Archives: Quiz

12) Gemini Real Estate is ofered a $2 million line of credit for four months at an APR of 9%. This loan has a loan origination fee of 1.5%. What is the actual four-month interest rate paid, expressed as an […]

17) Which of the following statements is FALSE? A) The matching principle indicates that the irm should inance permanent working capital with short-term sources of funds. B) Following the matching principle should, in the long run, help minimize a irm’s […]

20) In which quarter are Fancy’s seasonal working capital needs the smallest? A) 1 B) 2 C) 3 D) 4 AACSB Objective: Analytic Skills Author: JP Question Status: Previous Edition 21) What do we understand by seasonality? Answer: For many […]

Fundamentals of Corporate Finance, 3e (Berk/DeMarzo/Harford) Chapter 20 Short-Term Financial Planning 20.1 Forecasting Short-Term Financing Needs 1) Cash low forecasts are conducted in order to determine whether a irm has a cash low surplus or deicit and whether such a […]

5) Evertz Metals buys and stockpiles dolomite to use in its smelting processes. Before all this dolomite is used, however, they alter their smelting process so that calcite limestone is used instead. How is the inventory cost of the unused […]

10) Customer Amount Owed Age (days) Abel $10,000 53 Brannick $69,000 12 CLI $45,230 65 Deer $14,800 27 ESR $22,090 39 Flann $14,890 78 Graill $23,180 62 A irm has the accounts on its books shown above. What percentage of […]

19.2 Trade Credit 1) Collection loat is the amount of time it takes for a irm to be able to use funds after a customer has paid for its goods. AACSB Objective: Analytic Skills Author: DS Question Status: Previous Edition […]

Fundamentals of Corporate Finance, 3e (Berk/DeMarzo/Harford) Chapter 19 Working Capital Management 19.1 Overview of Working Capital 1) Firms typically would prefer a positive cash conversion cycle versus a negative cash conversion cycle. AACSB Objective: Analytic Skills Author: WC Question Status: […]

16) Compute the value of a irm with free cash lows of $4,000, $4,500, and $5,000 over the next three years, a terminal irm value of $60,000 after three years, and the unlevered cost of capital is 10%. Assume that […]

2) Internal growth rate indicates whether a planned investment will increase or decrease irm value. AACSB Objective: Analytic Skills Author: KB Question Status: Previous Edition 3) The sustainable growth rate assumes that the irm will raise no new debt inancing. […]

21) LG Inc. has done a long-term forecast of its balance sheet. The projected total assets for the next year are $300 million. The current liabilities are projected to be $170 million and other long term liabilities are $70 million. […]

Fundamentals of Corporate Finance, 3e (Berk/DeMarzo/Harford) Chapter 18 Financial Modeling and Pro Forma Analysis 18.1 Goals of Long-Term Financial Planning 1) The goal of the inancial manager is to maximize the value of the shareholders’ stake in the irm. AACSB […]

A) $6.36 B) $5.30 C) $4.24 D) $10.60 Answer: B Explanation: B) Dividend per share = $6 million × (1 + 0.06) / 1.2 million = $5.30 Dif: 1 Var: 18 Skill: Analytical AACSB Objective: Analytic Skills Author: JN Question […]

16) The largest proportion of investors in common stock are ________. A) mutual funds B) pension funds C) corporations D) individual investors AACSB Objective: Analytic Skills Author: WC Question Status: Previous Edition 17) What is the general trend of dividend […]

24) Omicron Technologies has $60 million in excess cash and no debt. The irm expects to generate additional free cash lows of $48 million per year in subsequent years and will pay out these future free cash lows as regular […]

Fundamentals of Corporate Finance, 3e (Berk/DeMarzo/Harford) Chapter 17 Payout Policy 17.1 Cash Distribution to Shareholders 1) The Record Date falls before the Ex-Dividend Date. AACSB Objective: Analytic Skills Author: WC Question Status: Previous Edition 2) The way a irm chooses […]

5) What are direct costs of inancial distress? AACSB Objective: Analytic Skills Author: SS Question Status: Previous Edition 6) What are indirect costs of inancial distress? Answer: Indirect costs of inancial distress are diicult to measure and are often larger […]

