1) which of the following characteristics would disqualify a firm from being an s
corporation?
a.a firm with 51 different individual shareholders
b.the controlling majority shareholder is a fortune 500 corporation
c.one of the shareholders of the proposed s corporation is an elected official
d.none of the above would disqualify a firm from qualifying as an s corporation
2) according to the capm (capital asset pricing model), what is the single factor that
explains differences in returns across securities?
a.the risk-free rate
b.the expected risk premium on the market portfolio
c.the beta of a security
d.the expected return on the market portfolio
e.the volatility of a security
3) narrbegin: bavarian brewhouse div.
bavarian brewhouse dividend
bavarian brewhouse had earnings per share of $2.50 in 2004 and paid out a dividend per
share of $1.45 that same year. earnings per share are expected to be $3.25 in 2005.
narrend
what was bavarian brewhouses dividend payout ratio in 2004?
a..58
b..62
c..35
d..42
4) bavarian brewhouse is planning on going public. under the underwriting agreement
the underwriting discount is 7.25%. if the offering price of the stock is set at $12.50 per
share, what is the per share proceeds that bavarian will receive?
a.$11.59
b.$10.67
c.$13.41
d.$12.50
5) paul earns $60,000 as an engineer, and he is considering quitting his job and going to
graduate school. this $60,000 should be treated as a ____ if paul runs an npv analysis of
his graduate degree.
a.sunk cost
b.opportunity cost
c.fixed cost
d.cannibalization cost
6) the vast majority of external capital raised by companies each year is
a.common stock
b.preferred stock
c.short-term debt
d.long-term debt
7) narrbegin: bavarian brew eps
bavarian brew eps
bavarian brew, an unlevered firm, has a perpetual ebit of $500,000. the required return
on assets for the firms assets is 10%. the company has 250,000 shares outstanding,
trading at $20 per share. the company is considering raising $1 million in debt with a
required return of 6% and would use the proceeds to repurchase 50,000 shares of
outstanding stock.
narrend
calculate bavarian brews earnings per share after the restructuring. assume no corporate
taxes.
a.$2.20
b.$2.50
c.$2.00
d.$2.25
8) a financial intermediary is an institution that:
a.lends money to borrowers and raises that capital by issuing equity
b.lends money to borrowers and raises that capital by issuing liabilities against itself
c.issues stocks and sells shares in itself to generate cash for investing for the
stockholders
d.none of the above
9) fading away corporation just paid a dividend of $1.23 and has an expected growth
rate of -5% for the foreseeable future, if the discount rate is 7% what is the appropriate
stock price today?
a.$ 58.86
b.$ 47.72
c.$ 50.35
d.$ 47.84
10) prior to fasb no. 13, leasing could be used
a.to finance assets used in the firm without balance sheet consequences
b.but lease payments were not expensed on the income statement
c.only by largest corporations
d.but its advantages were fewer than under the present standard
11) which of the following statements is true?
a.to help combat optimistic bias when estimating a projects cash flows, companies
place responsibility for analyzing an investment proposal under an independent
authority from the group proposing the project
b.financial experts need to have a sense of what is reasonable when forecasting a
potential projects profit margin and growth potential
c.financial analysts need to be prepared to defend their assumptions for a potential
project and explain why their estimates do not agree with those offered by the projects
advocates
d.all of the above are true
e.only (a) and (c) are true
12) the profitability index is most useful
a.when the npv method and the irr method give conflicting signals on mutually
exclusive projects
b.in capital rationing situations
c.when the cash flow pattern is unusual
d.when project scales are of concern
13) narrbegin: stock returns
narrend
what is the standard deviation of returns for stock c?
a.7.79%
b.8.52%
c.8.09%
d.6.38%