Fin 463 1 emma international is

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1) emma international is considering easing credit standards to increase sales, and

potentially profits. currently the firm sells 500,000 units at a sales price of $22 per unit

and variable cost of $13 per unit. currently the average collection period is 25 days and

the bad debt expense is 2% of sales. the required return on investment is 12%. if credit

standards are eased, the sales will increase to 600,000 units; the acp will increase to 35

days; and the bad debt expense will increase to 3% all else will remain the same. what

is the new investment in investment in accounts receivable?

a.$ 124,657.53

b.$1,265,753.42

c.$ 747,945.21

d.$ 623,287.67

2) a corporate control change like pepsis divestiture of its restaurant holdings is called

a(n)

a.bust-up

b.equity carve out

c.spin-off

d.split-up

3) narrbegin: stock returns

narrend

what is the standard deviation of returns for stock a?

a.8.09%

b.8.08%

c.7.79%

d.6.53%

4) you need to find the price of a european call option on a stock that does not pay

dividends. the current price of the shares are $100 and the strike price on the option is

$80. the expiration date is 9 months from now and the risk-free rate applicable is 8%

per annum. if the standard deviation on the returns on the stock is 50%, what is the

price of a single call option?

a.$19.71

b.$27.20

c.$30.39

d.$36.65

5) a bank that helps firms to acquire external capital is called a

a.commercial bank

b.savings bank

c.investment bank

d.credit union

6) narrbegin: exhibit 7-1

exhibit 7-1

narrend

given exhibit 7-1, what is the expected standard deviation?

a.957.38%

b.1058.69%

c.49.27%

d.32.54%

7) ddp enterprises currently does not pay a dividend but plans to makes its first dividend

payment of $1 in 3 years, if the expected growth rate is 10% per year once dividends

commence, and the appropriate is discount rate is 18%, what is the current stock price

today?

a.$ 8.98

b.$ 8.37

c.$ 13.75

d.$ 14.75

8) you are comparing four different investments, as described below:

investment a: pays 12%, compounded annually

investment b: pays 12%, compounded quarterly

investment c: pays 12%, compounded semi-annually

investment d: pays 12%, compounded continuously

which of the above investments would result in the highest future value?

a.investment a

b.investment b

c.investment c

d.investment d

e.all of the investments would have the same future value since the stated interest rate is

the same.

9) which of the following would imply a higher dividend payout?

a.increased tax rate on dividend income

b.high degree of capital intensity in the production process

c.decreased asset growth rate

d.increased importance of institutional ownership of shares

10) narrbegin: exhibit 22-1 liquidation

exhibit 23-1

narrend

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

settlement that is received by the holders of the accounts payables in case ii?

a.$162,791

b.$187,209

c.$350,000

d.$235,310

11) the agency costs of (outside) equity can result in:

a.a benefit to society in the sense that the firm can raise external equity thus generating

additional funds that can be invested

b.a cost to society because the market value of corporate assets is reduced

c.entrepreneurs paying less than 100% of the cost of consuming perquisites

d.all of these

e.none of these