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1) by the ftc definition, the merger between exxon and mobil is a(n)
a.vertical merger
b.horizontal merger
c.integrated merger
d.all of the above
2) which of the following is also referred to as asset-backed lending?
a.term loans
b.syndicated loans
c.project finance loans
d.all of the above
3) jupitor surf boards has annual fixed costs of $5,000 with a variable cost of $10 per
unit and a sales price of $20 per unit. jupitor expects to sell 1,000 units this year without
much trouble. however, jupitor is concerned about the scenario that all costs will
increase 10% this year. if that happens, what will be jupitors earnings before interest
and taxes?
a.$6,000
b.$5000
c.$4,000
d.$3,500
4) venture capitalists use staged financing
a.to limit other investors returns
b.to increase the venture capitalists ownership stake
c.to reduce the venture capitalists risk exposure
d.to increase the probability the portfolio company succeeds
5) louis international is considering easing credit standards to increase sales, and
potentially profits. currently the firm sells 200,000 units at a sales price of $125 per unit
and variable cost of $103 per unit. currently the average collection period is 15 days
and the bad debt expense is 3% of sales. the required return on investment is 18%. if
credit standards are eased, the sales will increase to 250,000 units; the acp will increase
to 35 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.$493,835.62
b.$2,996,575.34
c.$1,975,342.47
d.$2,469,178.08
6) you are offered credit terms of 1/20 net 45. what is the implied rate of interest by the
discount?
a.1.01%
b.12.12%
c.14.75%
d.25.25%
7) a firm has 10 million shares outstanding with a current market price of $20 per share.
there is one investment project available to the firm. the initial investment of the project
is $20 million, and the npv of the project is $10 million. what will be the firms stock
price if capital markets fully reflect the value of undertaking the project?
a.$19
b.$20
c.$21
d.$22
8) a firm has outstanding debt of $100 million. suppose it voluntarily agrees to pay a
group of creditors 40 cents on the dollar immediately and to pay the remaining creditors
60 cents on the dollar in four periodic installments. this is
a.an extension
b.a composition
c.a combination of an extension and a composition
d.a cram-down
9) bavarian sausage stock has an average historical return of 16.3% and a standard
deviation of 5.3%. in which range do you expect the returns of bavarian sausage 95% of
the time.
a.5.7%:26.9%
b.5.3%:16.3%
c.11.00%:21.6%
d.6.2%:18.5%
10) thomas duckworth owns and operates stones asset management. the firm manages
$10 billion in assets and focuses on exploiting arbitrage opportunities. duckworth uses
put - call parity to price put and call options. according to his put - call parity analysis
duckworth realizes that puts with a strike price of $30 and 1 month remaining until
expiration on medusas inc. should be priced at $2.30. however he realizes that the $30
puts are trading for $2.75 in the open market. how should duckworth exploit this
arbitrage opportunity?
a.sell the puts in the open market, buy medusas stock, short a zero coupon bond with a
face value of $30 and maturity of 1 month, and buy a 1 month call with a strike price of
$30
b.buy the puts in the open market, short medusas stock, short a zero coupon bond with a
face value of $30 and maturity of 1 month, and buy a 1 month call with a strike price of
$30
c.sell the puts in the open market, lend $30 at the risk free rate, buy a 1 month $30 call
on medusas, and short the underlying stock
d.buy a zero coupon bond with a face value of $30 and maturity of 1 month and buy a 1
month call with a strike price of $30
11) narrbegin: bavarian brew
bavarian brew
bavarian brew, an unlevered firm, has an expected ebit of $500,000. the required return
on assets for the firms assets is 10%. the company has 250,000 shares outstanding. the
company is considering raising $1 million in debt with a required return of 6% and
would use the proceeds to repurchase outstanding stock.
narrend
refer to bavarian brew. if the corporate tax rate equals 34% and dividend income is tax
free, at which personal tax rate on interest income is there no gain from leverage?
a.34%
b.40%
c.15%
d.0%
12) narrbegin: npv profile
npv profile
the figure below shows the npv profile for two investment projects.
narrend
refer to npv profile. the npv of which project is more sensitive to the discount rate?
a.project 1
b.project 2
c.equally sensitive
d.cannot tell from the given information
13) bavarian sausages has a working capital/total assets ratio of 0.8, a retained
earnings/total assets ratio of 0.2, an earnings before interest and taxes/total assets ratio
of 0.34, a market value of equity/book value of equity ratio of 1.2, and a sales/total
assets ratio of 0.75. what is the companys z score?
a.3.25
b.2.78
c.1.65
d.3.83
