1) narrbegin: “flip” shares 1
“flip” shares 1
three companies went public last month with initial public offerings (ipo). the offer
price and first day closing price are shown below for the three firms. an investor was
able to purchase 100 shares of each company at the offer price and then flip the shares
at the end of the day for the full return.
narrend
refer to “flip” shares 1. what was the total dollar value of this investment at the end of
the first day? (ignore any tax implications for this question)
a.$13,000
b.$14,650
c.$15,850
d.$16,350
2) suppose you are interested in the following two stocks:
stockexpected return
alpha10%
beta6%
what is your expected portfolio return if you put 40% of you investment in alpha, and
60% of your investment in beta?
a.7.20%
b.7.60%
c.8.00%
d.8.40%
3) narrbegin: exhibit 8-1 invst csh prj
exhibit 8-1
the cash flows associated with an investment project are as follows:
narrend
refer to exhibit 8-1. if a firm uses discounted payback with a 15% discount rate and a
3-year cutoff period, whats the discount payback period of the project? should the firm
accept the project?
a.3.3 years; reject
b.3.6 years; reject
c.3.6 years; accept
d.2.7 years; accept
4) you are a u.s. dollar based corporation with a project in great britain that will cost
you £1,000,000. the project will provide free cash flow of £500,000 for the next 3
years. if the pound denominated discount rate for this project is 12% and the spot rate is
.5600£/$, then what is the dollar denominated npv for the project? round to the nearest
$10.
a.$358,780
b.$200,920
c.$112,510
d.none of the above
5) what term best describes when companies prepare a reorganization plan that is
negotiated and voted on by the creditors and stockholders before the company actually
files for chapter 11 bankruptcy?
a.workout
b.involuntary reorganization
c.insolvency
d.corporation under reorganization
e.prepackaged bankruptcy
6) 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 book value of the machine at the end of year 3?
a.$44,995
b.$22,215
c.$11,115
d.$66,675
7) an investor puts $200 in a money market account today that returns 3% per year with
monthly compounding. the investor plans to keep his money in the account for 2 years.
what is the future value of his investment when he closes the account two years from
today?
a.$215.00
b.$212.35
c.$206.08
d.$188.37
8) which of the following terms describes the firm filing a reorganization petition?
a.corporation
b.debtor in possession
c.bankrupt firm
d.corporation under reorganization
9) narrbegin: smith int’l investment
smith enterprises international investment
smith enterprises is considering opening a new manufacturing plant in france. the cost
of the new plant will be 25 million and the plant is expected to generate after tax cash
flows of 10 million at the end of each year for the next 4 years. after that the plant will
be worthless. the current /$ exchange rate is 0.8166/$. the expected rate of inflation for
the u.s is 2.5% per year. the risk free rate in the u.s. is 4% and the risk free rate in france
is 6%.
narrend
refer to smith enterprises international investment. what is the 2-year $/ forward
exchange rate?
a..8012
b..7861
c..8263
d..8521
10) a firm is evaluating two machines. both machines meet the firms quality standard.
machine a costs $40,000 initially and $1,000 per year to maintain. machine b costs
$24,000 initially and $2,000 per year to maintain. machine a has a 6-year useful life and
machine b has a 3-year useful life. both machines have zero salvage value. assume the
firm will continue to replace worn-out machines with similar machines, and the
discount rate is 7%. which machine should the firm purchase?
a.machine a
b.machine b
c.the firm is indifferent to the two machines
d.cant tell from the given information
11) a bond that grants the investor the right to exchange their bonds for common stock,
is called a
a.zero-coupon bond
b.treasury bond
c.convertible bond
d.mortgage bond
12) if we can ignore marketing and production costs, the firm can increase inventory
management efficiency by
a.increasing inventory levels
b.decreasing inventory levels
c.increasing a firms investment in inventory
d.none of the above
13) which of the following is not one of the five cs of credit?
a.character
b.capacity
c.capital
d.credit scoring
14) narrbegin: pickswinners
pickswinners venture fund
pickswinners venture fund invested $10 million five years ago in robotronics co. the
fund received 6 million shares of convertible preferred stock, each of which can be
converted into three shares of common stock. robotronic is now set to complete an ipo,
and its shares are being priced at $40 each. pickswinners will convert its preferred stock
to common at the ipo, and will sell its shares along with robotronic. the investment
banking firm handling the ipo will charge an 8% underwriting fee.
narrend
what is the annual (compounded) return on pickswinners investment?
a.13%
b.31%
c.131%
d.231%
15) a structured purchase of the targets shares in which the acquirer announces a public
offer to buy a minimum number of shares at a specific price is called
a.lbo
b.tender offer
c.exchange offer
d.green mail
16) narrbegin: tax trade off theory
narrend
a graphical representation of the trade-off model is shown. various components of the
graph are labeled. which of the following corresponds to line 3?
a.present value of interest tax shields on debt
b.present value of expected bankruptcy and agency costs
c.value of levered firm with bankruptcy costs
d.value of levered firm in the absence of bankruptcy and agency costs
e.value of firm under all-equity financing
17) the feature in a bond indenture that requires systematic retirement of the bond issue
is a
a.planned call provision
b.sinking fund provision
c.forced conversion provision
d.mandated redemption provision
18) what is the term applied to several investment banks joining together to bring an ipo
to market to limit risk exposure?
a.selling group
b.underwriting portfolio
c.investment bank portfolio
d.underwriting syndicate