1) a standard fixed for floating interest rate swap contract is effectively
a.a series of call options on the interest rate
b.a series of put options on the interest rate
c.a series of forward rate agreements
d.none of the above
2) prudent policy life insurance co. offers a 10-year term life insurance policy with a
$250,000 benefit and annual premiums of $200, paid at the beginning of each year. if
prudent can earn 8% on invested capital, what is the present value to the firm of the
premiums from one policy, assuming the policy holder outlives the policy term?
a.$1,120
b.$1,342
c.$1,449
d.$1,852
3) narrbegin: far corporation
far corporation
far corporation is considering a new project to manufacture widgets. the cost of the
manufacturing equipment is $150,000. the cost of shipping and installation is an
additional $15,000. the asset will fall into the 3-year macrs class. the year 1-4 macrs
percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. sales are expected
to be $300,000 per year. cost of goods sold will be 80% of sales. the project will require
an increase in net working capital of $15,000. at the end of three years, far plans on
ending the project and selling the manufacturing equipment for $35,000. the marginal
tax rate is 40% and far corporations appropriate discount rate is 12%.
narrend
refer to far corporation. what is the initial investment outlay for this project?
a.$10,000
b.$135,000
c.$145,000
d.$165,000
4) outsource, inc. expects a payment from a french customer in thirty days. to hedge its
currency exposure, outsource should
a.sell euros forward thirty days
b.buy euros forward thirty days
c.sell dollars forward thirty days
d.do nothing as there is no foreign exchange rate exposure for a thirty day time horizon
5) narrbegin: exhibit 7-1
exhibit 7-1
narrend
given exhibit 7-1, what is the expected return?
a.13.00%
b.15.96%
c.16.00%
d.17.75%
6) what is meant by the term double taxation as applied to the corporate form of
business organization?
a.corporate income as taxed at twice the rate of partnership income
b.corporate income is taxed, and then corporate dividends are taxed as well
c.corporations pay both federal income tax and state income tax on their earnings
d.corporations pay both income tax and sales taxes on their goods
7) economic value added (eva) is:
a.the difference between net income and the cost of goods sold
b.the difference between operating profit and the cost of funds
c.the difference between net income and the cost of funds
d.the difference between net operating profits after taxes and the cost of funds
e.none of the above
8) which european country is noted for having the largest amount of venture capital
invested in its firms?
a.germany
b.france
c.italy
d.britain
9) which method directly estimates the change in shareholder wealth?
a.payback
b.irr
c.npv
d.pi
10) narrbegin: kennesaw steel corp.
kennesaw steel corporation
as chief financial officer of the kennesaw steel corporation (ksc), you are considering a
recapitalization plan that would convert ksc from its current all-equity capital structure
to one including substantial financial leverage. ksc now has 100,000 shares of common
stock outstanding, which are selling for $50.00 each, and the recapitalization proposal is
to issue $2,000,000 worth of long-term debt at an interest rate of 8.0 percent and use the
proceeds to repurchase $2,000,000 of common stock.
narrend
refer to kennesaw steel corporation. the tax rate is 40%. at what level of ebit will
earnings per share be equal for shareholders under each capital structure? (assume that
the stock can be repurchased at $50 per share)
a.$350,000
b.$400,000
c.$450,000
d.$500,000
11) all of the following options are put options with 9 months to expiration on mac
industries. which of the following options should trade at the lowest premium?
a.a put option with a strike price of 65
b.a put option with a strike price of 55
c.a put option with a strike price of 40
d.a put option with a strike price of 45
12) which of the following statements is (are) true?
a.small, rapidly-growing firms usually have excess cash and are likely to pay cash
dividends
b.managers of firms with free cash flow should retain the cash and invest in new
projects, regardless of the projects’ npvs, as the transaction costs associated with paying
dividends is too costly
c.managers of firms with free cash flow should begin to pay dividends to ensure that
they will not invest the free cash flow in negative-npv projects
d.all of the above statements are false
13) narrbegin: bavarian merger
bavarian merger
bavarian brew is planning on acquiring bavarian sausage in a pure exchange merger.
bavarian brews stock is currently trading at $35 and they set the exchange ratio at 0.80.
bavarian sausage has 75 million shares outstanding which are currently trading at $18 a
share.
narrend
refer to bavarian merger. if you owned 250 shares of bavarian sausage what would be
the control premium?
a.55.6%
b.35.7%
c.62.5%
d.41.9%