Issuing companies prefer having the option of retiring their debt whenever they wish.
Therefore they include call features in their bonds.
A company’s cost of capital can be thought of as a required return for all capital
budgeting projects that have risk levels approximately equal to its own.
Not including the supporting detail in the financial plan will deem the financial plan
useless.
Companies that have divisions and branches in other countries are referred to as
multinational corporations, or MNCs.
Compensating balances cannot normally be used for transactions.
An amortized or installment loan represents an annuity whose cash flows consist of the
loan payments.
Borrowing to pay a premium in an acquisition may be theoretically justified if value is
increased with leverage.
Bond ratings below Moody’s Baa and S&P’s BBB are considered of lower quality and
risky.
Marshall Industries has a bond outstanding that has a $1,000 par value and a market
price of $1,322. The bond has 25 years remaining to maturity. Assuming an annual
market interest rate of 8% and that the bond pays interest semiannually, calculate the
ANNUAL coupon rate on the bond. (Round to nearest whole percentage)
A.5%
B.7%
C.9%
D.11%
E.13%
Elliott Mfg. is considering acquiring Fox Inc. Fox’s cash flows have been estimated in
detail for the next three years and are $40M, $45M and $50M respectively. A terminal
value consistent with that estimate has been calculated at $700M. The risk-adjusted
discount rate for analysis is 12%.
a. In total, what should Fox be worth to Elliott?
b. If Fox, Inc. has 12 million shares outstanding, what is the most Elliott should offer,
per share, for its stock?
c. What growth rate did Elliott assume in calculating Fox’s terminal value?
d. If the growth rate assumption changes to 8%, what is the new maximum offer?
A firm with a debt ratio of .75, will have an equity multiplier of:
A..25
B.1.00
C..75
D.4.00
When comparing two investments, a risk averse investor will ____.
A.always choose the lower risk investment if the expected return is the same for both
investments
B.always choose the lower risk investment without considering expected return
C.always choose the investment with the lower expected return
D.always choose the investment with the higher expected return
Listed below are the account balances for UBUS, Inc. The income statement balances
are for the year, 20X4. The balance sheet balances are shown as of 1/1/20X4 and
12/31/20X4. They are listed in alphabetical order, NOT in the order they appear on the
statements themselves. The applicable tax rate is 40%. You are to use this information
to answer the following SEVEN questions (6-a through 6-g).
Income Statement for 20X4
a) What was the Quick Ratio for UBUS Inc. as of 12/31/20X4?
a. Less than 1.0
b. From 1.0 – 1.5
c. From 1.51 – 1.9
d. From 1.91 – 2.3
e. More than 2.3b) What kind of impact will the change in the Accounts Receivable
balance have on Operating Cash Flows portion of the Statement of Cash Flows in
20X4?
a. Decrease operating cash flows by $10
b. Decrease operating cash flows by $5
c. Increase operating cash flows by $10
d. Increase operating cash flows by $5
e. No impactc) Where will the change in Fixed Assets (gross) appear on the Statement
of Cash Flows?
a. The Operating Section
b. The Investing Section
c. The Financing Section
d. It won’t appear on the Statement of Cash Flows
e. Can’t tell from the information givend) What is UBUS Inc.’s Times Interest Earned
(TIE) ratio for 20X4?
a. Less than 2.0
b. From 2.0 – 3.0
c. From 3.1 – 4.0
d. From 4.1 – 5.0
e. More than 5.0e) What is UBUS Inc.’s Return on Assets (ROA) for 20X4?
a. Less than 12.0%
b. From 12.0% – 12.5%
c. From 12.6% – 13.0%
d. From 13.1% – 13.5%
e. More than 13.5%f) What is UBUS Inc.’s Return on Sales (profit margin) for 20X4?
a. Less than 9.0%
b. From 9.0% – 11.0%
c. From 11.1% – 13.0%
d. From 13.1% – 15.0%
e. More than 15%g) What is UBUS Inc.’s Debt Ratio as of 12/31/20X4?
a. Less than 43.0%
b. From 43.0% – 46.0%
c. From 46.1% – 49.0%
d. From 49.1 – 52.0%
e. More than 52.0%
Find the present value of a payment stream of $100 per year for the first fifteen years
and $200 per year for the next five years, given a 12% discount rate.
A.$813
B.$1,402
C.$953
D.$887
E.$712
Which would be credible supporting detail for a forecasted net income?
A.Net income is based on management€s goals.
B.Net income is based on a €booming€ economy.
C.Net income is based on competitive pricing and industry averages for profit margins.
D.Net income is generated based on a higher profit margin than most other competitors.
In the evaluation of a capital budgeting project, taxes should be:
A.ignored.
B.treated in the same manner as sunk costs.
C.treated as a cash flow in the period in which they are incurred.
D.None of the above
AMAY’s mining division does not fit well strategically with the remainder of the firm.
Conversely, the mining division would fit well with the mission of Nuccar Minerals. A
good way for AMAY to divest of its mining unit is through:
A.consolidation.
B.liquidation.
C.sale for cash.
D.spinoff.
The following data is associated with a proposed replacement project:
A machine that originally cost $25,000 and was depreciated on a straight line basis has
one year of its expected 5-year life remaining. Its current market value is $12,000. The
corporate tax rate is 34%. The cash flow from disposing of the old machine, is:
A.$12,000.
B.$ 9,620.
C.($ 9,620.)
D.$14,380.
Which of the following is likely to involve setting up major short-term goals?
A.Operational planning
B.Budgeting
C.Forecasting
D.Strategic planning
The ____ of a resource is its value in its best alternative use and is included in capital
budgeting analysis.
A.opportunity cost
B.sunk cost
C.incremental cash flow
D.None of the above
Over the last six decades, commerce has become increasingly international. The
changes have occurred through:
A.simply doing more business with other countries in terms of both imports and
exports.
B.an expansion of direct investments in facilities and equipment in other countries.
C.other governments actively promoting US products.
D.a and b
Which of the following actions will reduce retained earnings in the balance sheet?
A.A decision to not pay a dividend even though earnings are stable
B.A stock split
C.A reverse stock split
D.A stock dividend
Match the following:
1>Operating leverage A. Price minus variable cost as a percent of
price.
2>Degree of total leverage B. Measures the combined effect of
financial and operating leverage.
3>Financial leverage C. Creates financial risk.
4>Contribution margin D. Amplifies business risk.