Business Administration
Exam Answer Key
Course Introduction
Business Administration is an interdisciplinary field that focuses on the planning, organization, direction, and control of business operations. This course introduces students to fundamental concepts such as management principles, marketing, finance, human resources, and operations, while emphasizing effective decision-making and strategic thinking in the context of contemporary organizations. Students will gain a comprehensive understanding of how businesses function, the challenges they face in a dynamic market environment, and the skills required to lead and manage organizations successfully.
Recommended Textbook
Introduction to Corporate Finance 3rd Edition by John Graham
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Chapter 1: The Scope of Corporate Finance
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Sample Questions
Q1) Venture capitalists:
A) Are banks that provide capital only for low-risk corporations
B) Will only make investments if there is no risk involved
C) Are professional investors who provide capital for high risk/high return rapidly-growing entrepreneurial business
D) None of the above
Answer: C
Q2) The Sarbanes-Oxley Act of 2002
A) established the Securities and Exchange Commission.
B) requires CEO and CFOs of all large companies to personally certify their firms' financial statements.
C) defined ethical behavior.
D) established that a CFO must be a member of the firm's audit committee of the board of directors.
Answer: B
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Chapter 2: Financial Statement and Cash Flow Analysis
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Sample Questions
Q1) Granny's Jug Herbal Shop has total current liabilities of $2,000 and an inventory of $1,000.If its current ratio is 2.5,then what is its quick ratio?
A) 2.0
B) 2.5
C) 3.0
D) 3.5
Answer: A
Q2) What is the amount of free cash flow generated by Cold Weather Sports in 2012?
A) $100
B) $2,100
C) $2,300
D) none of the above
Answer: C
Q3) What is Bavarian Sausage,Inc.'s times interest earned ratio?
A) 3.60
B) 7.00
C) 15.00
D) 6.00
Answer: B
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Page 4
Chapter 3: The Time Value of Money
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Sample Questions
Q1) Suppose you take out a loan from the local mob boss for $10,000.Being a generous banker,the mob boss offers you an APR of 60% with monthly compounding.The length of the loan is 3 years with monthly payments.However,you want to get out of this arrangement as quickly as possible.You decide to pay off whatever balance remains after the first year of payments.What is your remaining balance after one year?
A) $8,124.46
B) $8,339.13
C) $9,233.06
D) $9,342.47
Answer: B
Q2) Michelle is buying a house and the mortgage terms are 30 years,monthly payments.If the interest rate is 5% (APR),what are the payments on a $150,000 loan?
A) $7500
B) $9757
C) $ 805
D) $5229
Answer: C
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Chapter 4: Valuing Bonds
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Sample Questions
Q1) The required rate of return:
A) is used as the discount rate when valuing an asset's expected cash flows.
B) is increased when an asset's cash flows are considered to be riskier.
C) is a fixed rate that remains the same for all investors regardless of changes in the market.
D) Both (a)and (b)
E) All of the above
Q2) You are offered a zero-coupon bond with a $1,000 face value and 5 years left to maturity.If the required return on the bond is 8%,what is the most you should pay for this bond?
A) $752.69
B) $680.58
C) $1,000
D) $1,126.94
Q3) Given Exhibit 4-1,what is the current coupon yield of the Big City bond? Assume that today's date is August,2004.
A) 6.14%
B) 6.34%
C) 6.58%
D) 6.71%
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Chapter 5: Valuing Stocks
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Sample Questions
Q1) You are approached about purchasing a share of common stock in a company that will definitely go out of business exactly 2 years from today.The company is anticipated to pay a $10 dividend one year from now and a $15 dividend two years from now (immediately before it goes out of business).What price are you willing to pay for the stock if the required rate of return on the stock is 5%?
A) $22.68
B) $23.13
C) $23.81
D) $25.00
Q2) Miller Juice,Inc.just paid a $3 dividend.The company is expected to pay a $3.50 dividend next year and a $4 dividend in two years.After that,dividends are expected to grow at 5% forever.If investors require a return of 12% on the investment,what should Miller Juice stock sell for today?
A) $54.15
B) $49.63
C) $57.15
D) $60.00
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Page 7
Chapter 6: The Trade-Off Between Risk and Return
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Sample Questions
Q1) What is the standard deviation of returns for stock C?
