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1) for accounts receivable, with respect to cost trade-offs the costs that must be
evaluated are:
a.the cost of investment in accounts receivable and bad debts and the opportunity cost
of lost sales due to overly restrictive credit policy and/or terms
b.carrying costs and order and setup costs associated with replenishment and production
of finished goods
c.costs of reduced liquidity and financing costs resulting from the use of less expensive
short-term financing
d.none of the above
2) narrbegin: bavarian sausage scenario
bavarian sausage scenario
bavarian sausage is considering starting the production of a new chocolate filled
sausage. the company is not sure yet what the exact sales potential and costs of the
product will be. bavarian sausage has determined the following three possible
scenarios:
narrend
by how much would bavarian sausages breakeven point change in the best case scenario
if variable cost increase by $2?
a.increase by 228
b.decrease by 228
c.remain unchanged
d.increase by 95
3) accountants measure inflows and outflows of business operations on:
a.a cash basis
b.a profit basis
c.an accrual basis
d.an expense basis
4) the agency cost model of dividends suggests
a.dividends should be smaller for slowly growing firms with large free cash flow
b.dividend payments reduce managers opportunity to spend free cash flow
c.dividends are a cost of the corporate form of organization
d.managers seeking to increase share value should never pay dividends
5) of the five basic corporate finance functions, which deals with developing
company-wide structures that force managers to act ethically and to make decisions that
further the interests of the firms stockholders?
a.financing
b.corporate governance
c.financial management
d.risk management
6) the signaling model of dividends predicts
a.managers of firms with high growth opportunities signal these good investments with
low dividends
b.managers expecting higher future earnings signal with higher dividends
c.stock prices will fall at dividend increases
d.lower quality firms will have larger dividend payouts due to poorer future prospects
7) which party is given the responsibility of liquidating a firm if it is necessary to do so?
a.the bankruptcy judge
b.the creditors of the firm
c.the bankruptcy trustee
d.the creditors committee
8) bavarian sausage is expected to pay a $1.57 dividend next year. if the required return
on the stock investment is 14%, and the stock currently sells for $34.37, what is the
implied dividend growth rate for this company?
a.6.37%
b.9.43%
c.12.68%
d.15.76%
9) the push for portfolio corporations in the 1960s was so great that the vast majority of
mergers that took place during that time were
a.horizontal mergers
b.vertical mergers
c.conglomerate mergers
d.none of the above
10) roxy international is considering easing credit standards to increase sales, and
potentially profits. currently the firm sells 2,000,000 units at a sales price of $7 per unit
and variable cost of $5 per unit. currently the average collection period is 35 days and
the bad debt expense is 2% of sales. the required return on investment is 18%. if credit
standards are eased, the sales will increase to 2,500,000 units; the acp will increase to
65 days; and the bad debt expense will increase to 5% all else will remain the same.
what is the increase in bad debt expense?
a.$3,500,000.00
b.$ 875,000.00
c.$ 595,000.00
d.$ 280,000.00
11) what type of corporation allows shareholders to be taxed as partners while retaining
their limited liability status?
a.j corporation
b.llp corporation
c.s corporation
d.series 6 corporation
12) narrbegin: smart acquires snazzy
smart acquires snazzy
smart products plans to acquire snazzy snaps, which will create $8 million in
incremental cash flows for smart each year for the first six years. smart products plans
to divest snazzy snaps at the end of the sixth year for $112,500,000. smarts beta (b) is
1.2, and is expected to remain so after the acquisition. the risk free rate is 5 percent and
the expected return on the market is 16 percent. smart products has a 100 percent equity
capital structure which will be maintained post-acquisition.
narrend
suppose smart products stock price is $40 per share, and there are 12,000,000 shares
outstanding. how many new shares must smart issue to acquire snazzy snaps at the
maximum price?
a.6,534,325
b.2,568,242
c.1,727,255
d.4,639,773
13) which of the following statements is false?
a.since 2000, annual venture capital returns in europe have averaged 30%
b.one problem concerning exit strategies for european venture capitalists is, until
recently, the lack of a large liquid market for the stock of entrepreneurial growth firms
c.since 2000, annual venture capital returns in europe have averaged 6 to 9%
d.returns for european private-equity investors was poor during the mid 1980s through
the mid 1990s
14) 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 money market yield?
a.2.550%
b.2.585%
c.2.567%
d.2.602%
15) which of the following is not required for a firm to utilize its current weighted
average cost of capital to evaluate a future project?
a.the firm will not alter its capital structure
b.the future project is very similar to the firms existing assets
c.the future project has an expected life that is similar to its existing project lives
d.neither a nor b is required
16) the ultimate owner(s) of an ongoing corporation are
a.the federal government
b.the debt holders
c.the equity holders
d.the executive staff of the corporation
17) suppose that hoosier farms offers an investment that will pay $10 per year forever.
how much is this offer worth if you need a 8% return on your investment?
a.$8
b.$80
c.$100
d.$125
18) which of the following is not needed to price options using the binomial approach?
a.the current price of the underlying stock
b.the risk-free rate
c.the possible values that the underlying stock could take in the future
d.the strike price of the option
e.the value of n(d1)
