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1) what recent act has attempted to reduce the possibility of more accounting scandals
in our economy?
a.tax relief act of 2003
b.internal accounting standards act of 2002
c.mccain-feingold act of 2003
d.sarbanes-oxley act of 2002
2) narrbegin: gamma electronics
gamma electronics
gamma electronics is considering the purchase of testing equipment that will cost
$500,000 to replace old equipment. assume the new machine will generate after-tax
savings of $250,000 per year over the next four years.
narrend
if gamma electronics has a 15% cost of capital, whats the npv of the investment?
a.$213,745
b.$185,865
c.$713,745
d.$500,000
3) your firm has issued $100,000,000 bonds with a fixed cost of 10% to the firm. in
addition, the firm has entered into a contract to pay a bank libor + .5% while the bank
pays the firm 8.5%, with both notional amounts also being $100,000,000. what is the
total cost to your firm for the $100,000,000 borrowing?
a.libor + 1%
b.libor - 1%
c.libor + 2%
d.libor - 2%
4) a balloon payment is
a.payment made on circus debt
b.a large front-end debt payment, followed by smaller payments
c.a large lump-sum payment at maturity of a debt
d.none of the above
5) an asset has a beta of 2.0 and an expected return of 20%. the expected risk premium
on the market portfolio is 5% and the risk-free is 7%. the stock is
a.overpriced
b.underpriced
c.appropriately priced
d.cannot tell from the given information
6) your aunt is evaluating her retirement pension. she can retire at age 65 and collect
$1,000 per month for the rest of her life. assume that payments begin one month after
her 65th birthday. if your aunt lives to be exactly 80 years old and can earn 7% interest
(compounded monthly), what is the equivalent lump sum she would need at retirement
to equal the value of the pension?
a.$106,906
b.$111,256
c.$115,313
d.$215,027
7) if the current spot exchange rate on the euro is $1.2812/ and the one year risk free
rate for borrowing in dollars is 3% and 4% for borrowing in euros, what should be the
one year $/ forward exchange rate?
a.1.2812
b.1.2689
c.1.2936
d.1.2469
8) when a firms liabilities exceed the fair market value of its assets the firm
a.is insolvency bankrupt
b.is in default
c.is in a liquidity crisis
d.none of the above
9) which of the following activities is not one of the three principal lines of business for
u.s.-based investment banks?
a.working capital management
b.corporate finance
c.trading
d.asset management
10) the proposition that the market value of the firm is independent of its capital
structure is called . . .
a.m&m proposition i
b.m&m proposition ii
c.the capital asset pricing model
d.none of the above
11) narrbegin: cash disbursements
bavarian brews schedule of projected cash disbursement
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
what are bavarian brews cash disbursements in april?
a.$1,1046.63
b.$729.63
c.$679.63
d.$1,229.63
12) you are trying to prepare a budget based upon the amount of cash flow that you will
have available 5 years from now. you are initially promised a regular annuity of $50
with the first payment to be made 1 year from now and the last payment 5 years from
now. however, you are actually going to receive an annuity due with the same number
of payments but where the first payment is to begin immediately. how much (or less)
cash will you have 5 years from now based upon that error if the rate to invest funds is
10%?
a.$50.00
b.$38.58
c.$30.52
d.($30.52)
13) easy points one has just paid a dividend of $2.50, has a growth rate of 11% and a
current stock price of $52.65. what is the required return for the security?
a.15.75%
b.16.27%
c.15.75%
d.27.27%
14) narrbegin: smart acquires snazzy
smart acquires snazzy
smart products plans to acquire snazzy snaps, which will create $8 million in
incremental cash flows for smart each year for the first six years. smart products plans
to divest snazzy snaps at the end of the sixth year for $112,500,000. smarts beta (b) is
1.2, and is expected to remain so after the acquisition. the risk free rate is 5 percent and
the expected return on the market is 16 percent. smart products has a 100 percent equity
capital structure which will be maintained post-acquisition.
narrend
refer to smart acquires snazzy. what is smart products cost of equity?
a.24.2%
b.18.2%
c.16.0%
d.11.0%
15) snooty wine importers has an order of exclusive chateau de snoot wines arriving
from france in october, and the order will be paid in euros. which of the following will
hedge the importers currency exposure?
a.buy euros forward
b.sell euros forward
c.sell dollars forward
d.sell wine futures
16) narrbegin: dilly deli
dilly deli, inc.
dilly deli, inc., a nation-wide chain of deli-style restaurants, has built a $34,000 balance
in one of its regional bank accounts. it wishes to move $30,000 to its main
concentration account. a dtc cost $1.50 and requires 3 days to clear; an edt costs $3.00
but requires only 1 day to clear; and a wire transfer costs $15 and clears the same day.
dilly deli, inc. can earn 7% on short term investments.
narrend
refer to dilly deli. which of the following is true?
a.the wire transfer dominates both the dtc and the edt
b.the wire transfer dominates the edt but not the dtc
c.the dtc dominates both the edt and the wire transfer
d.the edt dominates the dtc and the wire transfer
17) what type of mutual fund managers do extensive analysis to identify mispriced
stocks?
a.passive
b.index
c.active
d.short
18) venture capital funds typically use stage financing in order to
a.ensure that the entrepreneur is disciplined in goal achievement
b.to minimize risk
c.to retain an option for funding future developmental stages of the firm
d.all of the above
