Archives: Quiz

Larger coupon payments on a fixed-income asset cause the present value weights of the cash flows to be lower in the duration calculation. Answer: The Insurance Regulatory Information System (IRIS) is a standardized examination system used to measure the profitability […]

Interest rate risk is part of the loan commitment contingent risk because of the uncertainty of changes in interest rates before the borrower exercises his option to borrow. Answer: An interest-only (IO) mortgage-backed strip is a rare example of a […]

In the banking environment, economic and legal firewalls often have been designed to separate the risks of investment bank affiliate activities from commercial banks. Answer: The three government agencies that sponsor the creation of mortgage-backed, pass through securities are: GNMA, […]

The export revenue variance (VAREX) should be negatively related to the probability of debt rescheduling. Answer: Returns from domestic and foreign investments may not be perfectly correlated because of different economic infrastructures and growth rates. Answer: TRUE Most portfolio managers […]

Which of the following statements is TRUE?A. An increase in interest rates will benefit the FI since the increase in the market value of assets will be greater than the increase in the market value of liabilities. B. An increase […]

A one bank holding company is a parent bank holding company with only one subsidiary involved in banking activities. Answer: During the late 2000’s financial crisis, global stock market return correlations decreased relative to the decade before the crisis. Answer: […]

Forward contracts in FX are typically written for periods exceeding 6 months. Answer: As of January 2012, credit cards used in either a credit or debit function accounted for less than 5 percent of the dollar value of payments made […]

Debt issues not secured by specific assets are called debentures.True or False Answer: When one company acquires another, year over year historical earnings comparisons for the acquiring firm are unaffected. True or False Answer: False Corporate anti-takeover defenses are necessarily […]

JVs established as partnerships typically raise capital through increased contributions from existing partners or through the issuance of limited partnership interests to investors, with the sponsoring firms becoming the general partners. True or False Answer: The signing of a letter […]

Cash flow lenders view the borrower’s future cash flow generation capability as the primary means of recovering a loan, while largely ignoring the assets of the LBO target. True or False Answer: Stock purchases involve the exchange of the target’s […]

Empirical evidence suggests that discounts have declined in recent years. True or False Answer: If free cash flow to the firm is expected to remain at $10 million indefinitely and the firm’s cost of equity is .10, the present value […]

The weighted average cost of capital consists only of debt and equity. True or False Answer: The comparable companies’ method and recent transactions methods of valuation are conceptually similar. True or False Answer: True A tender offer is a proposal […]

Acquirer stock is a rarely used form of payment in large transactions. True or False Answer: Successful alliances are usually characterized by partners who have attributes that either complement existing strengths or significant weaknesses. True or False Answer: False Successful […]

A buyer may divest a significant portion of the acquired company immediately following closing without jeopardizing the tax-free status of the transaction. True or False Answer: During periods of high inflation, the market value of assets is often less than […]

An acquisition plan is developed if management determines that an acquisition or merger is required to implement the firm’s business strategy. True or False Answer: Asset based lending does not require the borrower to pledge assets as collateral underlying the […]

The market model of corporate governance is readily applicable to privately held, family owned firms. True or False Answer: Joint venture and alliance agreements often limit how and to whom parties to the agreements can transfer their interests. True or […]

EBITDA has become an increasingly popular measure of value for privately held firms in recent years. True or False Answer: Beta is a measure of non-diversifiable risk. True or False Answer: True Financial restructuring generally refers to actions taken by […]

An option is the exclusive right, but not the obligation, to buy, sell, or use property for a specific period of time in exchange for a predetermined amount of money. True or False Answer: If a buyer expects that the […]

Non-U.S. buyers intending to make additional acquisitions may prefer a holding company structure. True or False Answer: An LBO transaction makes sense from the viewpoint of all investors if the present value (of the cash flows to the firm or […]

The weighted average cost of capital (WACC) is the broadest measure of the firm’s cost of funds and represents the return that a firm must earn to induce investors to buy its common stock. True or False Answer: In contacting […]

Using the cost of capital method to value LBOs requires adjusting the firms unlevered beta in each period using the firm’s projected debt-to-equity ratio for that period. True or False Answer: The empirical evidence supports the presumption that bigger is […]

The disadvantages of exporting include high transportation costs, exchange rate fluctuations, and possible tariffs placed on imports into the local country. True or False Answer: Takeover attempts are likely to increase when the market value of a firm’s assets is […]

Bylaws may provide for a staggered board, the inability to remove directors without cause, and supermajority voting requirements for approval of mergers. True or False Answer: A workout is an arrangement conducted inside of bankruptcy court by a debtor and […]

The acquisition of a coal mining business by a steel manufacturing company is an example of a vertical merger. True or False Answer: All materials in a proxy contest must be filed with the SEC before they are sent to […]

Factors contributing to the integration of global capital markets include the reduction in trade barriers, removal of capital controls, the growing disparity in tax rates among countries, floating exchange rates, and the free convertibility of currencies. True or False Answer: […]

