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1) what is the present value of an operating lease that involves payments of $25,000 per
year (the end of the year) for 10 years with no possibility of purchase at the end of the
lease term. assume that the firm is in the 40% marginal tax rate and the pre-tax cost of
debt for the firm is 10%?
a.$184,002.18
b.$92,168.51
c.$110,401.31
d.$153,614.18
2) narrbegin: smith enterprises 2
smith enterprises 2
smith enterprises wants to conduct an ipo. the offering price of the stock is $15, the
underwriters discount is 6% and legal and other expenses are estimated to be
$1,500,000.
narrend
refer to smith enterprises 2. what are the net proceeds per share?
a.$15
b.$16
c.$14.10
d.$17.20
3) empirical evidence suggests managers
a.closely follow a residual model of dividend payments
b.keep nominal payments steady for long periods of time
c.keep payout ratios constant for long periods of time
d.prefer to increase dividends a small amount every period
4) for a typical callable bond, what is the call price for 8% coupon bond?
a.$920
b.$1,000
c.$1,080
d.there is not enough information to determine
5) franconia notch blowers would like to find the optimum size order given that it
annually sells 10,000 snow blowers per year. it costs franconia $75 each time it
processes an order for snow blowers and the carrying cost for each blower is $50 per
year. what is the optimum order size for franconia?
a.30,000
b.15,000
c.173.21
d.122.47
6) the amount that someone is willing to pay today, for a single cash flow in the future
is
a.the future value of the cash flow
b.the future value of the stream of cash flows
c.the present value of the cash flow
d.the present value of the annuity of cash flows
7) fence place diary company (fpd) has a 15-year maturity bond outstanding that is
currently convertible into 50 shares of fpd common stock. fpd common stock currently
sells for $25 a share and the coupon rate (semiannual coupons) for the bond is 5%. if
the yield on a similarly rated convertible bond (on the new york calendar corp.) is 5%,
then what should be the correct price of the fpd convertible bond?
a.$750.00
b.$1,000
c.$1,250
d.either a or b
8) you are approached about purchasing a share of common stock in a company that
will definitely go out of business exactly 2 years from today. the company is anticipated
to pay a $10 dividend one year from now and a $15 dividend two years from now
(immediately before it goes out of business). what price are you willing to pay for the
stock if the required rate of return on the stock is 5%?
a.$22.68
b.$23.13
c.$23.81
d.$25.00
9) your parents set up a trust for you that you will not have access to until your 30th
birthday, which is exactly 9 years from today. by prior arrangement, the trust will be
worth exactly $200,000 on your 30th birthday. you need cash today and are willing to
sell the rights to that trust today for a set amount. if the discount rate for such a cash
flow is 12%, what is the maximum amount that someone should be willing to pay you
today for the rights to the trust on your 30th birthday?
a.$72,122.01
b.$178,571.43
c.$224,000.00
d.$225,000.00
10) roxy incorporated has ebit of $2 million for the current year. the firm has $5 million
of debt outstanding with a coupon rate of 8 percent. investors require a return of 15
percent on the firm, and the firm has a corporate tax rate of 40%. what is the present
value of the firms tax shields?
a.$2,000,000
b.$ 400,000
c.$ 800,000
d.$ 750,000
