Finance 80013

Type

Quiz

Book Title

Fundamentals of Corporate Finance Standard Edition 9th Edition

ISBN 13

978-0073382395

February 26, 2019

A trader has just agreed to exchange $2 million U.S. dollars for $1.55 million Euros six

months from today. This exchange is an example of a:

A. spot trade.

B. forward trade.

C. currency swap.

D. floating swap.

E. triangle arbitrage.

Steve has invested in twelve different stocks that have a combined value today of

$121,300. Fifteen percent of that total is invested in Wise Man Foods. The 15 percent is

a measure of which one of the following?

A. portfolio return

B. portfolio weight

C. degree of risk

D. price-earnings ratio

E. index value

Major Manuscripts, Inc. is currently operating at 85 percent of capacity. All costs and

net working capital vary directly with sales. The tax rate, the profit margin, and the

dividend payout ratio will remain constant. How much additional debt is required if no

new equity is raised and sales are projected to increase by 15 percent?

A. -$810

B. -$756

C. -$642

D. $244

E. $358

Which one of the following statements correctly applies to a legally defined merger?

A. The acquiring firm retains its identity and absorbs only the assets of the acquired

firm.

B. The acquired firm is completely absorbed and ceases to exist as a separate legal

entity.

C. A new firm is created which includes all the assets and liabilities of the acquiring

firm plus the assets only of the acquired firm.

D. A new firm is created from the assets and liabilities of both the acquiring and

acquired firms.

E. A merger reclassifies the acquired firm into a new entity which becomes a subsidiary

of the acquiring firm.

Which one of the following terms applies to the value of an option on its expiration

date?

A. strike price

B. upper limit

C. deadline price

D. time value

E. intrinsic value

Which one of the following methods determines the amount of the change a proposed

project will have on the value of a firm?

A. net present value

B. discounted payback

C. internal rate of return

D. profitability index

E. payback

The Sweet Shoppe and Candy Land are all-equity firms. The Sweet Shoppe has 500

shares outstanding at a market price of $96 a share. Candy Land has 2,500 shares

outstanding at a price of $24 a share. The Sweet Shoppe is acquiring Candy Land for

$62,000 in cash. The incremental value of the acquisition is $3,600. What is the net

present value of acquiring Candy Land to The Sweet Shoppe?

A. $1,100

B. $1,600

C. $2,700

D. $4,200

E. $5,700

Hungry Howie's is currently operating at full capacity. The profit margin and the

dividend payout ratio are held constant. Net working capital and fixed assets vary

directly with sales. Sales are projected to increase by 11 percent. What is the external

financing needed?

A. -$196.50

B. -$148.00

C. -$97.20

D. -$14.50

E. $26.80

Mario's has 18,000 shares of stock outstanding with a par value of $1 per share and a

market price of $4 a share. The balance sheet shows $18,000 in the common stock

account, $336,000 in the paid in surplus account, and $64,000 in the retained earnings

account. The firm just announced a 5-for-1 stock split. What will the paid in surplus

account value be after the split?

A. $66,000

B. $336,000

C. $426,000

D. $548,000

E. $606,000

The profit margin, the debt-equity ratio, and the dividend payout ratio for Fake Stone,

Inc. are constant. Sales are expected to increase by $1,062 next year. What is the

projected addition to retained earnings for next year?

A. $92.34

B. $188.55

C. $1,909.16

D. $2,144.34

E. $2,386.08

Which one of the following will increase net working capital? Assume the current ratio

is greater than 1.0.

A. paying a supplier for a previous purchase

B. paying off a long-term debt

C. selling inventory at cost

D. purchasing inventory on credit

E. selling inventory at a profit on credit

Which one of the following statements related to corporate dividends is correct?

A. Dividends are nontaxable income to shareholders.

B. Dividends reduce the taxable income of the corporation.

C. The Chief Executive Officer of a corporation is responsible for declaring dividends.

D. The Chief Financial Officer of a corporation determines the amount of dividend to

be paid.

E. Corporate shareholders may receive a tax break on a portion of their dividend

income.

The U.S. Securities and Exchange Commission periodically charges individuals with

insider trading and claims those individuals have made unfair profits. Given this, you

would be most apt to argue that the markets are less than _____ form efficient.

A. weak

B. semiweak

C. semistrong

D. strong

E. perfect

The common stock of Gillen Entertainment is selling for $78 a share. The par value per

share is $1. Currently, the firm has a total market value of $936,000. How many shares

of stock will be outstanding if the firm does a 5-for-2 stock split?

A. 4,800 shares

B. 9,600 shares

C. 15,000 shares

D. 30,000 shares

E. 32,200 shares

Over a 34-year period an asset had an arithmetic return of 13 percent and a geometric

return of 10.5 percent. Using Blume's formula, what is your best estimate of the future

annual returns over the next 10 years?

A. 11.18 percent

B. 11.27 percent

C. 11.84 percent

D. 12.32 percent

E. 12.46 percent

You just purchased some equipment that is classified as 5-year property for MACRS.

The equipment cost $147,000. What will the book value of this equipment be at the end

of 4 years should you decide to resell the equipment at that point in time?

