1) flaws of the accounting rate of return method include:
a.the choice of accounting g hurdle return rate is essentially arbitrary
b.depreciation method has a large impact on the accounting rate of return
c.this method makes no adjustment for project risk or for the time value of money
d.all of the above
2) emma is considering a new cat nip factory with the following cash flows, what is the
irr?
a.9.17
b.9.07
c.9.27
d.9.37
3) a stock purschased on the new york stock exchange is an example of
a.a primary, money market transaction
b.a secondary, money market transaction
c.a primary, captial market transaction
d.a secondary, captial market transaction
4) the difference between the return on the market portfolio and the risk-free rate is
known as the:
a.total return
b.systematic premium
c.unsystematic return
d.market risk premium
5) suppose you bought 10 smith enterprise call options with a strike price of $52 at
$2.75 per option. if the price of smith stock is $50, what is your net profit (or loss)?
ignore transaction costs.
a.$0
b.-$27.50
c.$27.50
d.$500
6) the first u.s. merger wave, in 1897 was largely the result of
a.a backlash created by the anti-trust legislation of the 1890s
b.industrialization
c.a growing emphasis on a truly national economy rather than a grouping of regional
economies
d.none of the above
7) emma international is considering easing credit standards to increase sales, and
potentially profits. currently the firm sells 500,000 units at a sales price of $22 per unit
and variable cost of $13 per unit. currently the average collection period is 25 days and
the bad debt expense is 2% of sales. the required return on investment is 12%. if credit
standards are eased, the sales will increase to 600,000 units; the acp will increase to 35
days; and the bad debt expense will increase to 3% all else will remain the same. what
the current average in investment in accounts receivable?
a.$ 445,205.48
b.$ 753,424.66
c.$6,278,538.81
d.$ 178,082.19
8) what of the following is false regarding debt capital?
a.debt holders receive interest payments at fixed intervals
b.debt holders receive the amount of their loan (called principal) at the debts maturity
date
c.debt holders can force the firm into bankruptcy if interest payments are not made
d.debt holders have voting rights for the firms board of directors
9) in a floating exchange rate environment the price of a currency is determined by
a.the countrys national government
b.the supply and demand for that currency
c.the international monetary fund
d.the world bank
10) emma international is considering easing credit standards to increase sales, and
potentially profits. currently the firm sells 500,000 units at a sales price of $22 per unit
and variable cost of $13 per unit. currently the average collection period is 25 days and
the bad debt expense is 2% of sales. the required return on investment is 12%. if credit
standards are eased, the sales will increase to 600,000 units; the acp will increase to 35
days; and the bad debt expense will increase to 3% all else will remain the same. what
is the cost associated with the increased investment in accounts receivable?
a.$ 53,424.66
b.$ 36,328.77
c.$ 89,753.42
d.$1,584,000.00
11) which of the following is false regarding equity capital?
a.common stock holders bear most of the firms business and financial risk
b.preferred stock holders receive a fixed annual payment on their invested capital
c.common stock holders have ownership in the firm by voting for the firms
management
d.preferred stockholders can force the firm into bankruptcy if dividend payments are
not paid
12) the situation where a company replaces a certain number of shares with just one
share is called a
a.stock dividend
b.stock split
c.reverse stock split
d.stock repurchase
13) smith enterprises reports earnings per share for 2004 of $3.75 and dividends per
share for the same year of $1.65. what percentage of earnings will be kept in the
company as retained earnings?
a.44%
b.56%
c.32%
d.68%
14) when valuing a preferred stock, the type of security that we treat the preferred stock
like, for valuation purposes, is
a.a bond
b.a perpetuity
c.a common stock
d.none of the above
15) forward-spot parity suggests that
a.the forward rate will overestimate the spot rate at a set point in the future
b.the forward rate is an unbiased predictor of the spot rate at a set point in the future
c.the forward rate will underestimate the spot rate a set point in the future
d.none of the above
16) you are a professional football running back who is eligible to be a free agent. you
are offered a two-year contract to play for your current team for $3,000,000. if you
accept that contract, the firm retains your rights and you will not be able to play for
another team at the conclusion of the contract. otherwise, you can play for you current
team for two years at a price of $2,000,000 but you have the ability to play for any team
at the expiration of this agreement. what is the value of the option to pay for any team
you like after two years? assume a discount rate of 5%.
a.$5,578,231
b.$3,718,821
c.$1,859,410
d.none of the above
17) narrbegin: bavarian brew float
bavarian brew float
bavarian brew receives about 350 checks a day with an average check size of $550.
currently customers payments spend 2 days in the mail. once a check is received it takes
about 1.5 days to process it and another 4 days to clear the banking system. the firms
opportunity cost is 10%. assume a 365-day year.
narrend
what is bavarian brews collection float?
a.4 days
b.2 days
c.1.5 days
d.7.5 days
18) a study by the national venture capital association found that the sales of venture
firms during the 1970 – 2005 period was
a.half that of non-venture backed companies
b.equal to that of non-venture backed companies
c.twice that of non-venture backed companies
d.three times that of non-venture backed companies
19) give the venture capitalists the right to force the company to buy back the shares
held by the venture capitalists.
a.repurchase rights
b.stock option plans
c.demand registration rights
d.participation rights