Advanced Corporate Finance
Test Preparation
Course Introduction
Advanced Corporate Finance delves into the critical financial decisions faced by corporate managers, with a focus on complex valuation methods, capital structure optimization, mergers and acquisitions, and corporate restructuring. The course emphasizes the application of financial theories to real-world scenarios, including risk management, dividend policy, leverage, and corporate governance. Through case studies and analytical tools, students will develop the expertise to evaluate investment opportunities, understand market imperfections, and make strategic financial decisions that align with shareholder value maximization in a global context.
Recommended Textbook
Corporate Finance 7th Canadian Edition by Jaffe
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32 Chapters
1515 Verified Questions
1515 Flashcards
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Page 2
Chapter 1: Introduction to Corporate Finance
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Sample Questions
Q1) Inventory is a component of:
A) current assets.
B) current liabilities.
C) equity.
D) fixed assets.
Answer: A
Q2) Time preference refers to the fact that:
A) corporations match current assets with current liabilities to minimize the chance of bankruptcy.
B) corporations match both current and long-term assets with current and long-term liabilities to minimize the change of bankruptcy.
C) investors prefer current cash flows to future cash flows.
D) investors seek to time cash flows to minimize tax liabilities.
Answer: C
Q3) The primary market is defined as:
A) the market for insured securities.
B) the market for new issues.
C) the market for securities of the largest firms.
D) the over-the-counter market.
Answer: B
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Chapter 2: Accounting Statements and Cash Flow
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Sample Questions
Q1) Grady's Candies paid a total of $32 million in dividends in 2014.In addition,the company issued $22.5 million in new stock in that year.What was Grady's cash flow to stockholder's in 2014?
Answer: $32 - ($22.5)= ($9.5)
Q2) Dorr Corp.had an ROA of 8%.Dorr's profit margin was 4% on sales of $250.What were total assets?
A) $125.
B) $500.
C) $30.
D) $220.
Answer: A
Q3) Under IFRS the value of all the firm's assets are reported at:
A) Carrying value or market value.
B) Book value or liquidation value.
C) Market value or Carrying value.
D) Book value or Carrying value.
Answer: D
Q4) What is the change in the net working capital from 2013 to 2014?
Answer: ($7,310 - $2,570)- ($6,225 - $2,820)= $1,335
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Chapter 3: Financial Planning and Growth
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Sample Questions
Q1) State the assumptions that underlie the sustainable growth rate and interpret what the sustainable growth rate means.
Answer: The usual assumptions are: Costs and assets increase proportionately with sales,the dividend payout ratio is fixed (or is given),the current debt-equity ratio is optimal,and no new equity sales are possible.The sustainable growth rate is the maximum rate at which sales can increase with the restriction that no new equity sales are possible and long-term debt increases only in an amount that keeps the debt-equity ratio fixed.
Q2) The most recent financial statements for Quik-chip Co.are:
Answer:
11ea8884_9833_497d_a96f_0fed5a9f5938_TB5261_00
11ea8884_9833_497e_a96f_9dd9ae284f54_TB5261_00 Assets and costs are proportional to sales.Quik-chip maintains a constant 30% dividend payout and a constant debt-to-equity ratio.What is the maximum sustainable increase in sales assuming no new equity?
Apply the formula 11ea8884_9833_497f_a96f_d7c22c6271e8_TB5261_00 2.334312% increase in sales is equivalent to a $7.47 dollar increase in sales.
Q3) Assuming the following ratios are constant,what is the sustainable growth rate?
Answer: 11ea8884_9833_4980_a96f_4dae6e5f362d_TB5261_00 Growth Rate 11ea8884_9833_7091_a96f_53a432279411_TB5261_11
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Page 5
Chapter 4: Financial Markets and Net Present Value: First Principles of Finance
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Sample Questions
Q1) Financial markets develop to accommodate _________ between individuals.
A) trade and barter
B) barter and lending
C) borrowing and lending
D) lending and trade
Q2) An individual with no investment opportunities has income of $15,000 in period 0 and income of $10,000 in period 1.If the interest rate is 7%,which of the following points is on the individual's consumption possibility line?
