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1) suppose david can borrow and lend at the risk-free rate of 5%. which of the
following three risky portfolios should he hold in combination with a position in the
risk-free asset?
a.portfolio with a standard deviation of 16% and an expected return of 12%
b.portfolio with a standard deviation of 20% and an expected return of 16%
c.portfolio with a standard deviation of 30% and an expected return of 20%
d.he should be indifferent in holding any of the three portfolios
2) narrbegin: abc corporation
abc corporation
abc corporation has a capital structure that consists of $20 million in debt and $40
million in equity. the debt has a coupon rate of 10%, while the industry return on equity
is 15%. abc corporation is unsure of the state of the economy in the next year. the tax
rate facing the company is 40%.
narrend
refer to abc corporation. given the information in the table, what is the expected
earnings per share if the company has 1 million shares outstanding?
a.$1.44
b.$1.56
c.$1.68
d.$1.78
3) which of the following is not one of the five basic corporate finance functions?
a.external financing function
b.capital budgeting function
c.risk management
d.auditing
4) potential problems in using the irr as a capital budgeting technique include:
a.the timing problem
b.multiple irrs
c.the scale problem
d.all of the above
5) hannah monstz is looking to purchase a call option on thomas co., which is currently
trading at $35. the call option has a strike price of $32.50 and has 6 months to
expiration. if the options has a premium of $5, what is hannahs maximum loss on the
position?
a.$5
b.$2.50
c.$32.50
d.$35
6) a projects discount rate
a.must be lower than the cost of funds for the firms current list of projects
b.must be high enough to compensate investors for the projects risk
c.must be higher than the cost of funds for the firms current list of projects
d.none of the above
7) roxy international is considering easing credit standards to increase sales, and
potentially profits. currently the firm sells 2,000,000 units at a sales price of $7 per unit
and variable cost of $5 per unit. currently the average collection period is 35 days and
the bad debt expense is 2% of sales. the required return on investment is 18%. if credit
standards are eased, the sales will increase to 2,500,000 units; the acp will increase to
65 days; and the bad debt expense will increase to 5% all else will remain the same.
what is the new investment in investment in accounts receivable?
a.$ 445,205.48
b.$2,226,027.40
c.$3,116,438.36
d.$1,780,821.92
8) which type of finance position focuses on preparing firm financial plans and the
evaluation of the firms financial ratios?
a.financial analyst
b.capital budgeting analyst
c.cash manager
d.portfolio manager
9) which of the following is false regarding equity capital?
a.common stock holders bear most of the firms business and financial risk
b.preferred stock holders receive a fixed annual payment on their invested capital
c.common stock holders have ownership in the firm by voting for the firms
management
d.preferred stockholders can force the firm into bankruptcy if dividend payments are
not paid
10) a particular stock has a beta of 1.4 and an expected return of 13%. if the expected
risk premium on the market portfolio is 6%, whats the expected return on the market
portfolio?
a.10.6%
b.4.6%
c.8.4%
d.9.3%
11) narrbegin: smart hh measures
smart products
suppose smart products has three divisions which contribute 40, 35, and 25 percent each
to its revenues.
narrend
now suppose smart products acquires a competitor of one of its divisions and the new
shares of revenues are 60, 25, and 15 percent. is smart products more or less focused?
a.less focused; the hi increases to 0.445
b.less focused; the hi decreases to 0.25
c.more focused; the hi decreases to 0.25
d.more focused; the hi increases to 0.445
12) according to historical data, in the last 106 years returns on stocks in the u.s. have
been negative about ____ of the time.
a.50%
b.20%
c.26%
d.42%
e.33%
13) capital budgeting is the single most important activity of the firms financial
manager. which of the following is not a part of the capital budgeting process?
a.identifying potential investments
b.identifying investments that create shareholder value
c.developing new products
d.implementing and monitoring the selected investments
14) which law did congress pass in 2002 to enforce ethical behavior in corporate
finance?
a.the jobs and growth relief reconciliation act
b.the financial services modernization act
c.the patriot act
d.the sarbanes-oxley act
15) narrbegin: running shoes, inc.
running shoes, inc.
running shoes, inc. has 2 million shares of stock outstanding. the stock currently sells
for $12.50 per share. the firms debt is publicly traded and was recently quoted at 90%
of face value. it has a total face value of $10 million, and it is currently priced to yield
8%. the risk free rate is 2% and the market risk premium is 8%. youve estimated that
the firm has a beta of 1.20. the corporate tax rate is 40%.
narrend
refer to running shoes, inc. what is the cost of equity?
a.9.20%
b.9.60%
c.10.40%
d.11.60%
16) lauri mazurek buys a call option on piede inc. currently piede inc. trades at $65 per
share. the call option she buys has a strike price of $70 and has a premium of $4. what
is mazureks breakeven price?
a.$66
b.$70
c.$69
d.$74
17) miller juice, inc. is expected to pay a $3.00 dividend next year and a $4 dividend in
two years. after that, dividends are expected to grow at 5% forever. if investors require
a return of 12% on the investment, what should miller juice stock sell for today?
a.$60.00
b.$54.15
c.$49.39
d.$53.70
18) smart products is considering changing its credit terms from net 30 to 2/10 net 30.
the firms financial managers need to evaluate
a.the increased investment in accounts receivable due to increased sales
b.the reduced level of bad debt expense as customers pay sooner
c.the increased contribution margin as customers pay sooner
d.all of the above
19) what are the responsibilities of the board of directors in a corporation?
a.hire and fire managers
b.manage day-to-day operations
c.amend the firms corporate charter when necessary
d.hire and fire entry level employees
