FIN 769 1 Oakdale Fashions Inc had

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1) Oakdale Fashions Inc. had $255,000 in 2011 taxable income. If the firm paid

$82,100 in taxes, what is the firm’s average tax rate?

A.34.70%

B.32.20%

C.29.90%

D.28.20%

2) Suppose a firm has had the historical sales figures shown below. What would be the

forecast for next year’s sales using the average approach if it was determined that years

2004 and 2005 were ‘stale”?

A.$1,900,000

B.$2,500,000

C.$2,833,333

D.$3,000,000

3) Of the capital budgeting techniques discussed, which works equally well with normal

and non-normal cash flows and with independent and mutually exclusive projects?

A.payback period

B.discounted payback period

C.modified internal rate of return

D.net present value

4) The concept of interest parity describes ________________.

A.Why spot and forward rates differ

B.How inflation causes exchange rates to change

C.Why identical products should have the same price

D.None of these

5) Income Statement Bullseye, Inc.’s 2010 income statement lists the following income

and expenses: EBIT = $900,000, Interest expense = $85,000, and Net income =

$570,000. What is the 2010 Taxes reported on the income statement?

A.$245,000

B.$330,000

C.$815,000

D.There is not enough information to calculate 2010 Taxes

6) Suppose a firm has had the historical sales figures shown below. What would be the

forecast for next year’s sales using regression to estimate a trend?

A.$2,140,000

B.$2,225,000

C.$2,300,000

D.$2,500,000

7) As the production manager of HPG, Inc., you have received an offer from the

supplier who provides the wires used in headsets. Due to poor planning, the supplier

has an excess amount of wire and is willing to sell $750,000 worth for only $600,000.

You already have one year’s supply of wire on hand. This new wire would be used one

year from today. What implied interest rate would your firm be earning if you

purchased the wire?

A.-20%

B.13.5%

C.21%

D.25%

8) Debt Management Ratios Will’s Wheels, Inc. reported a debt-to-equity ratio of .65

times at the end of 2011 . If the firm’s total debt at year-end was $5 million, how much

equity does Will’s Wheels have?

A.$.65 million

B.$3.25 million

C.$5 million

D.$7.69 million

9) Currency Exchange Compute the number of dollars that can be bought with 5 million

of foreign currency units:

$1 = 2,150.4 Venezuelan Bolivar

A.$2,325.1488

B.$232,514.88

C.$7,325,000

D.$43,008,000.00

10) Average Return The past five monthly returns for PG Company are 3.25 percent,

-1.45 percent, 4.35 percent, 6.49 percent, and 3.75 percent. What is the average monthly

return?

A.1.366%

B.1.608%

C.3.278%

D.3.858%

11) Market Value versus Book Value Acme Bricks balance sheet lists net fixed assets as

$40 million. The fixed assets could currently be sold for $50 million. Acme’s current

balance sheet shows current liabilities of $15 million and net working capital of $12

million. If all the current accounts were liquidated today, the company would receive

$77 million cash after paying $15 million in liabilities. What is the book value of

Acme’s assets today? What is the market value of these assets?

A.$12 million, $77 million

B.$27 million, $92 million

C.$40 million, $50 million

D.$67 million, $142 million

12) An all-equity firm is considering the projects shown below. The T-bill rate is 3

percent and the market risk premium is 6 percent. If the firm uses its current WACC of

12 percent to evaluate these projects, which project(s) will be incorrectly rejected?

A.Project A

B.Projects B and C

C.Project D

D.Project B

13) TIPS Total Return Reconsider a 3.25% TIPS that was issued with CPI reference of

186.7. The bond is purchased at the beginning of the year (after the interest payment),

when the CPI was 197.5. For the interest in the middle of the year, the CPI was 201.1.

Now, at the end of the year, the CPI is 202.4 and the interest payment has been made.

What is the total return of the TIPS in percentage terms for the year? (Assume

semi-annual interest payments and $1,000 par value.)

A.1.6%

B.2.4%

C.5.8%

D.9.1%

14) Calculating Costs of Issuing Stock Wildcat, Inc., needs to raise $750 million to

finance its plan for nationwide expansion. In discussions with its investment bank,

Wildcat’s learns that the bankers recommend an offer price (or gross price) of $25 per

share and they will charge an underwriter’s spread of $1.50 per share. Calculate the net

proceeds to Wildcat’s from the sale of stock. How many shares of stock will Wildcat’s

need to sell in order to receive the $750 million they need?

A.30,000,000

B.31,914,894

C.500,000,000

D.750,000,000

15) Suppose a firm has had the historical sales figures shown below. What would be the

forecast for next year’s sales using the average approach?

A.$1,990,000

B.$1,830,000

C.$2,160,000

D.$2,080,000

16) Give an example of each of the following: (a) Opportunity cost, (b) Substitutionary

effect, (c) Complementary effect and (d) Sunk cost.

17) Your company has a 38% tax rate and has $800 million in assets, currently financed

entirely with equity. Equity is worth $60 per share, and book value of equity is equal to

market value of equity. Also, let’s assume that the firm’s expected values for EBIT

depend upon which state of the economy occurs this year, with the possible values of

EBIT and their associated probabilities as shown below:

The firm is considering switching to a 20-percent debt capital structure, and has

determined that they would have to pay a 10 percent yield on perpetual debt in either

event. What will be the standard deviation in EPS if they switch to the proposed capital

structure?

