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1) you checked the /$ exchange rate today and you found that one dollar cost you
0.8214. when you checked the one year /$ forward exchange rate one dollar was trading
at 0.8026. what is the forward premium (discount) for the euro?
a.2.35%
b.-2.35%
c.3.67%
d.-3.67%
2) when investors take a short position in one asset to invest more in another asset, they
are using:
a.capital budgeting
b.corporate leverage
c.financial leverage
d.none of the above
3) which of the following would generally be assumed to increase the cost of debt for a
firm?
a.issuing bonds that have a longer-maturity than usual
b.having a bond issue that is much larger than that of similar sized firms in the same
industry
c.having a bond issue that is convertible into commons stock
d.both a and b
4) which of the following is not a strength of the corporate form of business?
a.unlimited life of the business
b.unlimited access to capital
c.unlimited liability
d.individual contracting
5) the basis on a 1-year futures contract is 52 points. if spot prices do not move and the
risk-free term structure of interest rates remains flat and also does not move, then what
should be the basis 1-week before expiration?
a.1 point
b.7 points
c.10 points
d.52 points
6) narrbegin: bavarian brew bond
bavarian brew bond
bavarian brew is thinking about recalling $30 million of 15 year, $1,000 par value
bonds, that were issued ten years ago. the bonds carry a coupon rate of 7.8% and have a
call price of $1,110. initially the bonds generated total proceeds of $28.65 million and
the flotation costs were $500,000. bavarian brew wants to sell $30 million of 5 year,
$1,000 par value bonds with a 5.8% coupon rate to retire the old bonds. the flotation
costs on the new bond issue are estimated to be $525,000. due to having to issue the
new bonds before the old bonds can be retired the company expects a period of 3
months were they have to pay interest on the old and the new bonds. assume a tax rate
of 34%
narrend
refer to bavarian brew bond. what are the annual after tax interest cost on the new
bond?
a.$1,148,400
b.$1,740,000
c.$591,600
d.$967,500
7) financial distress
a.always leads to bankruptcy
b.imposes direct and indirect costs on the firm
c.has no effect on the firms customers
d.all of the above
8) purple bell butter company increased its sales by $2,000 over that of the previous
yearss figure of $50,000. consequently, purple bells earnings before interest and taxes
increased from $3,000 to $3,300 during the same period. calculate purple bells
operating leverage.
a.25
b.4
c.2.5
d.none of the above
9) narrbegin: exhibit 7-7
exhibit 7-7
narrend
given exhibit 7-7, what is the portfolio beta?
a.0.4987
b.0.9273
c.0.3791
d.1.2667
10) if you were to look at leverage for companies in a country where there is a very
high cost of attorneys and accountants, all other things being equal you would expect
a.that firms in those countries would utilized less leverage than in other countries
b.that firms in those countries would utilized more leverage than in other countries
c.that firms in those countries would utilize no leverage
d.that firms in those countries would utilize as much leverage as is mathematically
possible
11) if the /$ exchange rate is $1.2267/ and the $/£ exchange rate is $1.7894/£, what is
the /£ exchange rate?
a.2.1951
b.1.4587
c.0.6855
d.2.9564
12) you just bought a pair of shoes for $129. if an identical pair of shoes sells for 105 in
france, what should be the /$ exchange rate if the purchasing power parity holds?
a.1.2286
b.1.2905
c..8140
d..5968
13) narrbegin: far corporation
far corporation
far corporation is considering a new project to manufacture widgets. the cost of the
manufacturing equipment is $150,000. the cost of shipping and installation is an
additional $15,000. the asset will fall into the 3-year macrs class. the year 1-4 macrs
percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. sales are expected
to be $300,000 per year. cost of goods sold will be 80% of sales. the project will require
an increase in net working capital of $15,000. at the end of three years, far plans on
ending the project and selling the manufacturing equipment for $35,000. the marginal
tax rate is 40% and far corporations appropriate discount rate is 12%.
narrend
refer to far corporation. what is the npv of the project?
a.$21,597
b.$73,548
c.-$21,597
d.-$52,489
14) the following data have been computed for a firm: when sales are $20,000, ebit is
$5,000 and operating leverage is 2.5. suppose sales increase to $23,000; what is the new
level of ebit?
a.$1,875
b.$6,875
c.$3,000
d.$8,435
15) narrbegin: kooshy
narrend
using ratios derived from the income statement and balance sheet above, what is kooshy
companys sustainable growth rate?
a.10.6%
b.17.7%
c.20.00%
d.8.1%
16) if the law of one price holds and the price of a big mac in the u.s. is $1.99 while the
price of a big mac in britain is £1.50, then what should the spot exchange rate for $/£
be?
a.1.3267
b.1.0000
c..7538
d.none of the above
17) a put option with a $50 strike price on bavarian sausage stock will expire in one
year. if you know a call on the same stock has a value of $2.75, that the price of the put
is $1.26 and the stock is currently selling at $47, what is the implied risk free rate?
a.4.56%
b.3.07%
c.5.43%
d.9.87%
18) a dividend policy where the company pays out a fixed percentage of their earnings
is called a
a.constant nominal payout policy
b.target dividend payout ratio policy
c.constant payout ratio policy
d.low-regular and extra policy
19) which is not a duty of a financial manager?
a.budgeting
b.financial forecasting
c.product research
d.investment analysis
20) a put option with a $35 strike price on bavarian sausage stock will expire in one
year. if you know that the stock currently sells at $38 that the put on the same stock has
a value of $6.85, and the value of the call is $11.87, what is the implied risk free rate?
a.3.57%
b.5.39%
c.8.27%
d.6.12%
