1) the amount of time that it takes for a check to clear through the banking system is
called
a.mail float
b.processing float
c.clearing float
d.delivery float
2) emma bonds have 14 years to maturity, with a coupon rate of 8%, paid annually; if
the appropriate discount rate is 6% what is the current value of emma bonds?
a.$1,060.22
b.$1,180.22
c.$1,185.90
d.$1,080.00
3) beech industries is a u.s. company that sells shoes to japanese retailers. beech
industries just signed a contract to sell 1,000 pairs of shoes to yakata inc. the total price
for these shoes is ¥200,000. the shoes will be delivered today but beech industries wont
receive payment for 6 months. the current spot rate is ¥127/$ and the 6-month forward
rate is ¥128/$. marcus duncan, the treasurer at beech industries, expects that in 6
months the spot rate will ¥131/$. based on the information given beech industries is
most likely to
a.enter into a 6-month forward contract and lock in the rate ¥128/$
b.remain unhedged on this transaction
c.demand payment today instead of in 6 months
d.cancel the transaction with yakata inc. because they will lose too much of their profit
due to exchange rate movements
4) a business with a single owner is called a
a.partnership
b.sole proprietorship
c.corporation
d.limited liability company
5) narrbegin: abc corp.
abc corporation
abc corporation just paid a dividend of $1.50 a share. the dividend is expected to grow
at 10% a year for the next 2 years, and the 5% per year thereafter. the required return to
invest in abc stock is 12.50%.
narrend
what is the intrinsic value (or current price) of abc?
a.$21.00
b.$22.98
c.$23.41
d.$24.48
6) john smith seeks $7.5 million from a vc fund. john and the vc agree that the company
should be ready to go public in 4 years. at that time the company should have a market
capitalization of $146.75 million. if the vc requires a 54% return on their investment,
what is the fraction of the firm that the vc will receive for its $7.5 million investment?
a.28.74%
b.71.26%
c.54.00%
d.38.57%
7) narrbegin: bavarian brew float
bavarian brew float
bavarian brew receives about 350 checks a day with an average check size of $550.
currently customers payments spend 2 days in the mail. once a check is received it takes
about 1.5 days to process it and another 4 days to clear the banking system. the firms
opportunity cost is 10%. assume a 365-day year.
narrend
bavarian brew is contemplating implementing a collection system that would decrease
the collection float by 2.5 days. what would be the annual benefit of that system?
a.$481,250
b.$48,125
c.$96,250
d.$75,480
8) narrbegin: loose cannon refunding
loose cannon co.
loose cannon co. is evaluating a new $75 million bond issue, the proceeds of which
would be used to call and retire its outstanding $75 million bonds. details on both bond
issues are presented below. the firm is in the 35% tax bracket.
old bonds the old issue sold at par, with a coupon rate of 11 percent. it was issued five
years ago with a twenty year maturity. the issue had $350,000 in flotation costs and
carries a call price of $1150.
new bonds the new issue are expected to sell at par with an 8.5 percent coupon rate and
a 15 year maturity. flotation costs are forecast to be $500,000. interest payments will
overlap for 2 months while the old bonds are retired.
narrend
refer to loose cannon co. what is the npv of the refunding decision?
a.$3,654,164
b.$5,356,375
c.$1,224,292
d.$8,614,375
9) narrbegin: bavarian brew bond
bavarian brew bond
bavarian brew is thinking about recalling $30 million of 15 year, $1,000 par value
bonds, that were issued ten years ago. the bonds carry a coupon rate of 7.8% and have a
call price of $1,110. initially the bonds generated total proceeds of $28.65 million and
the flotation costs were $500,000. bavarian brew wants to sell $30 million of 5 year,
$1,000 par value bonds with a 5.8% coupon rate to retire the old bonds. the flotation
costs on the new bond issue are estimated to be $525,000. due to having to issue the
new bonds before the old bonds can be retired the company expects a period of 3
months were they have to pay interest on the old and the new bonds. assume a tax rate
of 34%
narrend
refer to bavarian brew bond. what are the annual tax savings from the amortization of
the flotation costs on the old bond?
a.$11,333
b.$33,333
c.$21,999
d.$18,988
10) which of the following is not one of the five cs of credit?
a.character
b.collections
c.capital
d.collateral
11) suppose your firm can borrow at 10%. which of the following discounts should
your firm take?
a.ii only
b.i and iii
c.ii and iv
d.i, iii, and iv
12) narrbegin: bavarian brew float
bavarian brew float
bavarian brew receives about 350 checks a day with an average check size of $550.
currently customers payments spend 2 days in the mail. once a check is received it takes
about 1.5 days to process it and another 4 days to clear the banking system. the firms
opportunity cost is 10%. assume a 365-day year.
narrend
bavarian brew is contemplating implementing a lockbox system that would decrease the
collection float by 2 days. what would be the most the company should be willing to
pay on an annual basis for the system?
a.$96,250
b.$482,500
c.$38,500
d.$48,125
13) narrbegin: bavarian sausage
bavarian sausage
you bought a share of bavarian sausage stock for $46.50 at the beginning of the year.
during the year the stock paid a $2.75 dividend and at the end of the year it trades at
$52.75.
narrend
refer to bavarian sausage. what is the capital gain/loss on your stock investment?
a.5.91%
b.13.44%
c.19.35%
d.28.24%