1) which of the following is a valid concern for an investor who is considering
purchasing a bond which has been issued under rule 144a?
a.rule 144a issues are less liquid than public issues
b.rule 144a issues are traded in the secondary market too actively to accurately value
them
c.rule 144a issues can never be repurchased by the issuing firm
d.none of the above
2) narrbegin: smith-miler merger
smith-miler merger
smith enterprises can acquire miller, inc for $250,000 in either cash or stock. both
companies are 100% equity financed. the synergy value of the acquisition for smith is
$35,000. currently smith has 25,000 shares outstanding which trade at $29 a share,
whereas miller has 15,000 shares outstanding that trade at $14 a share.
narrend
what is the value of miller to smith?
a.$35,000
b.$245,000
c.$210,000
d.$125,000
3) with respect to the size of a loan:
a.the larger the loan the better the economies of scale with respect to loan
administration costs per dollar borrowed
b.the greater the risk to the lender because larger loans result in less diversification
c.there is a risk trade-off associated with net administrative costs
d.all of the above
e.(a) and (b) only
4) roxy is considering a new cat food factory with the following cash flows, what is the
payback?
a.3.4
b.3.3
c.4.0
d.5.0
5) which of the following has (have) transformed u.s. bond-issuance patterns?
a.shelf registration
b.rule 42
c.section 12-b
d.rule 144a
e.both (a) and (d)
6) which statement is false regarding the issuance of securities by investment banks?
a.the profits for an investment bank are determined by the size of the underwriting
spread
b.the prospectus is the legal document that describes the terms of the ipo
c.banks charge higher spreads for seasoned equity offerings than unseasoned equity
offerings
d.banks charge higher spreads on equity issues than debt issues
7) roxy bonds will mature in 16 years, the coupon rate of the bond is 5% paid
semiannually, if the bonds currently sell for $1180 what is the bonds yield to maturity?
a.3.52%
b.2.50%
c.4.62%
d.5.00%
8) the exchange rate between the u.s. dollar and the japanese yen is $.008072/¥. if the
exchange rate changes to $0.0080069/¥ then you could say
a.the u.s. dollar is appreciating against the japanese yen and the japanese yen is
depreciating against the u.s. dollar
b.the u.s. dollar is depreciating against the japanese yen and the japanese yen is
appreciating against the u.s. dollar
c.the u.s. dollar is depreciating
d.nothing, because the exchange rates can not be compared to one another
9) emma botanicals forecasts the following cash flows at the end of each year for a
project. if the firm’s discount rate is 9%, compounded semi-annually , what is the
present value of the project?
a.$8,666,667
b.$8,678,321
c.$8,736,914
d.$8,123,456
10) narrbegin: brooks corporation
brooks corporation
brooks corporation has just received $40 million in net proceeds from a seasoned
offering. the offering was underwritten by abc investments, an investment bank that
focuses on small company offerings. for the offering, 8 million shares of stock were
issued and the underwriting expenses for abc investments were $800,000.
narrend
refer to brooks corporation. abc investments is able to sell the stock on the secondary
market at $6.00. what is the profit for abc investments for underwriting this seasoned
offering?
a.$7.2 million
b.$7.6 million
c.$8.0 million
d.$8.8 million
11) the agency cost model of dividend payments assumes that
a.agency problems are distinct from the amount of cash paid out to shareholders
b.dividend payments arise as an attempt to overcome the agency problems that result
between bondholders and management
c.dividend payments arise as an attempt to overcome the agency problems that result
when there is a separation of corporate ownership and control
d.none of the above
12) narrbegin: bavarian sausage scenario
bavarian sausage scenario
bavarian sausage is considering starting the production of a new chocolate filled
sausage. the company is not sure yet what the exact sales potential and costs of the
product will be. bavarian sausage has determined the following three possible
scenarios:
narrend
if each of bavarian sausage’s three scenarios is equally likely, what is the expected
breakeven point?
a.5,000
b.2,233
c.572
d.1,125
13) delta pharmaceuticals has 200 million shares outstanding with a current market
price of $30 per share. its stock rose to $32 on the news that delta pharmaceuticals
long-awaited new drug zentac is to hit the market next month. whats the markets
consensus of the npv that the new drug will generate for delta pharmaceuticals?
a.$400 million
b.$6,400 million
c.$6,000 million
d.none of the above
14) if any project is to have a positive npv, advocates of that project:
a.need only crunch the numbers to determine if it will be successful
b.should be able to articulate a projects competitive advantage prior to crunching the
numbers
c.should insert their own personal optimistic biases into the cash flow estimates
d.should show that the present value of the outflows must exceed the present value of
the inflows
15) recent stock market evidence reveals
a.target and bidder shareholders receive significant positive returns
b.target shareholders receive significant positive returns, while acquirers returns are
actually negative
c.acquiring firms shareholders receive a larger share than target shareholders of the
increased value of the combined firms
d.acquirers returns have been increasing over time
16) which of the following is true?
a.if a company files for bankruptcy, preferred stockholders claims are paid prior to
creditors claims
b.if a company files for bankruptcy, preferred stockholders claims are paid prior to
common stockholders claims
c.in the event of bankruptcy and subsequent liquidation, preferred stockholders only
receive funds after creditors and common stockholders
d.both (a) and (b)
e.none of the above
17) weoweeveryone, inc. has a 12-year bond outstanding that has 9.5% coupon rate. if
the appropriate discount rate for such a bond is 7%, what the appropriate price for the
semiannual coupon paying bond?
a.$1,200.73
b.$1,198.57
c.$1,000.00
d.$762.77
18) mendelson implements records the following cash flows at the end of each year for
a project. if the firm’s discount rate is 11%, what is the present value of the project?
a.$2,509,507
b.$2,547,837
c.$2,517,234
d.$2,499,159