A. $8,467.20

B. $25,401.60

C. $42,336.00

D. $121,598.40

E. $138,532.80

Electronic Importers has a pure discount bond with a face value of $25,000 that matures

in one year. The risk-free rate of return is 3.8 percent. The assets of the business are

expected to be worth either $23,000 or $35,000 in one year. Currently, these assets are

worth $27,500. What is the current value of the bond?

A. $17,746

B. $19,207

C. $20,222

D. $22,549

E. $23,048

Consider a project with the following data: accounting break-even quantity = 29,000

units; cash break-even quantity = 15,950 units; life = 10 years; fixed costs = $203,000;

variable costs = $24 per unit; required return = 14 percent; depreciation = straight line.

Ignoring the effect of taxes, what is the financial break-even quantity?

A. 38,723 units

B. 39,201 units

C. 39,458 units

D. 39,624 units

E. 40,969 units

The investment timing decision is the:

A. determination of when an option should be exercised.

B. decision of when to purchase an option on an underlying asset.

C. analysis of determining when an asset should be sold.

D. determination of when a project should be abandoned.

E. evaluation of the optimal time to begin a project.

Sligo Minerals stock is currently trading at $6 a share. The firm believes its primary

clientele can afford to spend between $1,500 and $2,000 to purchase a round lot of 100

shares. The firm should consider a:

A. reverse stock split.

B. liquidating dividend.

C. stock dividend.

D. stock split.

E. special dividend.

Dog Up! Franks is looking at a new sausage system with an installed cost of $397,800.

This cost will be depreciated straight-line to zero over the project's 7-year life, at the

end of which the sausage system can be scrapped for $61,200. The sausage system will

save the firm $122,400 per year in pretax operating costs, and the system requires an

initial investment in net working capital of $28,560. All of the net working capital will

be recovered at the end of the project. The tax rate is 33 percent and the discount rate is

9 percent. What is the net present value of this project?

A. -$41,311

B. -$7,820

C. $81,507

D. $98,441

E. $118,821

T-bills currently yield 6.3 percent. Stock in Pinta Manufacturing is currently selling for

$46 per share. There is no possibility that the stock will be worth less than $39 per share

in one year. What is the value of a call option on this stock if the exercise price is $22

per share?

A. $21.40

B. $22.00

C. $24.00

D. $25.30

E. $25.70

Which two of the following factors cause the yields on a corporate bond to differ from

those on a comparable Treasury security?

I. inflation risk

II. interest rate risk

III. taxability

IV. default risk

A. I and II only

B. III and IV only

C. I, II, and IV only

D. II, III, and IV only

E. I, II, III, and IV

Float is defined as the:

A. amount of cash a firm can immediately withdraw from its bank account.

B. difference between book cash and bank cash.

C. change in a firm's cash balance from one accounting period to the next.

D. amount of cash a firm has on hand.

E. cash balance according to a firm's records.

Which one of the following is a source of cash?

A. increase in accounts receivable

B. decrease in common stock

C. decrease in long-term debt

D. decrease in accounts payable

E. decrease in inventory

Which one of the following relationships is stated correctly?

A. The coupon rate exceeds the current yield when a bond sells at a discount.

B. The call price must equal the par value.

C. An increase in market rates increases the market price of a bond.

D. Decreasing the time to maturity increases the price of a discount bond, all else

constant.

E. Increasing the coupon rate decreases the current yield, all else constant.

You are analyzing a project and have gathered the following data:

Based on the internal rate of return of _____ percent for this project, you should _____

the project.

A. 14.67; accept

B. 17.91; accept

C. 14.67; reject

D. 17.91; reject

E. 18.46; reject

Which one of the following can be used to replicate a protective put strategy?

A. riskless investment and stock purchase

B. stock purchase and call option

C. call option and riskless investment

D. riskless investment

E. call option, stock purchase, and riskless investment

Which of the following determines the length of the operating cycle?

I. cash cycle

II. inventory period

III. accounts payable period

IV. accounts receivable period

A. I and III only

B. II and IV only

C. I, II, and IV only

D. II, III, and IV only

E. I, II, III, and IV

You work for a nuclear research laboratory that is contemplating leasing a diagnostic

scanner (leasing is a very common practice with expensive, high-tech equipment). The

scanner costs $2 million and it would be depreciated straight-line to zero over 4 years.

Because of radiation contamination, it will actually be completely valueless in 4 years.

You can lease it for $500,000 per year for 4 years. Assume the tax rate is 34 percent.

You can borrow at 10 percent before taxes. What is the net advantage to leasing from

the lessor's viewpoint?

A. -$290,988

B. -$267,307

C. -$248,464

D. $26,228

E. $103,511

You are considering the following two mutually exclusive projects. The required rate of

return is 14.6 percent for project A and 13.8 percent for project B. Which project should

you accept and why?

A. project A; because it has the higher required rate of return

B. project A; because its NPV is about $4,900 more than the NPV of project B

C. project B; because it has the largest total cash inflow

D. project B; because it has the largest cash inflow in year one

E. project B; because it has the lower required return