A) $3,000 in period 0 and $21,215 in period 1.
B) $4,000 in period 0 and $21,116 in period 1.
C) $10,000 in period 0 and $15,350 in period 1.
D) $16,000 in period 0 and $9,000 in period.
E) $18,800 in period 0 and $6,200 in period 1.
Q3) Shareholders of corporations generally do not vote on every investment decision but depend on managers to maximize value by:
A) choosing the highest net income projects.
B) investing at the market rate of return.
C) buying shares back from investors.
D) following the NPV rule to choose investments.
Page 6
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Chapter 5: The Time Value of Money
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Sample Questions
Q1) The interest rate charged per period multiplied by the number of periods per year is called the _____ rate.
A) effective annual
B) annual percentage
C) periodic interest
D) compound interest
Q2) Thorton will receive an inheritance of $500,000 three years from now.Thorton's personal discount rate corresponds to a 10% interest rate compounded semiannually.Which of the following values is closest to the amount that Thorton should accept today for the right to his inheritance?
A) $373,108
B) $375,657
C) $665,500
D) $670,048
Q3) A perpetuity differs from an annuity because:
A) perpetuity payments vary with the rate of inflation.
B) perpetuity payments vary with the market rate of interest.
C) perpetuity payments are variable while annuity payments are constant.
D) perpetuity payments never cease.
E) annuity payments never cease.
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Chapter 6: How to Value Bonds and Stocks
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Sample Questions
Q1) Term structure refers to:
A) how interest rates vary over different structures of bonds.
B) how interest rates vary over different structures of corporate securities.
C) how interest rates vary over time with otherwise identical bonds.
D) the maturity dates of a bond issue.
Q2) Define what is meant by interest rate risk.Assume you are the manager of a $100 million portfolio of corporate bonds and you believe interest rates will fall.What adjustments should you make to your portfolio based on your beliefs?
Q3) Given the following set of spot rates:
Q4) A 12-year,5% coupon bond pays interest annually.The bond has a face value of $1,000.What is the percentage change in the price of this bond if the market yield rises to 6% from the current yield of 4.5%?
A) 11.11% decrease
B) 12.38% decrease
C) 12.38% increase
D) 14.13% decrease
E) 14.13% increase
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8
Chapter 7: Net Present Value and Other Investment Rules
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Sample Questions
Q1) An investment project is most likely to be accepted by the payback period rule and not accepted by the NPV rule if the project has:
A) a large initial investment with moderate positive cash flows over a very long period of time.
B) a very large negative cash flow at the termination of the project.
C) most of the cash flow at the beginning of the project.
D) All projects approved by the payback period rule will be accepted by the NPV rule.
E) The payback period rule and the NPV rule cannot be used to evaluate the same type of projects.
Q2) The discounted payback rule states that you should accept projects:
A) which have a discounted payback period that is greater than some pre-specified period of time.
B) if the discounted payback is positive and rejected if it is negative.
C) only if the discounted payback period equals some pre-specified period of time.
D) if the discounted payback period is less than some pre-specified period of time.
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9
Chapter 8: Net Present Value and Capital Budgeting
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Sample Questions
Q1) A reduction in the sales of an existing product caused by the introduction of a new product is an example of a(n):
A) sunk cost.
B) opportunity cost.
C) erosion.
D) fixed cost.
Q2) A firm purchases a new truck for $30,000.It will be depreciated over 5 years at $6,000 per year.If the tax rate is 30% what is the time 0 cash flow?
A) -$6,000
B) -$21,000
C) -$30,000
D) -$28,200
Q3) The bottom-up approach to computing the operating cash flow applies only when:
A) both the depreciation expense and the interest expense are equal to zero.
B) the interest expense is equal to zero.
C) the project is a cost-cutting project.
D) no fixed assets are required for the project.
E) taxes are ignored and the interest expense is equal to zero.
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Chapter 9: Risk Analysis,real Options,and Capital Budgeting
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Sample Questions
Q1) The Marx Brewing Company recently installed a new bottling machine.The machine's initial cost is $2,000,and can be depreciated on a straight line basis to a zero salvage in 5 years.The machine's per year fixed cost is $1,800,and its variable cost is $0.50 per unit.The selling price per unit is $1.50.Marx's tax rate is 34%,and it uses a 16% discount rate.If Marx sells 2500 units what is the accounting profit and contribution margin for Marx Brewing?
