Part A -
Q1- Sally's Diamonds, with total costs of $3,000,000 and sales of $4,000,000, is merging with Juan's Diamonds, which has total costs of $2,000,000 and sales of $3,000,000. What percent would the average costs be for the combined entity?
A. 73 percent
B. 76.25 percent
C. 71.43 percent
D. 68.41 percent
Q2- A Swiss Company doing business in the United States wants to lock in exchange rate risk by purchasing $50,000 of U.S. currency at the six-month forward rate.
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Exchange Rate Per U.S. $1
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Swiss franc spot rate
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0.9312
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1-month forward
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0.9307
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3-month forward
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0.9298
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6-month forward
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0.9284
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U.K. pound spot rate
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0.6541
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1-month forward
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0.6543
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3-month forward
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0.6547
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6-month forward
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0.6552
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Based upon spot and forward rates in the table shown, how much more would they be paying in Swiss francs to buy the U.S. currency at the six-month forward rate than if they bought the same amount of currency at the spot rate?
A. 150 Swiss francs
B. 220 Swiss francs
C. 180 Swiss francs
D. 140 Swiss francs
Q3- Using a linear probability model that uses the following formula: PD1 = 0.6 (Debt/Equity) - 0.12 (Sales/Total Assets), calculate the percentage chance of bankruptcy/default of a firm you're thinking of investing in that has a debt-to-equity ratio of 25 percent and a sales-to-assets ratio of 1.1.
A. 3.0 percent
B. 1.8 percent
C. 1.2 percent
D. 4.3 percent
Q4- Calculate Altman's Z-score for a firm seeking a loan with the following financial value ratios:
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X1 = .3
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X2 = 0
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X3 = 2.4
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X4 = .15
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X5 = 1.8
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A. 1.552
B. 1.458
C. 1.329
D. 2.416
Q5- The concept of interest rate parity suggests that the
A. direct quotes and cross rates differ between two countries.
B. differences in interest rate, forward currency, and spot currency between two countries are equal.
C. exchange rates change over time between two countries.
D. law of one price is valid between two countries.
Q6- Which one of the following types of international expansion involves the highest level of participation in the form of capital at risk and potential for profit?
A. Licensing agreement
B. Joint venture
C. Direct ownership
D. Sales subsidiary
Q7- You're taking a cruise to Australia and want to have $3,000 Australian in spending money for the trip. If $1.0320 Australian buys $1 U.S. and $0.9310 Swiss francs buys $1 U.S., how many Swiss francs will you need to convert into $3,000 Australian for your trip?
A. 2,684
B. 2,706
C. 2,843
D. 3,124
Q8- A multinational corporation has purchased a manufacturing plant in a foreign country with an exchange rate of $0.3435 of the foreign currency = $1 U.S., for a total cost of $12,500,000 U.S. Soon after the purchase, the country's leadership orders that the plant be nationalized and mandates that the MNC sell the plant at a discounted exchange rate of $0.2241. How much in U.S. dollars will the MNC lose on the transaction?
A. $5,214,424.50
B. $6,154,438.75
C. $4,345,561.25
D. $2,638,750.22
Q9- A firm with total costs of $1,400,000 and sales of $2,000,000 merges with a smaller firm with total costs of $700,000 and sales of $1,200,000 million. Calculate the difference in average cost of production expressed in percent.
A. 6.72 percent
B. 15 percent
C. 4.37 percent
D. 9 percent
Q10- What's meant by the term exchange rate risk?
A. The potential for exchange rates to change unfavorably over time
B. The potential that a fixed peg arrangement will fail
C. The ability to profit by predicting the movement of exchange rates
D. The possibility that direct quotes and cross rates will differ
Q11- The applicability of beta depends on a firm's
A. growth rate.
B. historical returns.
C. standard deviation.
D. future plans.
Q12- Superior Widgets Manufacturing reported a debt-to-equity ratio of 1.9 times at the end of 2015. If the company's total debt at the end of the year was $29 million, how much equity does Superior Widgets have on its balance sheet?
A. $14.9 million
B. $16.8 million
C. $15.3 million
D. $17.2 million
Q13- Why is the declining price of bonds in response to rising interest rates greater for bonds with lower coupons?
A. Interest rate risk
B. Default risk
C. Market risk
D. Reinvestment rate risk
Q14- You're valuing Horn of Plenty Mining, Inc.'s, stock in order to compare its value to its market price. You believe that the company will pay total dividends of $1.45 in 2015 and $1.56 in 2016. You also believe the company's stock price will be $35.80 at the end of 2016. If the appropriate discount rate is 12 percent, what's the value of Horn of Plenty Mining's stock?
