1) a call option on dani corp. is trading for $4.50. the strike price of the option is $25
and it has an expiration of 3 months. if the stock of dani corp. is trading at $28, how
much of the option premium is attributed to intrinsic value?
a.$1.50
b.$3.00
c.$25
d.$28
2) the board of directors of smith enterprises announced a dividend of $1.75 per share
on august 2. the dividend will be paid out to all shareholders of record as of august 10.
if you bought 100 shares of smith enterprises stock on august 3, how much total
dividend are you going to receive?
a.$0
b.$1.75
c.$175
d.$350
3) a merger in which both the acquirer and target disappear as separate corporations,
combining to form an entirely new corporation with new common stock.
a.subsidiary merger
b.statutory merger
c.subsidiary merger
d.reverse triangle merger
e.consolidation
4) what is a basic guide for financial decision making?
a.make decisions where the benefits exceed the costs
b.make decisions where the total benefits exceed the total costs
c.make decisions where the average benefits exceed the fixed costs
d.make decisions where the average benefits exceed the average costs
5) narrbegin: milner – poudre
milner – poudre
milner manufacturing plans to acquire poudre chemicals, by giving poudre shareholders
1.75 shares of milner stock per share of poudre. there are 2 million shares of poudre
chemicals outstanding, with a pre-merger-offer price of $25 per share, and milners
pre-offer stock price is $16.50.
narrend
what is the control premium being offered by milner manufacturing?
a.$3.875 per share
b.$18.75 per share
c.$8.50 per share
d.$14.875 per share
6) narrbegin: kennesaw steel corp.
kennesaw steel corporation
as chief financial officer of the kennesaw steel corporation (ksc), you are considering a
recapitalization plan that would convert ksc from its current all-equity capital structure
to one including substantial financial leverage. ksc now has 100,000 shares of common
stock outstanding, which are selling for $50.00 each, and the recapitalization proposal is
to issue $2,000,000 worth of long-term debt at an interest rate of 8.0 percent and use the
proceeds to repurchase $2,000,000 of common stock.
narrend
refer to kennesaw steel corporation. what is the new debt-to-equity ratio if the
recapitalization is completed? (assume that the stock can be repurchased at $50 per
share)
a.1.50
b.1.00
c.0.67
d.0.33
7) you have it on good account that the probability of good returns on energy
investments is equal to that of poor returns. if we define good returns as 100% while
that of poor returns is 50%, then what is the probability of getting an exact return of
75% in the next year?
a.50%
b.25%
c.0%
d.there is not enough information to solve the problem
8) narrbegin: exhibit 14-1
exhibit 13-1
you currently hold 100 shares of bavarian sausage, inc. stock which you purchased
three months ago at $25.50 and which is currently trading at $28. the stock will pay a
$3.75 dividend in a few days and the ex-dividend day is tomorrow. your personal tax
rate on dividend income is 25% and the capital gains tax is 15%.
narrend
refer to exhibit 14-1. if you were to sell your stock today, what would be the after tax
return on your investment?
a.8.33%
b.9.88%
c.7.45%
d.11.27%
9) the springfield crusaders just signed their quarterback to a 10 year $50 million
contract. is this contract really worth $50 million? (assume r >0)
a.yes, because the payments over time add up to $50 million
b.no, it is worth more because he can invest the money
c.no, it would only be worth $50 million if it were all paid out today
d.yes, because his agent told him so
10) a corporation is a separate legal entity. what consequences does that have for the
corporation?
a.it can sue and be sued
b.they can own property
c.a only
d.a and b
11) if the spot rate for marsian spotlets (mrs) is 4 per u.s. dollar (usd) and the risk-free
rates of return are 10% and 2%, respectively for the marsian and u.s. economy, then
what should the 1-year forward rate be for mrs/usd?
a.4.3137
b.4.0000
c.0.2318
d.none of the above
12) the required rate of return:
a.is used as the discount rate when valuing an asset’s expected cash flows
b.is increased when an asset’s cash flows are considered to be riskier
c.is a fixed rate that remains the same for all investors regardless of changes in the
market
d.both (a) and (b)
e.all of the above
13) narrbegin: exhibit 17-1
exhibit 23-1
s&p 500 index; $250 index may 2004
narrend
refer to exhibit 23-1. if you are interested in purchasing a september s&p 500 index
futures contract, what is the value of that contract?
a.$524,950
b.$210,569
c.$329,574
d.$262,475