Q2) At stage 2 of the decision tree it shows that if a project is successful the payoff will be $53,000 with a 2/3 chance of occurrence.There is also the 1/3 chance of a -$24,000 payoff.The cost of getting to stage 2 (1 year out)is $44,000.The cost of capital is 15%.What is the NPV of the project at stage 1?
A) -$13,275
B) -$20,232
C) $2,087
D) $7,536
Q3) The market value of an investment project should be viewed as the sum of the standard NPV and the value of managerial options.Explain two different options that management may have,what they are,and how they would influence market value.
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Chapter 10: Risk and Return: Lessons From Market History
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Sample Questions
Q1) Kids Toy Co.has had total returns over the past five years of 0%,7%,-2%,10%,and 12%.What is the percentage change in wealth over the five years
A) 29%
B) 27%
C) 5.8%
D) 5.4%
Q2) The return pattern on your favorite stock has been 5%,8%,-12%,15%,21% over the last five years.What is your average return and total change in wealth per year over the period?
A) 4.5%, 6.5%
B) 15%, 21%
C) 7.4%, 6.8%
D) 9.2%, 8.6%
Q3) Little John Industries sold for $1.90 on January 1 and ended the year at a price of $2.50.In addition,the stock paid dividends of $0.20 per share.Calculate Little John's dividend yield,capital gain yield,and total rate of return for the year.
Q4) A stock has returns of 3%,18%,-24%,and 16% for the past four years.Based on this information,what is the 95% probability range for any one given year?
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Page 12
Chapter 11: Risk and Return: the Capital Asset Pricing Model
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Sample Questions
Q1) The rate of return on the common stock of Flowers by Flo is expected to be 14% in a boom economy,8% in a normal economy,and only 2% in a recessionary economy.The probabilities of these economic states are 20% for a boom,70% for a normal economy,and 10% for a recession.What is the variance of the returns on the common stock of Flowers by Flo?
A) 0.001044
B) 0.001280
C) 0.001863
D) 0.002001
E) 0.002471
Q2) Suppose you desire to invest in any one of the stocks listed above.Can any be recommended?
Q3) The expected return on GenLabs is:
A) 20.5%
B) 12.5%
C) 8.5%
D) 3.3%
Q4) Returns for the IC Company and for the S&P 500 Index over the previous 4-year period are given below:
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Chapter 12: An Alternative View of Risk and Return: the Arbitrage Pricing Theory
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Sample Questions
Q1) In a portfolio of risky assets the response to a factor,F<sub>i</sub>,can easily be determined by:
A) summing the weighted <sub>i</sub> s and multiplying by the innovation in F<sub>i</sub>.
B) summing the F<sub>i</sub> s.
C) adding the average weighted expected returns.
D) Summing the weighted random errors.
Q2) A growth stock portfolio and a value portfolio might be characterized
A) each by their P/E relative to the index P/E; high P/E for growth and lower for value.
B) as earning a high rate of return for a growth security and a low rate of return for value security irrespective of risk.
C) low unsystematic risk and high systematic risk respectively.
D) moderate systematic risk and zero systematic risk respectively.
Q3) Explain the conceptual differences in the theoretical development of the CAPM and APT.
Q4) You have a 3 factor model to explain returns.Explain what a factor represents in the context of the APT? Each factor is multiplied by a what do these represent and how do they relate to the actual return?
Page 14
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Chapter 13: Risk,return,and Capital Budgeting
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Sample Questions
Q1) RKKL is considering buying a company that has no leverage but an asset beta of .7.The market risk premium is 6% and the risk-free rate is 2%.If they plan to use 75% debt,what will the required rate of return be?
A) 18.8%
B) 6.2%
C) 8.0%
D) 14.6%
Q2) Eyes of the World Corporation has traditionally employed a firm wide discount rate for capital budgeting purposes.However,its two divisions - publishing and entertainment - have different degrees of risk given by <sub>P</sub> = 1.0, <sub>E</sub> = 2.0,and the beta for the overall firm is 1.3.The firm is considering the following capital expenditures:
Q3) A firm with cyclical earnings is characterized by:
A) revenue patterns that vary with the business cycle.