A.1.53

B.2.35

C.3.32

D.11.04

18) US Bancorp holds a press conference to announce a positive news event that was

unexpected to the market. As soon as the announcement is made, the stock price

increases $8 per share but then over the next hour the price continues to increase

resulting in a total increase of $11. Given this information which of the following

statements is correct?

A.This is an example of a market overreaction

B.This is an example of a market underreaction

C.This is an example of a semi-strong efficient market

D.None of these statements are correct

19) Solving for Rates What annual rate of return is earned on a $2,000 investment made

in year 3 when it grows to $3,000 by the end of year six?

A.6.99%

B.14.47%

C.24.00%

D.50.00%

20) Compute the MIRR statistic for Project I and note whether to accept or reject the

project with the cash flows shown below if the appropriate cost of capital is 15 percent.

Project I

A.The project’s MIRR is 10.29% and the project should be rejected

B.The project’s MIRR is 12.67% and the project should be rejected

C.The project’s MIRR is 17.17% and the project should be accepted

D.The project’s MIRR is 18.19% and the project should be accepted

21) The Rule of 72 is a simple mathematical approximation for:

A.the present value required to double an investment

B.the future value required to double an investment

C.the payments required to double an investment

D.the number of years required to double an investment

22) Expected Return Risk Compute the standard deviation of the expected return given

these three economic states, their likelihoods, and the potential returns:

A.6.8%

B.16.5%

C.21.5%

D.46.4%

23) For which of the following would one expect the book value of the asset to differ

widely from its market value?

A.Cash

B.Accounts receivable

C.Inventory

D.Fixed assets

24) Debt Management Ratios You are considering a stock investment in one of two

firms (LotsofDebt, Inc. and LotsofEquity, Inc.), both of which operate in the same

industry. LotsofDebt, Inc. finances its $100 million in assets with $90 million in debt

and $10 million in equity. LotsofEquity, Inc. finances its $100 million in assets with

$10 million in debt and $90 million in equity. What are the debt ratio, equity multiplier,

and debt-to-equity ratio for the two firms?

A.LotsofDebt: 90%, 10 times, 9 times, respectively; and LotsofEquity: 10%, 1.11 times,

.1111 times, respectively

B.LotsofDebt: 10%, 1.11 times, .1111 times, respectively; and LotsofEquity: 90%, 10

times, 9 times, respectively

C.LotsofDebt: 90%, 1.11 times, .1111 times, respectively; and LotsofEquity: 10%, 10

times, 9 times, respectively

D.LotsofDebt: 10%, 10 times, 9 times, respectively; and LotsofEquity: 90%, 1.11 times,

.1111 times, respectively

25) Current Yield What’s the current yield of an 8.15 percent coupon corporate bond

quoted at a price of 94.30?

A.4.30%

B.8.01%

C.8.15%

D.8.64%

26) Which of the following describes the type of venture capital firms who are wealthy

individuals who make equity investments?

A.blue chip venture capital firms

B.institutional venture capital firms

C.angel venture capitalists

D.expertise venture capitalists

27) Balance Sheet Harvey’s Hamburger Stand has total assets of $3 million of which $1

million are current assets. Cash makes up 20 percent of the current assets and accounts

receivable makes up another 5 percent of current assets. Harvey’s gross plant and

equipment has a book value of $1.5 million and other long-term assets have a book

value of $1 million. Using this information, what is the balance of inventory and the

balance of depreciation on Harvey’s Hamburger Stand’s balance sheet?

A.$250,000, $500,000

B.$250,000, $1 million

C.$750,000, $500,000

D.$750,000, $1 million

28) Dividend yield is defined as

A.the last four quarters of dividend income expressed as a percentage of the par value

of the stock

B.the last four quarters of dividend income expressed as a percentage of the current

stock price

C.the last dividend paid expressed as a percentage of the current stock price

D.the next dividend to be paid expressed as a percentage of the current stock price

29) Which of the following is defined as when the bond issuing firm invites bids from a

number of underwriters?

A.competitive sale

B.negotiated sale

C.commercial sale

D.auction

30) How much would be in your savings account in 7 years after depositing $100 today

if the bank pays 5% interest per year?

A.$135.00

B.$140.71

C.$735.00

D.$814.20

31) These can be used by interested parties to identify changes in corporate

performance.

A.common-size financial statements

B.industrialized financial statements

C.sanitized financial statements

D.None of these

32) An objective approach to calculating divisional WACCs would be done by

A.simply considering the project’s risk relative to the firm’s lines of business and

adjusting upward or downward to account for subjective opinions of project risk

B.computing the average beta for the firm, the firm’s CAPM formula, and the firm’s

WACC

C.computing the average beta per division, using these figures for each division in the

CAPM formula, and then constructing divisional WACCs

D.simply averaging out all the WACCs for all the firm’s projects

33) Value a Constant Growth Stock Financial analysts forecast Best Buy Company

(BBY) growth for the future to be 13 percent. Their recent dividend was $0.49. What is

the value of their stock when the required rate of return is 14.13 percent?

A.$3.92

B.$4.90

C.$43.36

D.$49.00

34) Similar to the Capital Market Line except risk is characterized by beta instead of

standard deviation.

A.Market Risk Line

B.Probability Market Line

C.Security Market Line

D.Stock Market Line

35) Bonds are issued by which of the following?

A.corporations

B.federal government or its agencies

C.state and local governments

D.all of these

36) Coca-Cola recently paid a $3.00 dividend. Investors expect a 12% return on this

stock. What is the difference in price if Coca-Cola is expected to grow at 6% versus

8%?

A.$18

B.$48

C.$28

D.$38