1) alwaysaround co. has just issued a preferred stock that pays an annual $4 dividend.
the first dividend will be received one year from today. if the required rate of return on
this stock is 5%, then what is the price of the stock?
a.$3.81
b.$4.20
c.$80.00
d.none of the above
2) narrbegin: polyana
polyana shoe store
the polyana shoe store had sales last year of $50,000,000 based upon a cost of goods
sold of $40,000,000. polyana also has inventory, accounts receivable, and accounts
payable of $5,000,000, $7,000,000, and $9,000,000, respectively.
narrend
what is polyanas average payment period?
a..1 days
b.10.0 days
c.29.2 days
d.82.1 days
3) narrbegin: kooshy
narrend
kooshy company wishes to maintain its dividend policy in the upcoming year. what will
be the pro forma addition to retained earnings if sales are forecasted to increase 20%
and all costs are proportional to sales?
a.$5
b.$37
c.$50
d.$45
4) which of the following parties have the proper incentives to make risky, value
increasing investments for the firm?
a.suppliers
b.creditors
c.shareholders
d.managers who are only compensated with a salary
5) of the following bonds, which one has the highest degree of interest rate risk?
a.20 year 8% bond
b.5 year 8% bond
c.10 year 8% bond
d.not enough information
6) which approach estimates npv by changing the value of several assumptions at once
to represent possible outcomes of the project?
a.forecasting simulation
b.monte carlo simulation
c.sensitivity analysis
d.scenario analysis
7) what are the responsibilities of the board of directors in a corporation?
a.hire and fire managers
b.manage day-to-day operations
c.amend the firms corporate charter when necessary
d.hire and fire entry level employees
8) a firms operating cycle measures
a.the time that elapses from the firms receipt of raw materials until it pays for those
materials
b.the time that elapses from the payment of raw materials until the firm is paid for its
finished product
c.the time that elapses from the firms receipt of raw materials to begin production to its
collection of cash from the sale of the finished product
d.none of the above
9) hamilton industries needs a bulldozer. the purchasing manager has her eye on a new
model that will be available in three years at a price of $75,000. if hamilton’s discount
rate is 11%, how much money does she need now to pay for the bulldozer when its
available?
a.$49,405
b.$50,250
c.$54,839
d.$60,872
10) narrbegin: exhibit 6-1
exhibit 6-1
suppose that an investor bought a bond last year for $980. the bond pays a 7% annual
coupon and has a face value of $1,000. today, the same bond is selling for $960.
narrend
refer to exhibit 6-1. if the investor sells the bond this morning, what is the total
percentage return of the investment?
a.5.10%
b.5.21%
c.7.00%
d.9.18%
11) john smith seeks $15 million from a vc fund. john and the vc agree that the
company should be ready to go public in 8 years. at that time the company should have
a market capitalization of $368.75 million. if the vc requires a 45% return on their
investment, what is the fraction of the firm that the vc will receive for its $15 million
investment?
a.20.51%
b.15%
c.79.49%
d.63.47%
12) consider the adjusted closing prices for roxy stock
what is the holding period return for roxy?
a.7.02%
b.22.60%
c.15.60%
d.16.70%
13) narrbegin: abc logistics
abc logistics
the managers of abc logistics (abc) have decided to expand the companys operations
into a few new markets. to fund this opportunity, abc has decided to launch a seasoned
equity offering to raise new equity capital. abc currently has 12 million shares
outstanding, and yesterdays closing market price was $40.00 per abc share. the
company plans to sell 3 million newly issued shares in its seasoned offering. the
investment banking firm of armstrong incorporated has agreed to underwrite the new
stock issue for a 4 percent discount from the offering price, which abc and armstrong
have agreed should be $0.50 per share lower than abcs closing price the day before the
offering is sold.
narrend
if abcs stock price closes at $39.00 the day before the offering, what will be the net
proceeds for abc from this offering?
a.$109.55 million
b.$110.88 million
c.$112.32 million
d.$117.00 million
14) venture capitalists:
a.are banks that provide capital only for low-risk corporations
b.will only make investments if there is no risk involved
c.are professional investors who provide capital for high risk/high return
rapidly-growing entrepreneurial business
d.none of the above
15) bavarian brew has an average payment period of 35 days, an average age of
inventory of 27 days and a cash conversion cycle of 16 days. what is the companys
average collection period?
a.24 days
b.51 days
c.16 days
d.38 days
16) emma international is considering easing credit standards to increase sales, and
potentially profits. currently the firm sells 500,000 units at a sales price of $22 per unit
and variable cost of $13 per unit. currently the average collection period is 25 days and
the bad debt expense is 2% of sales. the required return on investment is 12%. if credit
standards are eased, the sales will increase to 600,000 units; the acp will increase to 35
days; and the bad debt expense will increase to 3% all else will remain the same. what
is the marginal profit from increased sales?
a.$ 900,000.00
b.$11,000,000.00
c.$ 2,200,000.00
d.$ 1,300,000.00
17) narrbegin: tax trade off theory
narrend
a graphical representation of the trade-off model is shown. various components of the
graph are labeled. which of the following corresponds to line 4?
a.present value of interest tax shields on debt
b.present value of expected bankruptcy and agency costs
c.value of levered firm with bankruptcy costs
d.value of levered firm in the absence of bankruptcy and agency costs
e.value of firm under all-equity financing
18) if you can earn 5% (compounded annually) on an investment, how long does it take
for your money to triple?
a.14.40 years
b.22.52 years
c.19.48 years
d.29.29 years
19) emma international has an ebit of $35 million, debt with a market value of $30
million and a required return on assets of 13%. assuming no taxes, what is the firm ‘s
value?
a.$269,230,769
b.$230,769,231
c.$265,769,231
d.$161,538,462
20) bavarian sausage free cash flow for the current year is $6,750,000 and investors
believe that the companys free cash flow will grow by 5% annually forever. if bavarian
sausages weighted average cost of capital is 15%, what is their enterprise value?
a.$67,500,000
b.$85,350,000
c.$56,780,000
d.$70,875,000