B) high levels of debt in their capital structures.
C) high fixed costs.
D) high price per unit.
E) low contribution margins.
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Page 15
Chapter 14: Corporate Financing Decisions and Efficient
Capital Markets
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Q1) A car maker announced a recall for faulty brakes.The company stock returned .004 the day before the announcement; -.001 the day of the announcement and .0045 the day after the announcement.The market average was .006,.0072 and .004 for the three days respectively.The daily beta for the car maker is .9.What are the three abnormal returns for the car maker's stock?
A) -.002, -.0082, .0005
B) -.002, -.00748, .0005
C) .01, .0062, .0085
D) -.0014, -.00748, .0009
Q2) If the securities market is efficient an investor need only throw darts at the stock pages to pick securities and be just as well off.
A) This is true because there are no differences in risk and return.
B) This is true because in an efficient stock market prices do not fluctuate.
C) This is false because professional portfolio managers prefer to generate commissions.
D) This is false because investors may not hold a desirable risk-return combination in their portfolio.
E) This is false because the markets are controlled by the institutional investors.
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Chapter 15: Long-Term Financing: an Introduction
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Q1) Authorized common stock usually refers to:
A) the stock's par value.
B) last year's retained earnings.
C) book value per share.
D) maximum number of shares that a corporation is authorized to issue and is stated in the article of incorporation.
E) treasury stock.
Q2) Mike's Mopeds used internal financing as a source of long-term financing for 70% of its total needs in 2014.The company borrowed an additional 20% of its total needs in the long-term debt markets in 2014.What were Mike's net new stock issues,in percentage terms,for 2014?
A) -10%
B) -5%
C) 5%
D) 10%
E) 15%
Q3) The Knot Knit Corporation needs to elect 9 directors.There are 120,000 shares outstanding.Under cumulative voting,how many shares would you need to own to guarantee that your favorite candidate is elected?
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Page 17
Chapter 16: Capital Structure: Basic Concepts
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Q1) Financial leverage impacts the performance of the firm by:
A) increasing the volatility of the firm's EBIT.
B) decreasing the volatility of the firm's EBIT.
C) decreasing the volatility of the firm's net income.
D) increasing the volatility of the firm's net income.
Q2) A firm has a debt-to-equity ratio of 1.Its cost of equity is 16%,and its cost of debt is 8%.If there are no taxes or other imperfections,what would be its cost of equity if the debt-to-equity ratio were 0?
A) 8%.
B) 10%.
C) 12%.
D) 14%.
E) 16%.
Q3) A firm has a debt-to-equity ratio of 1.75.If it had no debt,its cost of equity would be 9%.Its cost of debt is 7%.What is its cost of equity if the corporate tax rate is 50%?
A) 10.0%.
B) 10.75%.
C) 12.50%.
D) 7.73%.
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Page 18
Chapter 17: Capital Structure: Limits to the Use of Debt
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Q1) The Zercon Company has EBIT of $50,000 and market value debt of $100,000 outstanding with a 9% coupon rate.The cost of equity for an all equity firm would be 14%.Zercon has a 35% corporate tax rate.Investors face a 20% tax rate on debt receipts and a 15% rate on equity.Determine the value of Zercon.
A) $263,080.
B) $332,143.
C) $258,537.
D) $162,948.
E) $120,000.
Q2) The Lanoi Company has EBIT of $30,000 and market value debt of $150,000 outstanding with an 8% coupon rate.The cost of equity for an all equity firm would be 12%.Lanoi has a 30% corporate tax rate.Investors face a 20% tax rate on debt receipts and a 12% rate on equity.Determine the value of Lanoi.
A) $130,500.
B) $142,698.
C) $248,537.
D) $209,500.
E) $332,143.
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19
Chapter 18: Valuation and Capital Budgeting for the Levered Firm
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Q1) The Tip-Top Paving Co.has an equity cost of capital of 16.97% The debt to value ratio is .6 and a cost of debt of 11%.What is the cost of equity if Tip-Top was unlevered?
