1) the fico score:
a.was developed by fair isaac & company
b.is based on a person’s income and overall indebtedness, the type of debt outstanding
and the monthly payment amounts
c.can have a large impact on the interest rate a person is charged on their mortgage
d.all of the above
e.(b) and (c) only
2) narrbegin: silly sally
silly sally, inc.
silly sally, inc. forecasts the following sales levels: january, $420; february, $435;
march, $450; and april, $470. historically, 40% of its sales are for cash. of the remaining
sales, 80% are collected in one month, 15% are collected in the second month, while
the rest remain uncollected. november sales were $380 and december sales were $500.
(all values $000)
purchases are made at 60% of the next months sales forecast, and are paid for in the
month of purchase. other cash outlays are: rent, $10 monthly; wages and salaries, $50
monthly; a tax payment of $30 in march; an interest payment of $15 in march; and a
planned purchase of $20 of new fixed assets in january.
narrend
refer to silly sally, inc. what is the forecasted amount to be collected from cash sales in
march?
a.$450
b.$360
c.$261
d.$180
3) narrbegin: bavarian brew
bavarian brew
bavarian brew, an unlevered firm, has an expected ebit of $500,000. the required return
on assets for the firms assets is 10%. the company has 250,000 shares outstanding. the
company is considering raising $1 million in debt with a required return of 6% and
would use the proceeds to repurchase outstanding stock.
narrend
refer to bavarian brew. what is the pv of bankruptcy costs for which the company is
indifferent about the proposed change in capital structure?
a.$450,000
b.$750,000
c.$340,000
d.$275,000
4) narrbegin: swerling company
swerling company
swerling company is considering a project with the following cash flows.
narrend
what is the discounted payback period of the proposed swerling company project if the
discount rate is 6%?
a.6.89 years
b.5.89 years
c.3.89 years
d.4.89 years
5) if you were to purchase an asset for $100 today and receive a dividend of $5 at the
end of the year in addition to selling the asset for $110, then what would the capital gain
on the asset be?
a.15%
b.10%
c.5%
d.none of the above
6) as the discount rate increases, the irr of a project:
a.increases
b.decreases
c.is unaffected
d.cannot be determined with out knowing the discount rate
7) narrbegin: “flip” shares 1
“flip” shares 1
three companies went public last month with initial public offerings (ipo). the offer
price and first day closing price are shown below for the three firms. an investor was
able to purchase 100 shares of each company at the offer price and then flip the shares
at the end of the day for the full return.
narrend
refer to “flip” shares 1. what was the return on this investment at the end of the first
day? (ignore any tax implications for this question)
a.23.1%
b.25.8%
c.27.5%
d.29.1%
8) you own a call option on a stock and the strike price of the option is $30. the option
has 3 weeks until expiration and the stock is currently priced at $35 per share. what is
the largest payout possible for this call option? ignore the original cost of the option for
the payout calculation.
a.$0
b.$5
c.$30
d.there is an unlimited possible payout on this option
9) when managers of a firm are compensated in options, managements interests may
not be aligned with that of shareholders because
a.managers may have incentives to increase the riskiness of the firm
b.managers would rather be paid in cash
c.the taxes that are paid on the option compensation buffer that form of compensation
from being aligned with the shareholders interests
d.none of the above
10) you want to buy your dream car, but you are $5,000 short. if you could invest your
entire savings of $2,350 at an annual interest of 12%, how long would you have to wait
until you have accumulated enough money to buy the car?
a.9.40 years
b.3.48 years
c.7.24 years
d.6.66 years
11) in an operating lease, which party is typically responsible for maintenance costs on
the asset?
a.the lessor
b.the lessee
c.the third party financing the asset
d.all of the above
12) 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 current average investment in accounts receivable?
a.$41,095.89
b.$54,794.52
c.$821,917.81
d.not enough information is given
13) you are planning your retirement and you come to the conclusion that you need to
have saved $1,250,000 in 30 years. you can invest into an retirement account that
guarantees you a 5% annual return. how much do you have to put into your account at
the end of each year to reach your retirement goal?
a.$81,314.29
b.$18,814.30
c.$23,346.59
d.$12,382.37
14) roxy international recently conducted an ipo, roxy received $32 per share and the
offer price was $34 per share and the stock price rose to $35 per share. what was the
underwriter discount?
a.5.71%
b.6.25%
c.2.86%
d.5.88%
15) agency costs refer to
a.the costs associated with managing the demands of federal agencies
b.the costs involved when converting an entity from a proprietorship to a corporation
c.the costs that arise due to conflicts of interest between shareholders and managers
d.none of the above
16) roxy is evaluating a treasury bill. it is a $1 million face value with a discount of
2.75% and maturing in 182 days. what is the purchase price?
a.$1,000,000.00
b.$986,097.22
c.$972,194.44
d.$1,027,500.00
17) you just bought a pair of shoes for $129. if the $/ exchange rate is $1.2275/, what
should be the price of the identical pair of shoes in france, if the purchasing power
parity holds?
a.105.09
b.154.35
c.129.00
d.95.63
18) narrbegin: kooshy
narrend
using ratios derived from the income statement and balance sheet above, what is kooshy
companys shorthand estimate of external funds required (efr) for a 20% increase in
sales?
a.-$4
b.$0
c.$29
d.$160
19) which type of firm would most likely have the greatest systematic risk?
a.a grocery store chain
b.a electric company
c.a telephone company
d.a vibrating chair manufacturer