A) 7.79%
B) 8.52%
C) 8.09%
D) 6.38%
Q2) Stock X has 3 units of systematic risk and 2 units of unsystematic risk while Stock Y has 3 units of systematic risk and 4 units of unsystematic risk.If Stock X is priced to generate an 8% return for investors then what do we know about the return that Stock Y should be priced to return?
A) Stock Y should be priced to return greater than 8%
B) Stock Y should be priced to return 8%
C) Stock Y should be priced to return less than 8%
D) there is not enough information to solve this problem
Q3) A stock was purchased two years ago for $20.The stock does not pay dividends and sells today for $26.00.If sold today,what was the annual realized return on your investment?
A) 9%
B) 12%
C) 14%
D) 15%
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Chapter 7: Risk,return,and the Capital Asset Pricing Model
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Sample Questions
Q1) Active managers:
A) generate lower expenses for their shareholders than passive managers.
B) trade more frequently than passive managers
C) always use trading rules to decide when to buy and sell stocks.
D) all of the above.
Q2) An investor has $10,000 invested in Treasury securities and $15,000 invested in stock UVW.UVW has a beta of 1.2.What is the beta of the portfolio?
A) 0.00
B) 0.72
C) 1.20
D) 1.60
Q3) What type of mutual fund managers do extensive analysis to identify mispriced stocks?
A) passive
B) index
C) active
D) short
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Chapter 8: Capital Budgeting Process and Decision Criteria
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Sample Questions
Q1) Delta Pharmaceuticals has 200 million shares outstanding with a current market price of $30 per share.Its stock rose to $32 on the news that Delta Pharmaceuticals' long-awaited new drug Zentac is to hit the market next month.What's the market's consensus of the NPV that the new drug will generate for Delta Pharmaceuticals?
A) $400 million
B) $6,400 million
C) $6,000 million
D) None of the above
Q2) As the discount rate increases,the NPV of a project:
A) increases.
B) decreases.
C) is unaffected.
D) cannot be determined with out knowing the discount rate.
Q3) The accounting rate of return is calculated as:
A) sales/stock price
B) net income/stock price
C) sales/book value of assets
D) net income/book value of assets
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Chapter 9: Cash Flow and Capital Budgeting
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Sample Questions
Q1) The percentage of taxes owed on an incremental dollar of income is called:
A) the minimum tax rate.
B) the marginal tax rate.
C) the average tax rate.
D) the maximum tax rate.
Q2) Refer to DSSS Corporation.What is the after-tax cash flow from selling the machine at the end of year 3?
A) $25,000
B) $5,999
C) $7,214
D) $19,001
Q3) Accountants measure inflows and outflows of business operations on:
A) a cash basis.
B) a profit basis.
C) an accrual basis.
D) an expense basis.
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11
Chapter 10: Risk and Capital Budgeting
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Sample Questions
Q1) Find the break even point given the following information: total costs: $135,000; variable costs per unit = $10; sale price per unit = $25; sales = 10,000 units.
A) 3,000
B) 2,333
C) 1,667
D) 1,886
Q2) What is the Never-crash Airline's after tax cost of debt?
A) 7.00%
B) 4.62%
C) 2.38%
D) 4.50%
Q3) Everything else being equal a higher corporate tax rate...
A) will increase the WACC of a firm with debt and equity in its capital structure
B) will not affect the WACC of a firm with debt in its capital structure
C) will decrease the WACC of a firm with some debt in its capital structure
D) will decrease the WACC of a firm with only equity in its capital structure
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Chapter 11: Raising Long-Term Financing
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Sample Questions
Q1) What is the initial return earned by investors on this Bavarian Brewhouse IPO?
A) 20%
B) 15%
C) 17%
D) 22%
Q2) If ABC's stock price closes at $39.00 the day before the offering,calculate the return earned by ABC's existing stockholders on their shares from the time before the seasoned offering was announced through the time it was actually sold for $38.50 per share.
A) -3.75%
B) -2.00%
C) 1.25%
D) 3.75%
Q3) A non-U.S.based company would like to issue a form of its common equity in the U.S.A current method for doing so would be
A) to contract for a U.S.investment back to issue a sponsored ADR.
