1) narrbegin: silly sally
silly sally, inc.
silly sally, inc. forecasts the following sales levels: january, $420; february, $435;
march, $450; and april, $470. historically, 40% of its sales are for cash. of the remaining
sales, 80% are collected in one month, 15% are collected in the second month, while
the rest remain uncollected. november sales were $380 and december sales were $500.
(all values $000)
purchases are made at 60% of the next months sales forecast, and are paid for in the
month of purchase. other cash outlays are: rent, $10 monthly; wages and salaries, $50
monthly; a tax payment of $30 in march; an interest payment of $15 in march; and a
planned purchase of $20 of new fixed assets in january.
narrend
what is silly sallys change in cash for march?
a.$40 increase in cash
b.$40 decrease in cash
c.$85 increase in cash
d.$20 increase in cash
2) if we start with the frictionless markets concerning the irrelevance of dividend policy
and then we introduce personal taxes that are higher for dividends than capital gains
then we would expect
a.for dividends to be less popular
b.for dividends to become even more popular
c.for dividend policy to become even more irrelevant
d.none of the above
3) narrbegin: big thompson credit terms
big thompson industries (bti)
big thompson industries (bti) currently produces and sells 50,000 units of a motor relay
used in high-end electronics. all sales are on credit, for a price of $750 per unit to all
customers. these motor relays incur $525 in variable costs and $3,000,000 in fixed costs
per year. with current credit standards, btis average collection period is 30 days.
managers are considering a relaxation in standards, and forecast a 6 percent increase in
sales, along with an increase in the average collection period to 45 days. additionally,
bad debt expense is expected to increase from 1.5 percent to 2.5 percent of sales.
investments of this type are expected to earn a 14% return. assume a 365 day year
narrendwhat is btis contribution margin?
a.$750 per unit
b.$525 per unit
c.$225 per unit
d.$1, 275 per unit
4) winburn sports & entertainment has an outstanding $1,000 par value bond with a
11% coupon that pays semiannually at the end of each period. the bond matures in nine
years. bonds of similar risk have a required return of 10%. what is the market value of
the winburn bond?
a.$1,035.54
b.$1,057.59
c.$1,058.45
d.$1,073.05
5) since the tax relief act of 2003, if a corporation or partnership has pre-tax earnings of
$110,000 while the corporation is subject to a 35% income tax rate and an investor is
subject to a 35% personal tax rate and a 15% capital gains tax rate, then what is the
advantage to being a partnership (compared to a corporation) if all of the proceeds are
paid out to investors in either legal form?
a.($22,500)
b.$0
c.$10,725
d.$24,725
6) narrbegin: extruded elements
extruded elements
extruded elements had net income of $25,000,000 last year, and $26,250,000 this year
(in line with its long-term earnings growth rate). there are 4,000,000 shares outstanding,
and the firm follows a policy of paying 30% of its earnings out as dividends
narrend
if extruded elements increases its payout ratio to 40% of earnings next year, but its
expected growth rate remains constant, what is its expected dividend?
a.$4.13 per share
b.$2.63 per share
c.$3.94 per share
d.$2.76 per share
7) a 32-inch television sells in the united states for $157. the same television sells in
canada for c$212. what must the exchange rate be for purchasing power parity to hold
in this example?
a.$1.3503/c$
b.c$1.3053/$
c.$0.7406/c$
d.c$0.7406/$
8) an investor that purchases a call option on xyz stock, is hoping that xyz stock price
will:
a.be below the strike price at expiration
b.be above the strike price at expiration
c.be equal to the strike price at expiration
d.none of the above
9) suppose a particular investment project will generate an immediate cash inflow of
$1,000,000 followed by cash outflows of $500,000 in each of the next three years. what
is the projects irr? suppose a companys hurdle rate is 15%, should it accept the project?
a.23%; reject the project
b.23%; accept the project
c.15%; reject the project
d.15%; accept the project
10) let the expected inflation in the united sates be 4% and the expected inflation in
brazil is 7.3 %; also suppose that the united states one-year, risk-free rate is 5% what
must the risk-free rate in brazil be to maintain interest rate parity?
a.12.30%
b.7.67%
c.5.37%
d.8.33%
11) narrbegin: bavarian brewhouse ipo
bavarian brewhouse ipo
bavarian brewhouse is planning an ipo. under the terms of the ipo, bavarian brewhouse
will issue 8 million shares at an offer price of $25 per share. the underwriter charges an
9% underwriting fee and direct costs are estimated to be $7 million. the stock is
expected to trade at $30 at the end of the first trading day.
narrend
refer to bavarian brewhouse ipo. what are the total costs caused by underpricing?
a.$8 million
b.$40 million
c.$32 million
d.$25 million
12) emma international has a lease with payments of $500,000 made at the beginning of
each year. if no purchase option exists, and the company is in the 40% tax bracket, what
is the annual after-tax cash outflow on the lease?
a.$500,000
b.$100,000
c.$200,000
d.$300,000
13) which of the following statements are true?
statement i:as you increase the interest rate, the future value of an investment increases.
statement ii:as you increase the length of the investment (to receive some lump sum),
the present value of the investment increases.
statement iii:the present value of an ordinary annuity is larger than the present value of
an annuity due. (all else equal)
a.statement i only
b.statements i and ii
c.statement ii only
d.statements i and iii only