1) if a bond issue has a sinking fund provision then
a.the corporation makes payments, based upon a preconceived schedule, to a trustee
who uses these funds to retire bonds by purchasing them in the marketplace
b.the indenture allows the value of the bonds to fall to a pre-identified price before
default occurs
c.a certain portion of the interest payments on the bond are used to retire bonds by
purchasing them in the marketplace
d.none of the above
2) you are considering buying carpet for your university; grade a carpet costs $25.25 a
square yard and lasts 5 years and grade b costs $18.25 a square yard and lasts 3 years;
grade c costs $12.10 a yard and lasts 2 years; which carpet should be chosen if the
discount rate is 5%? assume that due to a large endowment given by the state’s”carpet
king” the university is committed to continued carpet use. what is the eac of grade a
carpet?
a. $ (4.44)
b. $ (4.36)
c. $ (4.22)
d.none of the above
3) two identical companies with identical share prices (and identical numbers of shares
outstanding) change their quarterly dividend by the same amount. however, company a
is increasing its dividend while company b is decreasing its dividend. choose the correct
description of what should follow given the empirical evidence.
a.company as price should increase by more than the decrease in company bs price
b.company as price should increase by less than the decrease in company bs price
c.company bs price should increase by more than the decrease in company as price
d.company bs price should increase by less than the decrease in company as price
4) which of the following items will lead to a rise in net working capital?
a.raw materials are purchased prior to the sale of finished goods
b.the firm increases its cash balance
c.the firm makes a sale on credit
d.the firm buys inventory on credit
e.short-term interest rates fall
a.a,b,c
b.a,b,d,e
c.a,c
d.a,b,c,d
5) narrbegin: speed racer, inc.
speed racer, inc.
speed racer, inc. is thinking about retiring a $100,000,000 issue of bonds that it sold to
the public 20 years ago. the original maturity date for the bonds was 30 years.
narrend
refer to speed racer, inc. if the bonds were initially sold at 98, then what is the dollar
amount of the unamortized discount that would be accelerated at retirement?
a.$66,666.67
b.$666,666.67
c.$2,000,000.00
d.$3,266,666.67
6) you wish to save $2,500,000 for your retirement by saving a certain sum every
month for the next 40 years. if you can earn 9% compounded monthly, and you make
your deposits at the beginning of each month, how much would you have to deposit
each month to achieve your objective?
a.$616.59
b.$534.04
c.$565.67
d.$530.06
e.none of the above
7) 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 accounts receivables turnover under the new credit policy?
a.15.87
b.14.6
c.12.69
d.9.51
8) which of the following statements concerning mail-based collection systems is true?
a.regardless of recent developments in payment processing equipment, it is still too
expensive for smaller companies to use mail-based collection systems
b.generally it is cheaper for high-volume processors to use the lockbox system rather
than mail-based collection systems
c.low-volume processors may find that using a lockbox system is more cost effective
than a mail-based collection system
d.all of the above statements are true
e.only (a) and (b) are true
9) what is the purpose of diversification?
a.maximize possible returns
b.increase the risk of your portfolio
c.lower the overall risk of your portfolio
d.none of the above
10) you sold 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. you
originally sold the call option for $3. what is the largest payout possible total payout to
you for this call option?
a.$0
b.$3
c.$5
d.$30