B) to let a U.S.investment bank issue an unsponsored ADR.
C) to sell put options on its own stock to U.S.investors.
D) none of the above.
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Page 13
Chapter 12: Capital Structure
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Sample Questions
Q1) What are Bavarian Brew's earnings per share before the restructuring? Assume no corporate taxes.
A) $2.50
B) $2.25
C) $2.00
D) $1.75
Q2) Firm Y issued $100,000,000 of bonds last year for the purpose of building a new widget manufacturing plant.Firm Y instead used the proceeds to fund Blackjack gamblers in Las Vegas.Which of the following best describes the general problem that Y's investors must deal with?
A) The Underinvestment Problem
B) The Overinvestment Problem
C) The Asset Substitution Problem
D) The Enron Problem
Q3) A person's FICO score can range from:
A) 300 to 850.
B) 300 to 800.
C) 600 to 850.
D) 300 to 600.
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Page 14
Chapter 13: Long-Term Debt and Leasing
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Sample Questions
Q1) Refer to Loose Cannon Co.What is the NPV of the refunding decision?
A) $3,654,164
B) $5,356,375
C) $1,224,292
D) $8,614,375
Q2) Refer to Bavarian Brew Bond.What are the annual net cash flow savings from issuing the new bonds?
A) $236,734
B) $478,923
C) $386,367
D) $529,645
Q3) Refer to BLEC.What is the present value of the five years of after-tax cash flows from purchasing the machine?
A) $92,504
B) $108,120
C) $77,351
D) $123,273
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Page 15
Chapter 14: Payout Policy
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Sample Questions
Q1) What is Extruded Elements' expected dividend next year?
A) $2.07 per share
B) $1.97 per share
C) $4.59 per share
D) $4.82 per share
Q2) Choc-lattes Corp.earned $5.00 per share in 2006,and paid a dividend of $2.00 per share.If it earns $5.50 in 2007 and follows a constant nominal payout policy,its dividend will be
A) $3.30
B) $3.00
C) $2.20
D) $2.00
Q3) If Bavarian Brewhouse follows a constant nominal dividend policy what will be the dividend per share in 2005?
A) $1.45
B) $2.59
C) $2.12
D) $3.25
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16
Chapter 15: Financial Planning
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Sample Questions
Q1) Refer to Kooshy.Suppose pro forma net income is $50 and pro forma total assets are $525.If accounts payable maintain the same percent of sales,no new long term debt is issued,and the only addition to owners' equity is to retained earnings,what will be the pro forma balance in notes payable for a forecasted 20% increase in sales? (That is,use notes payable as the balancing account.)
A) $39
B) $74
C) $83
D) $4
Q2) Which of the following make(s)the planning process more complex than simply accepting all projects that look promising?
A) limits on capital
B) limits on production capacity
C) limits on human resources
D) all of the above
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Chapter 16: Cash Conversion, inventory, and Receivables Management
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Sample Questions
Q1) A negative cash conversion cycle basically means
A) the firm is illiquid,with serious cash flow problems
B) the firm collects on sales more slowly than it pays its payables
C) the firm collects on sales more quickly than it pays its payables.
D) the firm's current cash balance is negative.
Q2) Bavarian Brew has an average age of inventory of 35 days,an average collection period of 27 days.What is the company's operating cycle?
A) 35 days
B) 27 days
C) 62 days
D) 8 days
Q3) The outright sale of a firm's receivables to a third party is called
A) a write-off.
B) factoring.
C) re-invoicing.
D) none of the above.
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Chapter 17: Cash, payables, and Liquidity Management
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Sample Questions
Q1) Controlled disbursement is designed to:
A) provide early notification of checks that will be presented against a company's account on a given day.
B) help combat a common type of check fraud.
C) provide a company with outsourcing of its accounts payable or disbursement operations.
D) eliminate nonearning cash balances in corporate checking accounts.
Q2) Refer to Smith Enterprise Credit line (w/o comp).What would be the effective borrowing rate if you exhausted your line of credit?
A) 8.04%
B) 7.80%
C) 8.48%
D) 8.21%
Q3) National Groceries chooses to have it local stores make payments on their own payables.National utilizes a A) centralized payment system. B) fragmented payment system.
C) decentralized payment system.
D) none of the above.
