Fin 91174

Type

Quiz

Book Title

Fundamentals of Corporate Finance Standard Edition 9th Edition

ISBN 13

978-0073382395

February 26, 2019

Which one of the following categories of securities had the lowest average risk

premium for the period 1926-2007?

A. long-term government bonds

B. small company stocks

C. large company stocks

D. long-term corporate bonds

E. U.S. Treasury bills

An account into which a firm transfers funds, usually from a master account, in an

amount sufficient to cover the checks presented for payment that day is called a _____

account.

A. lockbox

B. cleanup

C. compensating balance

D. revolving

E. controlled disbursement

Any written proof that a customer owes you money for goods or services provided is

referred to as a(n):

A. account document.

B. sales draft.

C. credit instrument.

D. commercial paper.

E. letter of debt.

Your grandmother is gifting you $100 a month for four years while you attend college

to earn your bachelor's degree. At a 5.5 percent discount rate, what are these payments

worth to you on the day you enter college?

A. $4,201.16

B. $4,299.88

C. $4,509.19

D. $4,608.87

E. $4,800.00

The Fluffy Feather sells customized handbags. Currently, it sells 18,000 handbags

annually at an average price of $89 each. It is considering adding a lower-priced line of

handbags that sell for $59 each. The firm estimates it can sell 7,000 of the lower-priced

handbags but will sell 3,000 less of the higher-priced handbags by doing so. What is the

amount of the sales that should be used when evaluating the addition of the lower-

priced handbags?

A. $146,000

B. $275,000

C. $413,000

D. $623,000

E. $680,000

GT Motors regularly issues short-term debt to finance its daily operations. Suddenly,

the credit markets froze and no funds were available for borrowing. Fortunately, the

firm had some cash reserves saved that it was able to use to fund its operations until

additional credit was available. The need to retain cash for situations such as this is

referred to as which one of the following motives for holding cash?

A. speculative

B. float

C. compensating

D. precautionary

E. transaction

The Delta Fish Hatchery factors its accounts receivables immediately at a 1.5 percent

discount. The average collection period is 34 days. Assume that all accounts are

collected in full. What is the effective annual interest rate on this arrangement?

A. 17.61 percent

B. 18.20 percent

C. 18.36 percent

D. 18.78 percent

E. 19.04 percent

Bankruptcy:

A. creates value for a firm.

B. transfers value from shareholders to bondholders.

C. technically occurs when total equity equals total debt.

D. costs are limited to legal and administrative fees.

E. is an inexpensive means of reorganizing a firm.

A mail-order firm processes 5,000 checks per month. Of these, 55 percent are for $55

and 45 percent are for $65. The $55 checks are delayed 2 days on average; the $65

checks are delayed 5 days on average. Assume each month has 30 days. The interest

rate is 6 percent per year. How much should the firm be willing to pay to reduce the

weighted average float by 1.4 days?

A. $4,165

B. $13,883

C. $41,650

D. $138,883

E. $416,500

What is the beta of the following portfolio?

A. 1.04

B. 1.07

C. 1.13

D. 1.16

E. 1.23

Kelly's Corner Bakery purchased a lot in Oil City 6 years ago at a cost of $280,000.

Today, that lot has a market value of $340,000. At the time of the purchase, the

company spent $15,000 to level the lot and another $20,000 to install storm drains. The

company now wants to build a new facility on that site. The building cost is estimated

at $1.47 million. What amount should be used as the initial cash flow for this project?

A. -$1,470,000

B. -$1,810,000

C. -$1,825,000

D. -$1,845,000

E. -$1,860,000

You have just purchased a new warehouse. To finance the purchase, you've arranged for

a 30-year mortgage loan for 80 percent of the $2,600,000 purchase price. The monthly

payment on this loan will be $11,000. What is the effective annual rate on this loan?

A. 4.98 percent

B. 5.25 percent

C. 5.46 percent

D. 6.01 percent

E. 6.50 percent

You want to be on the board of directors of Wisely Foods. Since you are the only

shareholder that will vote for you, you will need to own more than half of the

outstanding shares of stock if you are to be elected to the board. What is the type of

voting called that requires this level of stock ownership to be successfully elected under

these conditions?

A. democratic

B. cumulative

C. straight

D. deferred

E. proxy

You expect to deliver 40,000 bushels of wheat to the market in July. Today, you hedge

your position by selling futures contracts on half of your expected delivery at the final

price of the day. Assume that the market price turns out to be 582.0 when you actually

deliver the wheat. How much more or less would you have earned if you had not

bought the futures contracts?

Wheat - 5,000 bu.: U.S. cents per bu.

A. $8,000 less

B. $4,000 less

C. neither more nor less

D. $4,000 more

E. $8,000 more

BL Lumber has earnings per share of $1.21. The firm's earnings have been increasing at

an average rate of 3.1 percent annually and are expected to continue doing so. The firm

has 21,500 shares of stock outstanding at a price per share of $18.70. What is the firm's

PEG ratio?

A. 0.48

B. 1.24

C. 2.85

D. 3.97

E. 4.99

A call-protected bond is a bond that:

A. is guaranteed to be called.

B. can never be called.

C. is currently being called.

D. is callable at any time.

The rate of return on the common stock of Lancaster Woolens is expected to be 21

percent in a boom economy, 11 percent in a normal economy, and only 3 percent in a

recessionary economy. The probabilities of these economic states are 10 percent for a

boom, 70 percent for a normal economy, and 20 percent for a recession. What is the

variance of the returns on this common stock?

