1) a contractual clause that requires a borrower to pay taxes and other liabilities when
due is an example of a
a.positive covenant
b.negative covenant
c.lien
d.term loan
2) if you were to invest $120 for two years, while earning 8% simple interest, what is
the total amount of interest that you will earn?
a.$139.97
b.$139.20
c.$19.20
d.$19.97
3) bavarian sausage just issued a 10-year 12% coupon bond. the face value of the bond
is $1,000 and the bond makes annual coupon payments. if the required return on the
bond is 10%, what is the bonds price?
a.$815.16
b.$1,000
c.$1,122.89
d.$1067.24
4) the capital budgeting process involves
a.identifying potential investments and estimating the incremental cash inflows and
outflows of cash associated with each investment
b.analyzing and prioritizing the investments utilizing various decision criteria
c.implementing and monitoring the selected investment projects
d.estimating a fair rate of return on each investment given its risk
e.all of the above
5) what do we call the possible conflict of interests between shareholders and
management?
a.agency problem
b.stakeholder problem
c.double taxation
d.shareholders dilemma
6) you are a venture capitalist that is going to invest $7 million dollars today in a firm
that is projected to be worth $200 million six years from today when it is expected to
have an initial public offering. if you require a 35% annual return on investments with
this kind of risk, then what portion of the equity of the firm should you own after the
investment?
a.3.50%
b.21.12%
c.35.00%
d.none of the above
7) narrbegin: swerling company
swerling company
swerling company is considering a project with the following cash flows.
narrend
what is the profitability index of the proposed swerling company project if the discount
rate is 6%?
a..03
b.1.03
c.2.03
d.3.03
8) bonds issued by us states or local governments are called:
a.treasury bonds
b.municipal bonds
c.corporate bonds
d.yankee bonds
9) narrbegin: stock returns
narrend
what is the variance of returns for stock a?
a..00607
b..00653
c..00655
d..00506
10) emma international recently conducted an ipo, emma received $52 per share and the
offer price was $54 per share and the stock price rose to $59 per share. what was the
one day return?
a.9.26%
b.9.62%
c.12.96%
d.11.86%
11) narrbegin: npv profile
npv profile
the figure below shows the npv profile for two investment projects.
narrend
refer to npv profile. whats the irr for project 1?
a.12%
b.14%
c.18%
d.cannot tell from the given information
12) in historical terms, although not necessarily the case now, risk management has
focused on firm-specific events such as
a.currency risk
b.interest rate risk
c.workers compensation claims
d.none of the above
13) a zero-balance account is designed to:
a.provide early notification of checks that will be presented against a company’s
account on a given day
b.help combat a common type of check fraud
c.provide a company with outsourcing of its accounts payable or disbursement
operations
d.eliminate nonearning cash balances in corporate checking accounts
14) which of the following is not a stakeholder?
a.competitors
b.tax collection agencies
c.suppliers
d.customers
15) a 10-year treasury bond with par value of $1,000 has a 6% coupon rate and pays
interest every six months. the bond is three years old and has just made its sixth
payment. the market now only requires a 5% return on the bond. what is the expected
price of the bond?
a.$802.03
b.$1,058.45
c.$1,077.95
d.$1,350.73
16) which of the following statements is false?
a.multiple irrs result when a project’s cash flows alternate between negative and positive
values
b.if a project has multiple irrs its npv profile will cross the x-axis more than once
c.the general rule of thumb is that a project will have as many irrs are there are negative
cash flows
d.there are occasions when a project’s irr may involve imaginary numbers
e.all of the above statements are true