A) 3.06%
B) 14.73%
C) 0.08%
D) 16.97%
Q2) Non-market or subsidized financing ________ the APV ____________:
A) has no impact on; as the lower interest rate is offset by the lower discount rate.
B) decreases; by decreasing the NPV of the loan.
C) increases; by increasing the NPV of the loan.
D) has no impact on; as the tax deduction is not allowed with any government supported financing.
Q3) The term B x r<sub>b</sub> gives:
A) total cost of debt per year.
B) total cost of equity per year.
C) unit cost of debt.
D) unit cost of equity.
E) weighted average cost of capital.
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Chapter 19: Dividends and Other Payouts
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Q1) The date before which a new purchaser of stock is entitled to receive a declared dividend,but on or after which he/she does not receive the dividend,is called the _____ date.
A) ex-rights
B) ex-dividend
C) record
D) payment
E) declaration
Q2) It has been shown that in the absence of taxes and other market imperfections firm value will be unaffected by dividend policy.Explain the logic behind this conclusion.Next,describe three real-world factors that may cause one dividend policy to be preferable to another.
Q3) The KatyDid Co.is paying a $1.25 per share dividend today.There are 120,000 shares outstanding with a par value of $1.00 per share.As a result of this dividend,the:
A) retained earnings will decrease by $150,000.
B) retained earnings will decrease by $120,000.
C) common stock account will decrease by $150,000.
D) common stock account will decrease by $120,000.
E) capital in excess of par value account will decrease by $120,000.
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Page 21
Chapter 20: Issuing Equity Securities to the Public
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Q1) In a best-efforts offering the investment banker makes their money primarily by:
A) earning the spread between the buying and offering price.
B) earning a commission on each share sold.
C) earning the discount between the buying and offering price.
D) charging a flat fee for all services.
Q2) Yoma Inc.is attempting to raise $5,000,000 in new equity with a rights offering.The subscription price will be $40 per share.The stock currently sells for $50 per share and there are 250,000 shares outstanding.How many rights are needed to buy a new share?
Q3) For a particular stock the old stock price is $20,the ex-rights price is $15,and the number of rights needed to buy a new share is 2.Assuming everything else constant,the subscription price is:
A) $5.
B) $13.
C) $17.
D) $18.
E) $20.
Q4) Calculate the ex-rights price that would make a new stockholder indifferent between buying shares at the old stock price and exercising the rights or buying the shares ex-rights.
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Chapter 21: Long-Term Debt
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Q1) If the bond is priced at $1,000,what is the cost to the firm of the call provision?
Q2) Long term debt,that is privately placed debt,is directly placed:
A) with an investment banker.
B) with another manufacturing corporation.
C) with a lending institution.
D) with the federal government.
Q3) Zeros are bonds that:
A) have zero maturity.
B) have zero call dates.
C) have zero sinking funds.
D) have zero coupon rates.
Q4) A bond has a call provision.The call provision allows the ________ to _________ the bonds before maturity.
A) investor; sell back
B) trustee; buyback
C) issuer; call
D) investor; call
E) trustee; sell back
Q5) If the bond sells for par today,what is the coupon?
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Chapter 22: Leasing
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Q1) What is the after-tax cash flow in years 1 through 5?
A) $126,600
B) $198,000
C) $269,400
D) $287,250
Q2) Which of the following would not be a characteristic of a financial lease?
A) They are usually fully amortized.
B) They usually require the lessor to maintain and insure the leased assets.
C) They usually do not include a cancellation option.
D) The lessee usually has the right to renew the lease at expiration.
Q3) What is the after-tax cash flow from leasing in year 0?
A) -$300
B) -$852
C) -$948
D) -$495
Q4) What is the discount rate to be used?
Q5) Should the asset be purchased or leased? Support your answer.
Q6) Calculate the NPV of the lease versus the purchase decision.
Q7) What are the cashflows in years 1 through 8?