In a purchase of assets, the buyer retains the target’s tax attributes. True or False Answer: The Type C reorganization is used when it is essential for the acquirer not to assume any undisclosed liabilities. True or False Answer: True […]

If an investor anticipates a future cash flow stream of five or ten years, she needs to use either a five- or ten-year Treasury bond rate as the risk-free rate. True or False Answer: Deal structuring is fundamentally about satisfying […]

The court must approve any plan accepted by the debtor’s shareholders and creditors. True of False Answer: Parent firms often exit businesses that consistently fail to meet or exceed the parent’s hurdle rate requirements. True or False Answer: True The […]

The U.S. Securities Act of 1933 requires that all securities offered to the public must be registered with the government. True or False Answer: The methodology for valuing cross-border transactions using discounted cash flow analysis is substantially different from that […]

Buyers generally want to complete due diligence on the seller as quickly as possible. True or False Answer: Arbitrage should drive the prices in different markets to be the same, as investors sell those assets that are undervalued to buy […]

Despite the lack of public exchanges for privately held firms, Wall Street analysts have ample incentive to analyze such firms in search of emerging companies. True or False Answer: In the adjusted present value method, the levered cost of equity […]

Tender offers always consist of an offer to exchange acquirer shares for shares in the target firm. True or False Answer: The extremely high leverage associated with leveraged buyouts significantly increases the riskiness of the cash flows available to equity […]

Market share is usually easy to define. True or False Answer: The adjusted present value method values firm without debt and then subtracts the value of future tax savings resulting from the tax-deductibility of interest. True or False Answer: False […]

It is easy to differentiate between political and economic risks, since they are generally unrelated. True or False Answer: So-called permanent financing for an acquisition usually consists of long-term unsecured debt. True or False Answer: True So-called Morris Trust transactions […]

Bridge financing is usually expected to be replaced within two years after the closing date of the LBO transaction. True or False Answer: Purchaser-supplier relationships are also called logistics alliances. True or False Answer: True Form of payment may consist […]

Pacific Wardrobe Acquires Surferdude Apparel by a Skillful Structuring of the Acquisition Plan Pacific Wardrobe (Pacific) is a privately owned California corporation that has annual sales of $20 million and pretax profits of $2 million. Its target market is the […]

List the three principles of total quality. Answer: Single minute exchange of dies (SMED) frees up capacity for other productive uses. Answer: T Diseconomies of scale is also known as capacity cushion. Answer: F The principles of total quality are: […]

Define material requirements planning (MRP) and how it can benefit an organization. Answer: For the multiple-server queuing model to apply, the overall mean service rate should be greater than the mean arrival rate. Answer: T Material requirements planning (MRP) is […]

Large capacity increases help to spread fixed costs of construction and operating system setup over one large project. Answer: For Dell Inc., the push-pull boundary is very early in the supply chain, where suppliers store inventory for frequent deliveries to […]

The servicescape refers to the place where a service is located. Answer: An automobile emission testing center has six (6) inspectors and tests 60 vehicles per hour. Each inspector can inspect thirteen (13) vehicles per hour. What is the center’s […]

Like the shortest processing time (SPT) rule, the earliest due date (EDD) rule minimizes the average flow time. Answer: Explain the four components of the cost of quality. Answer: Quality costs can be organized into the following four major categories. […]

A c-chart is used to monitor the proportion of nonconforming units, whereas a p-chart is used to monitor the number of nonconformances per unit. Answer: After a master production schedule (MPS) is created for finished goods, the demand for all […]

A group of tasks needed to create and deliver an intermediate or final output is called an activity. Answer: Over several days, 25 samples of 100 items each were tested for electrical resistance. A total of 60 items failed. Determine […]

In a single-period inventory situation, the only inventory decision is when to trigger an order. Answer: FedEx is an example of a customer-to-customer value chain. Answer: F The term ‘six sigma” is based on a statistical measure that equates to […]

Mean absolute deviation (MAD), mean square error (MSE), and mean absolute percentage error (MAPE) forecast error metrics generally giving similar numerical results so it does not matter which one is used. Answer: The center-of-gravity model minimizes the weighted distance between […]

A Gallup study showed that workers who are allowed to personalize their workplaces were no more productive than those who are not allowed. Answer: The demand for services is usually easier to predict than the demand for goods. Answer: F […]

In most organizations, projects cut across organizational boundaries, making it difficult to implement projects exclusively within functional departments. Answer: Service-encounter repeatability provides a measure analogous to product volume for goods-producing firms. Answer: T The costs associated with maintenance and inspection […]

A big city automobile quick oil change store can process 20 vehicles per hour over its multiple bays. Each mechanic can change the oil and do other related tasks at a rate of one car every 20 minutes. If the […]

How does total productive maintenance (TPM) affect lean operating systems? Answer: Tardiness measures the amount of time by which the completion time exceeds the due date. Answer: T The goal of total productive maintenance (TPM) is to minimize the costs […]

Customer ratings of goods and services are quality performance measurements at an operational level. Answer: According to the single-server queuing model, when , the operating characteristics are not defined, which means that these times and numbers of items grow infinitely […]