45) Which of the following statements is FALSE? A) The levered equity return equals the unlevered return plus an extra “kick” due to leverage. B) By holding a portfolio of a irm’s equity and its debt, we can replicate the […]

B) the new shares are sold at a fair price C) the irm has no debt inancing D) the irm uses debt conservatively Answer: B Dif: 1 Var: 1 Skill: Conceptual AACSB Objective: Analytic Skills Author: KB Question Status: Previous […]

Fundamentals of Corporate Finance, 3e (Berk/DeMarzo/Harford) Chapter 16 Capital Structure 16.1 Capital Structure Choices 1) Financial managers prefer to choose the same debt level no matter which industry they operate in. AACSB Objective: Analytic Skills Author: KB Question Status: Previous […]

30) Coupon 0% Call Date: July 1, 2008 Call Price 103.74% Maturity: July 1, 2015 A irm issues the convertible debt shown above. The price of stock in this company on July 1, 2008 is $27.24. What is the minimum […]

13) A company issues a callable (at par) 20-year, 5% coupon bond with annual coupon payments. The bond can be called at par in one year after release or any time after that on a coupon payment date. On release, […]

Explanation: D) The private debt market is larger than the public debt market. Dif: 2 Var: 1 Skill: Conceptual AACSB Objective: Analytic Skills Author: JN Question Status: Previous Edition 35) Which of the following statements is FALSE? A) Almost all […]

Fundamentals of Corporate Finance, 3e (Berk/DeMarzo/Harford) Chapter 15 Debt Financing 15.1 Corporate Debt 1) The chief advantage of debt inancing over inancing through raising equity capital is that the former does not dilute the current owner’s share of the business. […]

10) Big Box retailing has a market capitalization of $500 million and 20 million shares outstanding. In order to inance its growth, the management of Big Box plans to raise further capital through a rights issue. All shareholders will be […]

29) Luther Industries is in the process of selling shares of stock in an auction IPO. At the end of the bidding period, Luther’s investment bank has received the following bids: Price ($) Number of Shares Bid $19.70 50,000 $19.25 […]

13) David found a company and goes through the investment rounds shown below: Round Source Price Number of Shares Series A Self $0.50 325,000 Series B Angel $1.00 475,000 Series C Venture Capital $1.50 200,000 Series D Venture Capital $2.25 […]

26) You founded your own irm three years ago. You initially contributed $200,000 of your own money and in return you received 3 million shares of stock. Since then, you have sold an additional 2 million shares of stock to […]

Fundamentals of Corporate Finance, 3e (Berk/DeMarzo/Harford) Chapter 14 Raising Equity Capital 14.1 Equity Financing for Private Companies 1) When a company founder sells stock to outside investors in order to raise capital, the share of the company owned by the […]

4) Assume General Motors has a weighted average cost of capital of 10%. GM is considering investing in a new plant that will save the company $30 million over each of the irst two years, and then $25 million each […]

Explanation: A) 9.0% × (1 – 0.35) = 5.9% Dif: 1 Var: 50+ Skill: Analytical AACSB Objective: Analytic Skills Author: WC Question Status: Previous Edition 35) The after-tax cost of debt ________ the before-tax cost of debt for a irm […]

7) Assume preferred stock of Ford Motors pays a dividend of $4 each year and trades at a price of $35. What is the cost of preferred stock capital for Ford? A) 11.4% B) 12.6% C) 13.7% D) 14.9% AACSB […]

Fundamentals of Corporate Finance, 3e (Berk/DeMarzo/Harford) Chapter 13 The Cost of Capital 13.1 A First Look at the Weighted Average Cost of Capital 1) Financial managers must determine their irm’s overall cost of capital based on all sources of inancing. […]

13) A stock market comprises 4600 shares of stock A and 1600 shares of stock B. Assume the share prices for stocks A and B are $15 and $30, respectively. If you have $15,000 to invest and you want to […]

