Finance 84370

Type

Quiz

Book Title

Fundamentals of Corporate Finance Standard Edition 9th Edition

ISBN 13

978-0073382395

February 27, 2019

A payoff profile:

A. determines the price of an option contract.

B. determines whether a forward or a futures contract is needed.

C. applies only to contract sellers.

D. determines the price of a collar.

E. illustrates potential gains and losses.

One year ago, Deltona Motor Parts deposited $16,500 in an investment account for the

purpose of buying new equipment three years from today. Today, it is adding another

$12,000 to this account. The company plans on making a final deposit of $20,000 to the

account one year from today. How much will be available when it is ready to buy the

equipment, assuming the account pays 5.5 interest?

A. $53,408

B. $53,919

C. $56,211

D. $56,792

E. $58,021

A one-for-four reverse stock split will:

A. increase the par value by 25 percent.

B. increase the number of shares outstanding by 400 percent.

C. increase the market value but not affect the par value per share.

D. increase a $1 par value to $4.

E. increase a $1 par value to $5.

Shares of Hot Donuts common stock are currently selling for $32.35. The last annual

dividend paid was $1.10 per share and the market rate of return is 10.7 percent. At what

rate is the dividend growing?

A. 7.06 percent

B. 8.67 percent

C. 10.42 percent

D. 12.60 percent

E. 14.10 percent

Which one of the following will decrease the operating cycle?

A. decreasing the inventory turnover rate

B. decreasing the accounts payable period

C. increasing the accounts receivable turnover rate

D. increasing the accounts payable period

E. increasing the accounts receivable period

Suzie is a chemist who has been experimenting with fragrances in her home laboratory

and feels that she now has three viable perfumes that could be successfully marketed.

She knows a venture capitalist who has offered to finance her business to the point

where she would be ready to begin the manufacturing and marketing stage. Which type

of financing is Suzie being offered?

A. syndicate

B. introduction

C. second-stage

D. mezzanine-level

E. seed money

Hungry Howie's is currently operating at 96 percent of capacity. The profit margin and

the dividend payout ratio are projected to remain constant. Sales are projected to

increase by 3 percent next year. What is the projected addition to retained earnings for

next year?

A. $1,309.19

B. $1,421.40

C. $1,884.90

D. $2,667.78

E. $3,001.40

Sue's Bakery is planning on merging with Ted's Deli. Sue's will pay Ted's shareholders

the current value of their stock in shares of Sue's Bakery. Sue's currently has 4,500

shares of stock outstanding at a market price of $19 a share. Ted's has 2,100 shares

outstanding at a price of $20 a share. What is the value of the merged firm?

A. $106,500

B. $107,800

C. $125,400

D. $127,500

E. $131,600

You are considering a project with an initial cost of $7,800. What is the payback period

for this project if the cash inflows are $1,100, $1,640, $3,800, and $4,500 a year over

the next four years, respectively?

A. 3.21 years

B. 3.28 years

C. 3.36 years

D. 4.21 years

E. 4.29 years

You find a certain stock that had returns of 4 percent, -5 percent, -15 percent, and 16

percent for four of the last five years. The average return of the stock for the 5-year

period was 13 percent. What is the standard deviation of the stock's returns for the

five-year period?

A. 21.39 percent

B. 24.98 percent

C. 27.16 percent

D. 31.23 percent

E. 34.02 percent

The excess return earned by an asset that has a beta of 1.34 over that earned by a

risk-free asset is referred to as the:

A. market risk premium.

B. risk premium.

C. systematic return.

D. total return.

E. real rate of return.

The most common means of financing a temporary cash deficit is a:

A. long-term secured bank loan.

B. short-term secured bank loan.

C. short-term issue of corporate bonds.

D. long-term unsecured bank loan.

E. short-term unsecured bank loan.

What was the highest price per troy ounce for the December silver futures contract

today?

Silver - 5,000 troy oz.: dollars and cents per troy oz.

A. $10.185

B. $10.225

C. $10.250

D. $10.814

E. $10.830

A business formed by two or more individuals who each have unlimited liability for all

of the firm's business debts is called a:

A. corporation.

B. sole proprietorship.

C. general partnership.

D. limited partnership.

E. limited liability company.

Which one of the following statements related to warrants is correct?

A. Warrants are generally issued as an attachment to publicly-issued bonds.

B. Warrants are excluded from trading on an organized exchange.

C. Warrants are structured as long-term put options.

D. Warrants are issued by individual investors.

E. Warrants are generally added as an incentive to a private debt issue.

An investment has the following cash flows and a required return of 13 percent. Based

on IRR, should this project be accepted? Why or why not?

A. No; The IRR exceeds the required return by about 0.06 percent.

B. No; The IRR is less than the required return by about 0.94 percent.

C. Yes; The IRR exceeds the required return by about 0.06 percent.

D. Yes; The IRR exceeds the required return by about 0.94 percent.

E. Yes; The IRR is less than the required return by about 0.06 percent.

The owners' equity accounts for Blueswell Industries are shown here:

If Blueswell Industries declares a 1-for-5 reverse stock split, there will be ____ shares

outstanding at a par value of _____ per share.

