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1) what is the money market yield for a one-year treasury bill that is priced at a 4%
discount?
a.3.83%
b.4%
c.4.17%
d.4.22%
2) capital budgeting:
a.is the area in which managers have the greatest scope to create (or destroy) value for
shareholders
b.involves identifying potential investments, analyzing those investments and
identifying which of those will create shareholder value and implement and monitor
those investments
c.involves identifying potential investments, analyzing those investments and
identifying which of those are expected to increase net income and implement and
monitor those investments
d.both (a) and (b)
e.none of the above
3) by increasing the number of compounding periods in a year, while holding the annual
percentage rate constant, you will
a.decrease the annual percentage yield
b.increase the annual percentage yield
c.not effect the annual percentage yield
d.increase the dollar return on an investment but will decrease the annual percentage
yield
4) you need to immediately purchase 100 shares of stock x and you own a call option
with a strike price of $32. the current price of stock x is $25. your best course of action
is
a.to exercise your call option at price of $32
b.to purchase a new call option with a strike price of $25 and exercise it
c.to purchase the stock in the market at a price of $25
d.none of the above
5) the main virtue of the payback method is its:
a.simplicity
b.complexity
c.completeness
d.thoroughness
6) narrbegin: kooshy
narrend
refer to kooshy. suppose pro forma net income is $50 and pro forma total assets are
$525. if accounts payable maintain the same percent of sales, no new long term debt is
issued, and the only addition to owners equity is to retained earnings, what will be the
pro forma balance in notes payable for a forecasted 20% increase in sales? (that is, use
notes payable as the balancing account.)
a.$39
b.$74
c.$83
d.$4
7) expected returns are:
a.always positive
b.always greater than the risk-free rate
c.inherently unobservable
d.usually equal to actual returns
8) a 15-year, 8%, $1000 face value bond is currently trading at $958. the yield to
maturity of this bond must be
a.less than 8%
b.equal to 8%
c.greater than 8%
d.unknown
9) which of the following statements is (are) true?
a.the merger attempt between staples and office depot was denied by the regulatory
authorities because it likely would have resulted in an increase in price competition
b.the merger attempt between staples and office depot was denied by the regulatory
authorities because it likely would have resulted in a decrease in price competition
c.horizontal mergers will lead to an increase in the number of competitors in an industry
d.horizontal mergers will lead to a decrease in the number of competitors in an industry
e.both (b) and (d) are true
10) suppose that over the last 25 years, company def has averaged a return of 7.5%.
over the same period, the treasury bond rate has averaged 1.5%. the current estimate of
the treasury bond rate is 4%. using the historical approach, what is the estimate of defs
expected return.
a.13.0%
b.12.5%
c.12.0%
d.10.0%
11) 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 after-tax cash flow from selling the machine at the
end of year 3?
a.-$9,554
b.$35,000
c.$9,554
d.$25,446
