e.chief executive officer
17) the average price at which a futures contract sell at the end of the trading day is
called the
a.opening price
b.closing price
c.settlement price
d.lifetime price