A. 1,800; $1.00

B. 1,800; $5.00

C. 9,000; $5.00

D. 45,000; $0.20

E. 45,000; $1.00

Which one of the following statements is correct in relation to a firm's short-run

financial risk?

A. Short-run financial risk results from permanent changes in prices due to new

technology.

B. A financially sound firm can become financially distressed as the result of its

short-run exposure to financial risk.

C. Each segment of a business should be responsible for hedging its own short-run

financial risk.

D. Short-run financial risk is defined as temporary price changes which result directly

from natural disasters, such as tornadoes, droughts, and floods.

E. Thus far, hedging techniques have been unsuccessful in reducing short-run financial

risk.

Cow Chips, Inc., a large fertilizer distributor based in California, is planning to use a

lockbox system to speed up collections from its customers located on the East Coast. A

Philadelphia-area bank will provide this service for an annual fee of $25,000 plus 10

cents per transaction. The estimated reduction in collection and processing time is one

day. The average customer payment in this region is $8,200. Treasury bills are currently

yielding 5 percent per year. Assume a year has 365 days. Approximately how many

customers each day, on average, are needed to make the system profitable for Cow

Chips, Inc.?

A. 56

B. 67

C. 74

D. 83

E. 89

The primary difference between a line of credit and a revolving credit arrangement is

the:

A. type of collateral used to secure the loan.

B. length of the credit period.

C. fact that the line of credit is a secured loan and the revolving credit arrangement is

unsecured.

D. fact that the line of credit is an unsecured loan and the revolving credit arrangement

is secured.

E. classification as either a committed or a noncommitted loan.

Young's Home Supply has a debt-equity ratio of 0.80. The cost of equity is 14.5 percent

and the aftertax cost of debt is 4.9 percent. What will the firm's cost of equity be if the

debt-equity ratio is revised to 0.75?

A. 10.89 percent

B. 11.47 percent

C. 11.70 percent

D. 13.89 percent

E. 14.23 percent

Which one of the following statements concerning variable costs is correct?

A. Variable costs minus fixed costs equal marginal costs.

B. Variable costs are equal to fixed costs when production is equal to zero.

C. An increase in variable costs increases the operating cash flow.

D. Variable costs are inversely related to fixed costs.

E. Variable costs per unit are inversely related to the contribution margin per unit.

Which one of the following defines the relationship between the value of an option and

the option's time to expiration?

A. theta.

B. vega.

C. rho.

D. delta.

E. gamma.

You own the following portfolio of stocks. What is the portfolio weight of stock C?

A. 39.85 percent

B. 42.86 percent

C. 44.41 percent

D. 48.09 percent

E. 52.65 percent

Financial plans generally tend to ignore which one of the following?

A. dividend policy

B. manager's goals and objectives

C. risks associated with cash flows

D. operating capacity levels

E. capital structure policy

Assume that you invest in a portfolio of large-company stocks. Further assume that the

portfolio will earn a rate of return similar to the average return on large-company stocks

for the period 1926-2007. What rate of return should you expect to earn?

A. less than 10 percent

B. between 10 and 12.5 percent

C. between 12.5 and 15 percent

D. between 15 and 17.5 percent

E. more than 17.5 percent

Johnson Tire Distributors has debt with both a face and a market value of $12,000. This

debt has a coupon rate of 6 percent and pays interest annually. The expected earnings

before interest and taxes are $2,100, the tax rate is 30 percent, and the unlevered cost of

capital is 11.7 percent. What is the firm's cost of equity?

A. 22.46 percent

B. 22.87 percent

C. 23.20 percent

D. 23.59 percent

E. 25.14 percent

A basic interest rate swap generally involves trading a:

A. short-term rate for a long-term rate.

B. foreign rate for a domestic rate.

C. government rate for a corporate rate.

D. fixed rate for a variable rate.

You want to have $1 million in your savings account when you retire. You plan on

investing a single lump sum today to fund this goal. You are planning on investing in an

account which will pay 7.5 percent annual interest. Which of the following will reduce

the amount that you must deposit today if you are to have your desired $1 million on

the day you retire?

I. Invest in a different account paying a higher rate of interest.

II. Invest in a different account paying a lower rate of interest.

III. Retire later.

IV. Retire sooner.

A. I only

B. II only

C. I and III only

D. I and IV only

E. II and III only

Russell's Deli has cash of $136, accounts receivable of $87, accounts payable of $215,

and inventory of $409. What is the value of the quick ratio?

A. 0.31

B. 0.53

C. 0.71

D. 1.04

E. 1.07

Pro forma statements for a proposed project should:

I. be compiled on a stand-alone basis.

II. include all the incremental cash flows related to the project.

III. generally exclude interest expense.

IV. include all project-related fixed asset acquisitions and disposals.

A. I and II only

B. II and III only

C. I, II, and IV only

D. II, III, and IV only

E. I, II, III, and IV

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