Page 24
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Chapter 23: Options and Corporate Finance: Basic Concepts
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Q1) Verma Violin Manufacturing Corporation has issued debt with $10 million of principal due.In terms of viewing the equity of the firm as a call option,what happens to the equity of the firm if the cashflow of the firm is less than $10 million?
A) The option is in-the-money and the stockholders earn the difference between the cash flow and the bondholder's promised payment.
B) The option is in-the-money and the bondholders earn the entire cash flow.
C) The option is out-of-the-money, the stockholders walk away, and the bondholders receive the entire cash flow.
D) The option is out-of-the-money, and the stockholders make up the difference so that the bondholders receive full payment.
Q2) When reading option price quotes from the Wall Street Journal or National Post,a price of "-" indicates that:
A) the price is rapidly increasing.
B) the price is rapidly decreasing.
C) the option did not trade that day.
D) the price is in error and needs recalculation.
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Page 25
Chapter 24: Options and Corporate Finance: Extensions and Applications
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Q1) What is the value of Mr.Maxim's options?
Q2) Rejecting an investment today forever may not be a good choice because:
A) the size of the firm will decline.
B) there are always errors in the estimation of NPVs.
C) the option value is negative.
D) the company's foregoing the future rights or option to the investment.
Q3) If a project has optionality:
A) the shorter the available life of the project the less valuable the project is.
B) the longer the available life of the project the less valuable the project is.
C) the shorter the available life of the project the more valuable the project is.
D) available project life does not change optionality.
Q4) The CEO of NuValue was granted 1,000,000 options.The stock price at the time of the granting of the options was $45 and the options are at the money.The risk free rate was 5% and the options expire in 5 years.The variance on the stock is .04.What is the value of the options contract? If he had negotiated a larger salary and only 10,000 options,what would be the value of the options contract?
Q5) Why would the company pay the executive in options as opposed to salary?
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Chapter 25: Warrants and Convertibles
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Q1) A convertible bond is selling for $800.It has 10 years to maturity,a $1000 face value,and a 10% coupon.Similar nonconvertible bonds are priced to yield 14%.The conversion price is $50 per share.The stock currently sells for $31.375 per share.The conversion premium is:
A) 37.25%.
B) 43.33%.
C) 59.36%.
D) 66.67%.
Q2) The holder of a $1,000 face value bond can exchange the bond any time for 25 shares of stock.The conversion price is:
A) $25.
B) $40.
C) $100.
D) $20.
Q3) Which of the following would harm the position of a warrant holder?
A) A stock split of 3 for 1.
B) A large stock dividend of 20%.
C) A large cash dividend.
D) Listing of the warrants on the NYSE.
Q4) Why are warrants and convertibles issued?
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Chapter 26: Derivatives and Hedging Risk
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Q1) You have taken a short position in a futures contract on corn at $2.60 per bushel.Over the next 5 days the contract settled at 2.52,2.57,2.62,2.68,2.70.You then decide to reverse your position in the futures market on the fifth day at close.What is the net amount you receive at the end of 5 days?
A) $2.70
B) $2.60
C) $2.80
D) $0.00
Q2) Suppose you agree to purchase one ounce of gold for $984 any time over the next month.The current price of gold is $970.The spot price of gold then falls to $960 the next day.If the agreement is represented by a futures contract marking to market on a daily basis as the price changes,what is your cash flow at the end of the next business day?
A) $10
B) $5
C) $0
D) -$5
E) -$10
Q3) Calculate the duration of Tiger State Bank's assets and liabilities.
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Chapter 27: Short-Term Finance and Planning
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Q1) The days in payable for 2014 is (use average payables):
A) 47.10 days.
B) 40.48 days.
C) 45.85 days.
D) 40.82 days.
E) 35.13 days.
Q2) Which of the following is not included in current liabilities?
A) Accounts payable
B) Prepaid insurance
C) Accrued wages
D) Taxes
E) Notes payable
Q3) The three basic forms of inventory loans include:
A) blanket inventory lien, field warehouse financing, and line of credit.
B) blanket inventory lien, line of credit, and trust receipt.
C) blanket inventory lien, field warehouse financing, and trust receipt.
D) field warehouse financing, line of credit, and trust receipt.
Q4) Restrictive short-term financial policies regarding current asset management include three basic actions.List and briefly describe each action.
