1) which of the following securities poses the greatest financial risk for the investor?
a.common equity
b.preferred equity
c.debt
d.convertible debt
2) you purchase a call option and a put option on the shares of a company. the sticker
price and expiration date for the options is equal. what is the best description of the
combined payoff diagram for the combination of the two options?
a.an upward sloping straight line
b.a downward sloping straight line
c.a v-shaped diagram with the kink at the strike price of the options
d.an upside down v-shaped diagram with the kink at the strike price of the options
3) miller juice, inc. just paid a $3 dividend. the company is expected to pay a $3.50
dividend next year and a $4 dividend in two years. after that, dividends are expected to
grow at 5% forever. if investors require a return of 12% on the investment, what should
miller juice stock sell for today?
a.$54.15
b.$49.63
c.$57.15
d.$60.00
4) jim lemke purchases a put option on roofus corp. for $3.50. the put option has a 1
year expiration and a strike price of $35. currently roofus corp. is trading at $38. what is
lemkes maximum loss on the put option?
a.$38
b.$35
c.$3.50
d.$31.50
5) how do project finance (pf) loans differ from other syndicated loans?
a.pf loans are guaranteed by the borrower, while other syndicated loans are not
b.pf loans are issued to special stand-alone companies whose sole purpose is the
construction and operation of a single project
c.pf loans are issued in multiple currencies, while most other syndicated loans are
issued in a single currency
d.all of the above are true
6) controlled disbursement is designed to:
a.provide early notification of checks that will be presented against a company’s
account on a given day
b.help combat a common type of check fraud
c.provide a company with outsourcing of its accounts payable or disbursement
operations
d.eliminate nonearning cash balances in corporate checking accounts
7) financial analysts focus on ____ when evaluating potential investments.
a.cash
b.profit
c.accruals
d.expenses
8) the ____ makes capital budgeting ____ complicated.
a.human element, less
b.human element, more
c.human analysis, more
d.human analysis, less
9) calculate the tax disadvantage to organizing a u.s. business today, after passage of the
jobs and growth tax reconciliation act of 2003, as a corporation versus a partnership,
given the following assumptions. all earnings will be paid out as dividends, and
operating income before taxes will be $200,000. the effective corporate tax rate is 35%,
and the tax rate on corporate dividends is 15%. the average personal tax rate for
partners in the business is 35%.
a.$17,500
b.$19,500
c.$20,000
d.$22,250
10) narrbegin: smith int’l investment
smith enterprises international investment
smith enterprises is considering opening a new manufacturing plant in france. the cost
of the new plant will be 25 million and the plant is expected to generate after tax cash
flows of 10 million at the end of each year for the next 4 years. after that the plant will
be worthless. the current /$ 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 npv of the investment in
us dollars when evaluating the denominated cash-flows? assume a required return of
15%.
a.$4.347 million
b.$2.899 million
c.$7.852 million
d.$9.514 million
11) which of the following is typically arranged for infrastructure projects such as
bridges and power plants?
a.term loans
b.syndicated loans
c.project finance
d.all of the above
12) the idea behind the binomial model is that:
a.investors can combine options with a risk-free asset to construct a portfolio with the
same payoff as the underlying asset
b.investors can combine options with shares of the underlying asset to construct a
portfolio with a risky payoff
c.investors can form a portfolio of a bond and call option which should equal the payoff
of a portfolio comprised of one share of common stock and one put option
d.investors can combine options with shares of the underlying asset to construct a
portfolio with a risk-free payoff
13) the case of business failure in which a firms liabilities exceed the fair market value
of its assets is called
a.economic failure
b.technical insolvency
c.insolvency bankruptcy
d.business failure
14) roxy is evaluating a treasury bill. it is a $1 million face value with a discount of
2.75% and maturing in 182 days. what is the bond equivalent yield?
a.2.789%
b.2.828%
c.2.750%
d.2.788%
15) the capm (capital asset pricing model) assumes that:
a.all assets can be traded
b.investors are risk-averse
c.investors have homogeneous expectations
d.all of the above
16) you are considering the purchase of a motorized scooter where the price of the
scooter is based upon the miles per gallon (mpg) of gasoline that the scooter can
achieve. that is, the current price of the scooter that you want is $1,000 because the
scooter can achieve 100 miles per gallon and the cost per mpg is $10. right before you
are about to purchase the scooter, your best friend requests that you loan him $1,000 for
one year. you make the loan in order to be able to buy a 105 mpg scooter at the
conclusion of the loan. if you anticipate that the cost per mpg will increase to $11, what
rate of interest do you charge your friend?
a.5%
b.10%
c.15%
d.15.5%
17) if you invested $2,000 in an account that pays 12% interest, compounded
continuously, how much would be in the account in 5 years?
a.$3,524.68
b.$3,644.24
c.$3,581.70
d.$3,200.00
18) which of the following scenarios could be considered an example of an agency
problem.
a.management decides to close a plant to lower operating costs
b.management decides to go ahead with an expansion that is expected to benefit the
companys value
c.the board of directors rewards management for the companys last year performance
d.management decides to purchase a boeing 747 as a corporate plane