1) if the canadian dollar is worth $1.50, and the swiss franc is worth $1.30, then how
many swiss francs does it take to purchase a canadian dollar?
a.1.1538
b.0.8667
c.1.300
d.none of the above
2) which of the following is not an example of mismanagement?
a.oil price increases
b.overexpansion
c.ineffective sales force
d.poor financial actions
3) narrbegin: dsss corporation
dsss corporation
dsss corporation is considering a new project to manufacture widgets. the cost of the
manufacturing equipment is $125,000. the cost of shipping and installation is an
additional $10,000. the asset will fall into the 3-year macrs class. the year 1- 4 macrs
percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. sales are expected
to be $225,000 per year. cost of goods sold will be 60% of sales. the project will require
an increase in net working capital of $10,000. at the end of three years, dsss plans on
ending the project and selling the manufacturing equipment for $25,000. the marginal
tax rate is 40% and dsss corporations appropriate discount rate is 15%.
narrend
refer to dsss corporation. what is the npv of the project?
a.$14.732
b.$12,986
c.$19,983
d.-$19,983
4) you read in the financial press that a companys moodys debt rating is one step above
junk. what is the rating?
a.ba1
b.bb+
c.baa3
d.bbb-
5) roxy bonds have 14 years to maturity, with a coupon rate of 8%, paid annually; if the
appropriate discount rate is 8% what is the current yield of roxy bonds?
a. 8.33%
b. 8.00%
c. 11.89%
d. 12.62%
6) narrbegin: thompson manufacturing
thompson manufacturing
thompson manufacturing is considering two investment proposals. the first involves a
quality improvement project, and the second is about an advertising campaign. the cash
flows associated with each project appear below.
quality
narrend
refer to tompson manufacturing. suppose the hurdle rate of the firm is 10%. if the two
projects are mutually exclusive, which project should be chosen? what is the problem
that the firm should be concerned with in making this decision?
a.quality improvement project; project scales
b.advertising campaign; project scales
c.quality improvement project; the timing of cash flows
d.advertising campaign; the timing of cash flows
e.advertising campaign; discount rate
7) crum industries is a paper manufacturing company based in the united states. the ceo
of the company hannah monstzka is considering an investment in canada to take
advantage of canadian government subsidies. the investment will have the following
cash flows: initial cost = c$-2,000,000, year 1 = c$1,250,000, year 2 = c$1,000,000,
year 3 = c$750,000. monstzka plans on hedging the cash flows using forward contracts
throughout the life of the project. the risk-free rate of interest in canada is 5% and the
risk-free rate of interest in the u.s. is 4%. currently the spot rate is $0.7134/c$ and the
project should be discounted at a u.s. adjusted rate of 9%. assume monstzka will be able
to convert the canadian dollar cash flows into u.s. dollars at the implied forward rates
when they are received. what is the npv of the project in u.s. dollars?
a.$374,071
b.$567,606
c.$404,930
d.$393,465
8) considering the following information what is the value of the put?
a.$0.58
b.$3.42
c.$2.69
d.$29.17
9) consgrough, inc. has increased its annual common dividend by 3% in each of the
years that the company has existed. if you believe that the company can continue to do
so indefinitely, then what price would you be will to pay for consgrough if the required
rate of return is 6% and the dividend that it paid yesterday was $5?
a.$85.83
b.$166.67
c.$171.67
d.$200.00
10) narrbegin: never-crash airlines
never-crash airline
never-crash airline has a capital structure that consists of 30% debt and 70% equity. the
companys cost of debt is 7%. the company has a beta of 1.9. the risk free rate equals
4.5% and the expected return on the market portfolio is 15%.
narrend
what is never-crash airlines wacc, if their marginal tax rate equals 34%?
a.19.22%
b.24.45%
c.18.50%
d.4.62%
11) a firms weighted average cost of capital is
a.the cost of capital applicable to all new forms of capital that the firm may raise in the
future
b.the simple weighted average of the current required rates of return on debt and equity
c.the higher of either equity or debt capital that the firm is currently utilizing in its
capital structure
d.none of the above
12) if the spot rate for marsian spotlets (mrs) is 4 per u.s. dollar (usd) and the one-year
risk-free rate of return is 30%, for the marsian economy, then what should the risk free
rate for the u.s. economy if the 1-year forward rate be for mrs/usd is 5?
a..04
b..038
c..625
d.none of the above
13) cozmo costanza just took out a $24,000 bank loan to help purchase his dream car.
the bank offered a 5-year loan at a 6% apr. the loan will feature monthly payments and
monthly compounding of interest. what is the monthly payment for this car loan?
a.$400.00
b.$463.99
c.$470.25
d.$474.79
14) the spot rate for canadian and u.s. dollars is $0.7213/c$. the annualized interest rate
on a six-month government bond in canada is 6% and the same rate in the united states
is 5%. calculate the 6-month forward rate that is needed for interest rate parity to hold.
a.$0.7281/c$
b.$0.7248/c$
c.$0.7353/c$
d.$0.7178/c$
15) you find that the yield on a 4-year bond is 9% while the yield on a 2-year bond
beginning four years from now is 10%. what should be the yield on a 6-yr bond as
predicted by the expectations theory?
a.1.00%
b.9.33%
c.14.32%
d.70.80%