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1) the exim company has entered into a 3 month, $250 million notional principal
forward rate agreement (fra) with what-a-bank. the terms are such that exim will pay
what-a-bank if libor is above 2%, but what-a-bank will pay exim if libor is below 2%.
based on the standard fra formula, who will pay and how much, if libor is 1.625% in
three months?
a.exim company pays $1,244,942
b.exim company pays $233,427
c.what-a-bank pays $1,244,924
d.what-a-bank pays $233,427
2) which statement about common shareholders is incorrect?
a.shareholders only have a residual claim
b.shareholders have precedence over all other claimholders in the case of bankruptcy
c.shareholders have a voting right
d.shareholders are the ultimate owners of a corporation
3) the cash flows associated with an investment project are as follows:
in year 4 and beyond, cash flows would continue to grow at 4 percent per year. assume
a discount rate of 10%. what is the npv of this investment?
a.$385,220
b.$423,742
c.$631,104
d.$694,215
4) miller juice, inc. is not paying a dividend right now, but is expected to pay a $4.56
dividend two years from now. investors expect that dividend to grow by 4% every year
forever. if the required return on the stock investment is 14%, what should be the price
of miller juice stock today?
a.$53.69
b.$36.49
c.$47.42
d.$43.84
5) millers toys has an average inventory of 2,000 toy trucks. the carrying cost per unit
per year is 10. miller places an order for 3,500 toy trucks on the first of each month and
the order cost is $20. what is the economic order quantity?
a.894.43
b.645.28
c.357.21
d.4,099
6) narrbegin: pickswinners
pickswinners venture fund
pickswinners venture fund invested $10 million five years ago in robotronics co. the
fund received 6 million shares of convertible preferred stock, each of which can be
converted into three shares of common stock. robotronic is now set to complete an ipo,
and its shares are being priced at $40 each. pickswinners will convert its preferred stock
to common at the ipo, and will sell its shares along with robotronic. the investment
banking firm handling the ipo will charge an 8% underwriting fee.
narrend
what proceeds does pickswinners expect to receive?
a.$662,400,000
b.$220,800,000
c.$720,000,000
d.$552,000,000
7) company bs resources were completely absorbed by company a after their merger.
the merger between the two companies was a
a.statutory merger
b.subsidiary merger
c.consolidation
d.none of the above
8) narrbegin: exhibit 7-3
exhibit 7-3
narrend
given exhibit 7-3, what is the weight of security 2?
a.20%
b.40%
c.60%
d.80%
9) narrbegin: competitive mesh shirts
competitive mesh shirts
competitive mesh shirts is considering a plan to ease its credit terms in order to generate
greater revenues. last year, competitive had sales of 1,000,000 units at a price and
variable cost of $20 and $15, respectively. its current average collection period is 20
days and its percentage of bad debt expense is 2% while it required return on
investment is 10%. if competitive were to ease its credit terms, the firm anticipates that
its sales would increase to 1,200,000 units without a change in price or variable costs.
however, the average collection period is expected to increase to 30 days and bad debt
expense is expected to increase to 3%.
narrend
what is competitives net profit for the credit decision at hand?
a.$1,000,000.00
b.$614,246.50
c.$320,000.00
d.$65,753.50
10) narrbegin: total cash budget
bavarian brews schedule of projected cash disbursement
all of bavarian brews sales are credit sales. the company collects 60% of its sales in the
next month and the remainder in the month after that.
the companys purchases are 75% of its sales. of those purchases 15% are paid in cash,
50% are paid in the following month and the remainder in the month after that. the
companys wages and salaries equal 15% of sales each month plus $50. taxes of $125
are due in april. the company is going to purchase new machinery worth $1000 in
march and pay 50% right away and the rest in april. in addition, the company will pay a
$175 dividend in february.
narrend
due to a change in economic conditions bavarian brew will only be able to collect 40%
of its march sales in april. what is companys cash net cash flow in april as a result of
this change?
a.$528
b.$1229.63
c.-$701.63
d.$701.63
11) a major retail firm like walmart or target would most likely not use
a.point of sale information systems
b.a cash concentration bank
c.lock boxes
d.any of the above
12) narrbegin: smith int'l investment
smith enterprises international investment
smith enterprises is considering opening a new manufacturing plant in france. the cost
of the new plant will be 25 million and the plant is expected to generate after tax cash
flows of 10 million at the end of each year for the next 4 years. after that the plant will
be worthless. the current /$ exchange rate is 0.8166/$. the expected rate of inflation for
the u.s is 2.5% per year. the risk free rate in the u.s. is 4% and the risk free rate in france
is 6%.
narrend
refer to smith enterprises international investment. what is the npv of the investment in
-terms, if the required rate of return is 15%.
a.28.5498 million
b.18.3267 million
c.3.5498 million
d.12.5682 million
13) narrbegin: smith enterprises
smith enterprises
smith enterprises recently conducted an ipo. in this, smith received $14 per share from
the underwriter, the offering price per share was $16 and the stock price rose to $19 on
the first day of trading.
narrend
refer to smith enterprises. what is the total percentage costs of the ipo (underwriting and
underpricing)?
a.35.7%
b.14.3%
c.18.8%
d.21.4%
14) if transaction costs are significant, then which of the following might be the effect
on cash dividends and share repurchases?
a.dividends might be more likely to be paid from the investors preference argument
b.dividends might be less likely to be paid from the firms perspective of raising capital
c.dividend choices are always relevant
d.none of the above
15) net working capital decreases when
a.inventory falls, accounts receivable falls, or accounts payable increases
b.inventory increases, accounts receivable increases, or accounts payable falls
c.cost of goods sold falls, or interest rate falls
d.operating expenses fall, or current assets increase
16) narrbegin: bavarian credit terms
bavarian brew credit terms
bavarian brew is producing and selling brewery equipment to microbreweries
nationwide. bavarian is charging $15,000 per unit and all of their sales are on credit.
under the current credit policy bavarian brew expects to sell 500 units. the variable
costs are $6,000/unit and fixed costs are $1,500,000 per year. the company is thinking
about changing their credit terms from net 30 to 3/10 net 30. the effect of this change
would be a 5% increase in unit sales, but also an increase in bad debt expenses from 2%
to 4% of sales. the company expects 75% of its customers to take advantage of the cash
discount. currently the company has an average collection period of 38 days, 30 days
until the customers mail their payments and another 8 days to process the payments
once they arrive. bavarian brews opportunity cost of funds invested in accounts
receivable is 12%.
narrend
what is bavarian brews bad debt expense under the new credit policy?
a.$150,000
b.$315,000
c.$157,500
d.$300,000
17) alexis media issued five-year bonds one year ago with a 7.5% coupon that pays
semiannually (the bonds just paid the second coupon payment). alexis announced a
revised advertising revenue forecast that is quite bleak compared with the prevailing
forecast at the time of the bond issuance. investors now require a 9% return on alexis
bonds. what is the percent change in price of the bonds associated with the change in
business conditions?
a.4.95% decrease
b.8.30% decrease
c.29.06% decrease
d.19.79% increase
e.cant determine with the information given
18) if a firm operates strictly in one country and has cash flows in only one currency
then:
a.it can easily avoid any sort of exchange rate risk
b.it will still face exchange rate risk if it produces a good or service that competes with
imports in the home market
c.it will still face exchange rate risk if it uses an imported product or service in
production
d.all of the above
e.both (b) and (c)
