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1) retained earnings represents
a.a pool of cash that the firm can use should a need for cash arise
b.the increased market value, due to managements efforts, of all of the firms equity
securities issued
c.earnings that a firm reinvested during the firms history
d.the cumulative amount of cash that the firm has paid out in dividends
2) forever insurance company has offered to pay you or your heirs $100 per year at the
end of each year forever. if the correct discount rate for such a cash flow is 13%, what
the amount that you would be willing to pay forever insurance for this set of cash
flows?
a.$1,000.00
b.$869.23
c.$769.23
d.$100
3) which statement is true regarding a firm that increases financial leverage?
a.average earnings per share increases, while shareholder risk increases
b.average earnings per share increases, while shareholder risk decreases
c.average earnings per share decreases, while shareholder risk decreases
d.average earnings per share decreases, while shareholder risk increases
4) a finely tuned measure of business concentration that examines how a firm
concentrates its efforts on its core business is known as:
a.conglomerate classification
b.corporate focus
c.diversification focus
d.primary classification
e.standard industry classification
5) an investor purchases 2 call options on xyz stock with a strike price of $50. the call
premium is $2.65 each. the investor will breakeven at expiration if the stock price of
xyz is:
a.$50
b.$47.35
c.$55.30
d.$52.65
6) career opportunities in commercial banking do not include:
a.corporate loan officer
b.credit analyst
c.investment banker
d.mortgage banker
e.all of the above are career opportunities in commercial banking
7) which of the following statements is false concerning the profitability of venture
capital investments?
a.the average compound annual return during the mid 1990s was around 30%
b.a weak correlation exists between venture returns and returns on small stock mutual
funds
c.venture returns are quite volatile, ranging from negative returns to 150% in 1999
d.a strong positive correlation exists between venture returns and returns on small stock
mutual funds
8) bavarian brewhouse is planning on going public. under the underwriting agreement
the underwriting discount is 7.25%. if the offering price of the stock is set at $12.50 per
share and the company is planning on issuing 1 million shares, what are the total
proceeds that bavarian will receive?
a.$12,500,000
b.$11,593,750
c.$10,750,000
d.$13,275,500
9) narrbegin: miller juice
miller juice
miller juice is a young company that currently does not pay a dividend. the company
retains all their earnings to finance their growth. however, ten years from now the
company is expected to start paying a $1.50 dividend. according to research reports the
dividend should then grow by 5% annually forever.
narrend
if the required return on the stock investment is 13%, what should be millers stock price
five years from today?
a.$11.50
b.$6.24
c.$19.69
d.$16.28
10) the preferred technique for evaluating most capital investments is
a.payback period
b.discount payback period
c.internal rate of return
d.net present value
11) emma is evaluating a treasury bill. it is a $1 million face value with a discount of
2.55% and maturing in 91 days. what is the bond equivalent yield?
a.2.550%
b.2.585%
c.2.567%
d.2.602%
12) marsha start is looking to restart a home economics related business after an
unfortunate incarceration. she forecasts that sales for june, july, and august will be
$100,000, $150,000, and $80,000, respectively. start expects for cash sales to make up
25% of the sales in each month with 90% of the credit sales collected in the month after
the sale and the remainder 2 months after the sale. what is starts estimated total cash
collections in august for june sales?
a.$7,500
b.$101,750
c.$133,750
d.none of the above
13) stock x has 3 units of systematic risk and 2 units of unsystematic risk while stock y
has 3 units of systematic risk and 4 units of unsystematic risk. if stock x is priced to
generate an 8% return for investors then what do we know about the return that stock y
should be priced to return?
a.stock y should be priced to return greater than 8%
b.stock y should be priced to return 8%
c.stock y should be priced to return less than 8%
d.there is not enough information to solve this problem
14) according to the black-scholes option pricing model which of the following has the
effect of decreasing the value of a call option?
a.an increase in the stock price
b.a higher strike price
c.an increase in the standard deviation of the underlying asset price returns
d.an increase in the risk-rate
15) narrbegin: smith enterprises
smith enterprises
smith enterprises recently conducted an ipo. in this, smith received $14 per share from
the underwriter, the offering price per share was $16 and the stock price rose to $19 on
the first day of trading.
narrend
refer to smith enterprises. what is the underwriters discount?
a.14.3%
b.12.5%
c.16.3%
d.10.2%
16) john smith seeks $7.5 million from a vc fund. john and the vc agree that the
company should be ready to go public in 4 years. at that time the company should have
a net income of $3.75 million. if comparable firms are expected to be trading at a p/e
ratio of 18, what will be the companys market capitalization at the time of the ipo?
a.$7.5 million
b.$67.5 million
c.$135 million
d.$95.7 million
17) 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 $750,000. 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.$63,125
b.$64,250
c.$66,000
d.$73,125