Answer: A Explanation: A) We say a portfolio is an eicient portfolio whenever it is not possible to ind another portfolio that is better in terms of both expected return and volatility. Dif: 1 Var: 1 Skill: Conceptual AACSB Objective: […]

24) Consider the following returns: Year-End Lowes Realized Return Home Depot Realized Return IBM Realized Return 2000 20.3% -14.6% 0.2% 2001 72.7% 4.8% -3.2% 2002 -25.7% -58.1% -27.0% 2003 56.3% 71.7% 27.9% 2004 6.7% 17.3% -5.1% 2005 17.9% 0.9% -11.3% […]

23) What role does the correlation of two assets play in computation of the expected return of the two asset portfolio? AACSB Objective: Analytic Skills Author: SS Question Status: Previous Edition 24) What role does the standard deviations of two […]

Fundamentals of Corporate Finance, 3e (Berk/DeMarzo/Harford) Chapter 12 Systematic Risk and the Equity Risk Premium 12.1 The Expected Return of a Portfolio 1) Stocks have both diversiiable risk and undiversiiable risk, but only diversiiable risk is rewarded with higher expected […]

10) Many former employees at AlphaEnergy, an energy trading and supply company, had a large part of their portfolio invested in AlphaEnergy’s stock. These employees were bearing a high degree of ________ risk. A) unsystematic B) systematic C) market-speciic D) […]

12) Consider the following average annual returns: Investment Average Return Small Stocks 23.5% S&P 500 13.3% Corporate Bonds 7.4% Treasure Bonds 6.6% Treasury Bills 4.2% What is the excess return for Treasury bills? A) 0% B) -9.1% C) -3.2% D) […]

42) Consider the following realized annual returns: Year-end S&P 500 Realized Return IBM Realized Return 1996 23.3% 46.3% 1997 24.7% 26.7% 1998 30.4% 86.9% 1999 9.0% 23.1% 2000 -2.0% 0.2% 2001 -17.3% -3.2% 2002 -24.3% -27.0% 2003 31.2% 27.9% 2004 […]

21) Suppose the quarterly arithmetic average return for a stock is 10% per quarter and the stock gives a return of 15% each over the next two quarters. The arithmetic average return over the six quarters is ________. A) 15.17% […]

Fundamentals of Corporate Finance, 3e (Berk/DeMarzo/Harford) Chapter 11 Risk and Return in Capital Markets 11.1 A First Look at Risk and Return 1) On average, stocks have delivered higher returns than bonds in the long run. AACSB Objective: Analytic Skills […]

10.3 Information, Competition, and Stock Prices 1) If you value a stock using a range of stock valuation methods and these valuations indicate a stock price that is greater than its actual market price, it is most likely that the […]

6) An investor estimates the value of a irm which manufactures cookware by examining the cash lows of similar irms. Which of the following is assumed to be the same for these irms? A) P/E B) annual growth rates C) […]

Fundamentals of Corporate Finance, 3e (Berk/DeMarzo/Harford) Chapter 10 Stock Valuation: A Second Look 10.1 The Discounted Free Cash Flow Model 1) The discounted free cash low model ignores interest income and expense but adjusts for cash and debt directly, if […]

13) Year 0 Year 1 Year 2 Year 3 Revenues 363,688.342 363,688.342 363,688.342 – Cost of Goods Sold -150,000 -150,000 -150,000 – Depreciation -80,000 -80,000 -80,000 = EBIT 133,688.342 133,688.342 133,688.342 – Taxes (35%) -46,790.9196 -46,790.9196 -46,790.919 6 = Unlevered […]

3) A consumer good company is developing a new brand of organic toothpaste. Above is the sensitivity analysis for this product. If the best-case assumptions for Net Working Capital are met, what will the net present value (NPV) of this […]

33) What are project externalities? AACSB Objective: Analytic Skills Author: SS Question Status: Revised 34) What are sunk costs? Answer: Sunk costs are payments already made or that will be made that are independent of the project under discussion. These […]

18) The Sisyphean Corporation is considering investing in a new cane manufacturing machine that has an estimated life of three years. The cost of the machine is $30,000 and the machine will be depreciated straight line over its three-year life […]