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Page 19
Chapter 18: International Financial Management
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Sample Questions
Q1) Which of the following describes taking a position in a currency to increase risk?
A) Speculating
B) Hedging
C) Put-call parity
D) Insurance
E) Fixed exchange rate
Q2) You checked the /$ exchange rate a week ago and you found that one Dollar cost you 0.8214.When you checked the /$ exchange rate again yesterday one dollar was trading at 0.8026.By how much did the value of the Euro appreciate (depreciate)?
A) depreciated by 3.56%
B) appreciated by 3.56%
C) appreciated by 2.29%
D) depreciated by 2.29%
Q3) The risk that a firm's value will fluctuate due to exchange price movements
A) Transactions exposure
B) Translation exposure
C) Economic exposure
D) Political Risk
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20
Chapter 19: Options
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Q1) You have written a call option on 1 share of Z stock that is currently worth $15.You expect the price of the stock to either move to $20 or $10 over the next year.If the one-year risk-free interest rate is 10% and the strike price on the option is $15,what should have been the proceeds of the option?
A) $5.45
B) $2.95
C) $.45
D) $0
Q2) A put option with a $50 strike price on Bavarian Sausage stock will expire in one year.If you know that the risk free rate is 4%,that the stock currently sells at $47 and the call on the same stock has a value of $2.75,what is the price of the put?
A) $4.67
B) $2.75
C) $3.83
D) $1.56
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Chapter 20: Entrepreneurial Finance and Venture Capital
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Q1) If Pickswinners' common stock position represents 40% of Robotronics equity,how many shares are being offered in the IPO?
A) 15,000,000
B) 18,000,000
C) 25,200,000
D) 45,000,000
Q2) Give the venture capitalists the right to force the company to buy back the shares held by the venture capitalists.
A) Repurchase rights
B) Stock option plans
C) Demand registration rights
D) Participation rights
Q3) A rapidly growing source of new money for institutional venture capital funds is A) bank loans
B) pension funds
C) individuals
D) government grants
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Chapter 21: Mergers, acquisitions, and Corporate Control
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Q1) What is the value of the transaction at the time of the offer for Milner Manufacturing?
A) $87,500,000
B) $33,000,000
C) $50,000,000
D) $57,750,000
Q2) When a subsidiary of the bidder merges with the target firm
A) subsidiary merger
B) statutory merger.
C) subsidiary merger .
D) reverse triangle merger
E) consolidation
Q3) Recent stock market evidence reveals
A) target and bidder shareholders receive significant positive returns.
B) target shareholders receive significant positive returns,while acquirers' returns are actually negative.
C) acquiring firms' shareholders receive a larger share than target shareholders of the increased value of the combined firms.
D) acquirers' returns have been increasing over time.
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23
Chapter 22: Bankruptcy and Financial Distress
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Q1) If a company's financial position is characterized by current liabilities greater than current assets,it is
A) bankrupt.
B) illiquid.
C) insolvent.
D) liquidated.
Q2) A company that does not pay its debts when they come due is called
A) insolvent
B) debtor in possession
C) broke
D) financially distressed
Q3) Suppose a firm's creditors decide that replacing current management is a requirement in a voluntary reorganization.This is called
A) an extension reorganization.
B) a composition reorganization.
C) a creditor control reorganization.
D) a cram-down reorganization.
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Page 24
Chapter 23: Risk Management
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Q1) The spot rate exchange rate for Andromedan Pixels (ANP)is 3.00ANP/$.If the risk-free rate of return in Andromeda is 20% per annum while that in the U.S.is 3%,then what amount of U.S.dollars should you be able to convert 3,000,000 ANP into 1-year from now if you choose to begin hedging today?
A) $1,165,049
B) $1,000,000
C) $858,333
D) $833,333
Q2) Currently the Brazilian Real is trading at R/$ 1.7531; if the current anticipated inflations are 4% (U.S)and 7.3% (Brazil)over the next year what is the fair one-year forward price? (R/$)
A) 1.686
B) 1.699
C) 1.809
D) 1.634
Q3) If the managers of a firm have a greater aversion to risk,then
A) they are less likely to hedge.
B) they are more likely to hedge.
C) they are more likely to use derivatives to speculate.
D) none of the above.
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