A. 0.002150

B. 0.002606

C. 0.002244

D. 0.002359

E. 0.002421

Suppose your company needs $14 million to build a new assembly line. Your target

debt-equity ratio is 0.84. The flotation cost for new equity is 9.5 percent, but the

floatation cost for debt is only 2.5 percent. What is the true cost of building the new

assembly line after taking flotation costs into account?

A. 14.82 million

B. 14.94 million

C. 15.07 million

D. 15.12 million

E. 15.23 million

The seller of a forward contract:

A. is obligated to make delivery and accept the forward price.

B. has the option of making delivery and receiving the greater of the spot price or the

contract price.

C. has the option of either making delivery or accepting delivery.

D. is obligated to take delivery and pays the lower of the spot market price or the

contract price.

Wagner Trucking is considering investing in a new project that will cost $13 million

and increase net income by 6.5 percent. This project will be completely funded by

issuing new equity shares. Currently, the firm has 1.25 million shares of stock

outstanding with a market price of $42 per share. The current earnings per share are

$1.82. What will the earnings per share be if the project is implemented?

A. $1.39

B. $1.45

C. $1.55

D. $1.62

E. $1.69

Shortage costs include which of the following?

I. disruption of production schedules

II. inventory ordering costs

III. lost customer goodwill

IV. brokerage costs

A. I and II only

B. II and III only

C. II, III, and IV only

D. I, II, and III only

E. I, II, III, and IV

International bonds issued in multiple countries but denominated solely in the issuer's

currency are called:

A. Treasury bonds.

B. Bulldog bonds.

C. Eurobonds.

D. Yankee bonds.

E. Samurai bonds.

Edwards Farm Products was unable to meet its financial obligations and was forced into

using legal proceedings to restructure itself so that it could continue as a viable

business. The process this firm underwent is known as a:

A. merger.

B. repurchase program.

C. liquidation.

D. reorganization.

E. divestiture.

Cayman Productions is considering either leasing or buying some new underwater

photographic equipment. The lessor will charge $26,500 a year for a 2-year lease. The

purchase price is $48,600. The equipment has a 2-year life after which time it will be

worthless. Cayman uses straight-line depreciation, borrows money at 8 percent, and has

sufficient tax loss carryovers to offset any taxes which otherwise might be owed for the

next 4 years. What is the net advantage to leasing?

A. -$1,315

B. -$1,298

C. $1,343

D. $1,406

E. $1,457

Wicker Imports established a trust fund that provides $90,000 in scholarships each year

for needy students. The trust fund earns a fixed 6 percent rate of return. How much

money did the firm contribute to the fund assuming that only the interest income is

distributed?

A. $1,150,000

B. $1,200,000

C. $1,333,333

D. $1,500,000

E. $1,600,000

A firm can either lease or buy some new equipment. The lease payments would be

$19,700 a year for 4 years. The purchase price is $72,900. The equipment has a 4-year

life after which it is expected to have a resale value of $3,600. The firm uses straight-

line depreciation over the life of the asset, borrows money at 11 percent, and has a 35

percent tax rate. The company does not expect to owe any taxes for at least 4 years

because it has accumulated net operating losses. What is the incremental cash flow for

year 3 if the company decides to lease rather than purchase the equipment?

A. -$29,165

B. -$21,821

C. -$19,700

D. -$18,559

E. -$17,635

Phil is working on a financial plan for the next three years. This time period is referred

to as which one of the following?

A. financial range

B. planning horizon

C. planning agenda

D. short-run

E. current financing period

One year ago, you purchased 200 shares of a stock at a price of $54.18 a share. Today,

you sold those shares for $40.25 a share. During the past year, you received total

dividends of $164 while inflation averaged 4.2 percent. What is your approximate real

rate of return on this investment?

A. -24.20 percent

B. -28.40 percent

C. -20.00 percent

D. 20.00 percent

E. 24.20 percent

Which one of the following is a result of a small stock dividend?

A. increase in retained earnings

B. decrease in total owner's equity

C. decrease in cash

D. decrease in capital in excess of par value

E. increase in common stock

Bryceton, Inc. has bonds on the market with 13 years to maturity, a yield-to-maturity of

9.2 percent, and a current price of $895.09. The bonds make semiannual payments.

What is the coupon rate?

A. 7.80 percent

B. 8.00 percent

C. 8.25 percent

D. 8.40 percent

E. 8.65 percent

Home Dcor & More is considering a proposed project with the following cash flows.

Should this project be accepted based on the combination approach to the modified

internal rate of return if both the discount rate and the reinvestment rate are 16 percent?

Why or why not?

A. Yes; The MIRR is 14.78 percent.

B. Yes; The MIRR is 15.64 percent.

C. No; The MIRR is 12.91 percent.

D. No; The MIRR is 14.78 percent.

E. No; The MIRR is 15.64 percent.

A firm has total debt of $4,620 and a debt-equity ratio of 0.57. What is the value of the

total assets?

A. $6,128.05

B. $7,253.40

C. $9,571.95

D. $11,034.00

E. $12,725.26

The Pizza Palace has a cost of equity of 15.3 percent and an unlevered cost of capital of

11.8 percent. The company has $22,000 in debt that is selling at par value. The levered

value of the firm is $41,000 and the tax rate is 34 percent. What is the pre-tax cost of

debt?

A. 4.73 percent

B. 6.18 percent

C. 6.59 percent

D. 7.22 percent

E. 9.92 percent

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