A. $37.43
B. $39.22
C. $38.31
D. $36.87
Q15- Modern portfolio theory demonstrates how
A. risk reduction occurs when securities are combined.
B. total risk is measured.
C. to measure risk-vs-reward.
D. stock price movements are correlated.
Q16- What's the current yield of a 4.8 percent coupon corporate bond with three years until maturity quoted at a price of $98.24?
A. 4.86 percent
B. 5.12 percent
C. 6.32 percent
Q17- What characteristic of a bond determines the dollar amount of interest paid to bondholders?
A. Bid
B. Coupon rate
C. Par value
D. Yield to maturity
Q18- You're thinking about buying a car. You can afford $800 in monthly payments for 3 years. If interest rates are 7 percent APR, what price of car can you afford?
A. $26,452.82
B. $25,909.17
C. $29,541.23
D. $28,621.18
Q19- The rate that a risk-free security would pay if no inflation were expected over its holding period is called the _______ rate.
A. real risk-free
B. nominal
C. term structure
D. prime
Q20- An 8 percent corporate coupon bond is callable in seven years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what's the price paid to the bondholder if the issuer calls the bond?
A. $920
B. $1,040
C. $1,080
D. $1,160
Q21- To analyze performance meaningfully, what must ratio results be interpreted against?
A. A standard or benchmark
B. The discount rate
C. The time value of money (TVM)
D. ROE
Q22- What's the future value in year six of a $3,400 deposit in year one and another $5,000 deposit at the end of year three using a 6 percent interest rate?
A. $11,226
B. $12,446
C. $10,778
D. $8,341
Q23- The existing or current one-, two-, and three-year zero coupon Treasury security rates were as follows:
1R1 = 0.80 percent
1R2 = 1.26 percent
1R3 = 1.85 percent
Using the unbiased expectations theory, what would the one-year forward rates on zero coupon Treasury bonds be for two and three years, respectively?
A. Two years = 2.25 percent; three years = 4.10 percent
B. Two years = 3.65 percent; three years = 2.12 percent
C. Two years = 2.14 percent; three years = 2.56 percent
D. Two years = 1.72 percent; three years = 3.04 percent
Q24- You're using DuPont Analysis on Leonardo's Laboratory Services. You've learned that total assets are $49 million, net income available to common shareholders is $5.8 million, and sales are $8.2 million. What's the firm's ROA?
A. 10.24 percent
B. 9.81 percent
C. 10.76 percent
D. 11.84 percent
Q25- Which of these is a factor that encourages managers to finance projects with debt financing rather than selling more stock?
A. A firm's marginal tax rate is the amount of additional taxes a firm must pay out for every additional dollar of taxable income it earns.
B. Interest payments are deducted from operating income for taxable purposes, but dividends paid by corporations to shareholders aren't.
C. Stockholders are entitled to a company's residual cash flows.
D. Taking on debt is riskier than raising funds by selling equity.
Q26- The Tall Tree Lumber Corporation's 2015 income statement shows an EBIT of $5,280,000, a tax rate of 35 percent, and a depreciation expense of $980,000. The company's fixed assets increased by $2,100,000 in 2015, its current assets grew $1,800,000, and spontaneous current liabilities increased by $850,000. What was the firm's 2015 free cash flow?
A. $1,244,000
B. $1,624,000
C. $1,362,000
D. $1,584,000
Q27- What's the best-known asset pricing equation?
A. The constant-growth model
B. The capital asset pricing model (CAPM)
C. Beta
D. Standard deviation
Q28- What type of ratios show how efficiently a firm manages its accounts payable?
A. Profitability ratios
B. Asset management ratios
C. Market value ratios
D. Liquidity ratios
Q29- Tasty Snacks, Inc.'s, 2015 income statement shows an EBIT of $1,440,200, interest expense of $150,000, and taxes of $345,020. The firm has no preferred stock outstanding and 200,000 shares of common stock outstanding. Calculate the company's 2015 earnings per share.
A. $5.84
B. $3.89
C. $3.27
D. $4.73
Q30- How long is the useful life of a fixed asset?
A. Not more than 10 years
B. In excess of two years
C. In excess of one year
D. Less than one year
Q31- To minimize the burden of paying stable dividends, what two classes do some firms divide dividends into?
A. Extraordinary and residual
B. Ordinary and extraordinary
C. Special and ordinary
D. Residual and special
Q32- Which one of the following is not a capital-budgeting technique?