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Chapter 28: Cash Management
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Q1) What is the firm's net float?
A) $300
B) -$3,300
C) $3,300
D) -$300
Q2) What is the savings float and what can you earn if the firm takes Mesa's lockbox service?
Q3) By getting closer to the source of payment,lockboxes can be used to reduce:
A) availability or clearing float.
B) mail float.
C) in-house processing float.
D) disbursement float.
Q4) Aesbrook Airlines currently has $2.4 million on deposit with its bank.Aesbrook pays its fuel bill by writing a check for $1.1 million.Calculate the company's book cash and bank cash after it writes the check.
Q5) Which of the following money-market securities has no active secondary market?
A) Certificates of deposit (CD's)
B) Commercial paper
C) Banker's acceptances
D) Treasury bills
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Chapter 29: Credit Management
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Q1) Which of the following statements is not true?
A) An aging schedule shows only overdue accounts.
B) An aging schedule shows the probability that a 67-day account will be unpaid when it is a 68-day account.
C) Average collection period data is somewhat flawed if sales are seasonal.
D) Collection efforts may involve legal action.
E) Investments in accounts receivable equal average daily sales times average collection period.
Q2) Which of the following statements is not true?
A) Commercial drafts represent a way to obtain a credit commitment from a customer before the goods are delivered.
B) When a trade acceptance is discounted in the secondary market it becomes a market acceptance.
C) Sight drafts require immediate payment.
D) Trade acceptances arise when a bank guarantees payment on a commercial draft.
Q3) The Rapid Roller Co.offers terms of 3/15 net 45.The aging schedule for their customers is as follows:
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Chapter 30: Mergers and Acquisitions
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Q1) What is the synergy from the merger of V and A? V was worth $450 and A had a market value of $375.V acquired A for $425 because they thought the combination of VA was worth $925.
A) $50
B) $100
C) $500
D) $475
Q2) Which of the following defensive tactics completely eliminates the possibility of a takeover via tender offer?
A) Leveraged buyout (LBO)
B) Exclusionary self-tender
C) Targeted repurchase
D) Super majority amendment
Q3) The empirical evidence strongly indicates that the stockholders of the target firm realize large wealth gains as a result of a takeover bid but the stockholders in the acquiring firm gain little,if anything.Although no definitive answer exists as to why this is the case,several possible explanations have been proposed.List and explain three of these possible explanations for the minimal returns to the acquiring firm's stockholders.
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Chapter 31: Financial Distress
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Q1) How much should the secured creditors receive?
A) $1,500,000
B) $2,000,000
C) $2,300,000
D) $3,000,000
Q2) Which of the following statements about private workouts of financial distress is NOT true?
A) Senior debt is replaced with junior debt.
B) Debt may be replaced by equity.
C) Private workouts account for about three quarters of all reorganizations.
D) Top management is dismissed or take pay reduction many times.
Q3) Steel Pony decides to file for formal bankruptcy and expects to sell the firm for the "going concern" value and pay administrative fees which amounts to 5%,determine the distribution of the proceeds under the rules of absolute priority.
Q4) How much should the unsecured creditors receive?
A) $1,000,000
B) $500,000
C) $750,000
D) $667,000
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Chapter 32: International Corporate Finance
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Q1) The two terms Purchasing Power Parity (PPP)and Relative Purchasing Power Parity (RPPP)are similar but not synonymous.Explain these two,their differences and why differences in exchange rates in the market may vary from the values implied by PPP or RPPP.
Q2) The NPV of a foreign investment will be lower if:
A) not all cash flows are remitted to the parent and unremitted cashflows are reinvested at a rate equal to the domestic cost of capital.
B) not all cash flows are remitted to the parent and unremitted cashflows are reinvested at a rate less than the domestic cost of capital.
C) all cash flows are remitted to the parent and are reinvested at a rate equal to the domestic cost of capital.
D) Remittance rates nor foreign reinvestment rates do not affect the NPV.
Q3) When the German mark is quoted as $.52 this quote is a(n):
A) triangular rate.
B) indirect rate.
C) direct rate.
D) cross rate.
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