A. Net present value (NPV)
B. Modified internal rate of return (MIRR)
C. Payback (PB)
D. Modified payback (MPB)
Q33- The net cash flow from a firm in February, March, and April is $4.6 million, -$1.7 million, and $1.9 million, respectively. What's the cumulative cash flow for April?
A. $4.8 million
B. $5.1 million
C. $3.9 million
D. $6.9 million
Q34- In Baumol's model, what's the assumed starting level for cash?
A. Replenishment
B. Safety stock
C. Compensating balance
D. Net present value
Q35- A firm has the following sales figures:
- Year 2011: $2.1 million
- Year 2012: $2.3 million
- Year 2013: $2.5 million
- Year 2014 $2.2 million
- Year 2015: $3.1 million
What would the forecast for next year's sales be using the naïve approach?
A. $3.4 million
B. $3.2 million
C. $2.5 million
D. $3.1 million
Q36- Suppose a firm pays total dividends of $1,240,000 out of a net income of $8 million. What would the firm's payout ratio be?
A. 18.3 percent
B. 14.6 percent
C. 15.5 percent
D. 12.5 percent
Q37- A common criticism of the payback (PB) benchmark is that it doesn't
A. take into account NPV.
B. receive complementing information from discount payback (DPB).
C. consider a project's IRR.
D. account for the time value of money (TVM).
Q38- A graph of a project's NPV as a function of possible capital costs is called the _______ profile.
A. NPV
B. IRR
C. standard deviation
D. beta
Part B -
Q1- What's the appropriate tax rate to be used in WACC?
A. The simple average of the tax rates that would have been paid on the taxable income shielded by the interest deduction
B. The weighted average of the marginal tax rates that would have been paid on the taxable income shielded by the interest deduction
C. The weighted average of the firm's discounted current marginal tax rates
D. The highest applicable tax rate charged on the firm's income
Q2- Your firm purchases a business copier that costs $14,000 and requires $3,000 in maintenance for each year of its four-year life. After four years, the copier will be replaced. The copier falls into the MACRS three-year class life category. Use Table 12.8 on page 415 in your textbook for DDB depreciation. Assuming a tax rate of 32 percent, what's the depreciation tax shield for this project in year 4?
A. $331.97
B. $541.24
C. $521.54
D. $421.45
Q3- According to IRS Publication 946, which one of the following are included in the depreciable basis of real property?
A. Storage fees
B. Maintenance fees
C. Freight charges
D. Debt payments
Q4- What do financial managers use to help them plan for periods during the year in which their firm will either generate large cash surpluses or cash deficits?
A. The operating cycle
B. The Miller-Orr model
C. The Baumol model
D. The cash budget
Q5- Credit analysis relating to a borrower generally involves examining which one of the following?
A. The "three C's"
B. The "four C's"
C. The "five C's"
D. The "two C's"
Q6- Assume that Consolidated Widgets, Inc., has annual sales of $5.9 million, cost of goods sold of $3.9 million, average inventories of $2.2 million, and average accounts receivable of $1.1 million. If all of Consolidated Widgets' sales are on credit, what would be the firm's operating cycle?
A. 261.83 days
B. 273.95 days
C. 311.42 days
D. 292.14 days
Q7- The time necessary to acquire raw materials, turn them into finished goods, sell them, and receive payment for them is referred to as the _______ cycle.
A. cash
B. operating
C. sales
D. manufacturing
Q8- What type of bond offering involves a bidding process in which an investment bank purchases the bond either by outbidding other banks or directly negotiating with the issuer?
A. Competitive sale
B. Negotiated sale
C. Firm commitment underwriting
D. Best efforts underwriting
Q9- Suppose that a firm has a retention rate of 45 percent, net income of $18 million, and 88 million shares outstanding. What would be the dividend per share paid out on the company's stock?
A. $.1252
B. $.1125
C. $.1175
D. $.1315
Q10- Super Duper Auto Stores, Inc., needs to raise $144 million to finance its expansion. Its investment bank recommends a debt issue with an offer price of $1,000 a bond and an underwriter's fee of 4 percent of the gross proceeds. How many bonds will the company need to sell to receive the $144 million it needs?
A. 150,000
B. 125,000
C. 130,000
D. 145,000
Q11- Fix Your Car Auto Repair, Inc., has sales of $2,880,000 and cost of goods sold of $2,140,000. The firm had a beginning inventory of $243,000 and an ending inventory of $142,000. What's the length of the days' sales in inventory?
A. 15.81
B. 24.22
C. 25.98
D. 17.23