Business Finance
Final Exam
Course Introduction
Business Finance is a foundational course that explores the principles and practices involved in managing the financial resources of a business. The course covers key topics such as financial statement analysis, the time value of money, risk and return, capital budgeting, cost of capital, and working capital management. Students will learn how to evaluate financing options, make investment decisions, and understand the impact of financial markets on corporate strategies. Through case studies and practical exercises, the course equips students with analytical tools and financial concepts essential for effective decision-making in both small businesses and large corporations.
Recommended Textbook
Corporate Finance 7th Canadian Edition by Jaffe
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Page 2
Chapter 1: Introduction to Corporate Finance
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Sample Questions
Q1) Which one of the following is a primary market transaction?
A) A dealer selling shares of stock to an individual investor.
B) A dealer buying newly issued shares of stock from a corporation.
C) An individual investor selling shares of stock to another individual.
D) A bank selling shares of a medical firm to an individual.
Answer: B
Q2) The decision to incorporate must consider the fact that earnings will be taxed at both the corporate and personal levels.Since this is disadvantageous,provide three reasons why one may want to incorporate.
Answer: Easier access to capital markets.
Retention of funds for reinvestment opportunities. Market pricing and trading of securities.
Q3) If a firm has debt outstanding the contingent claim of an equity shareholder is:
A) equal to the payment to the debtholders
B) equal to the firm cash flows minus the fixed debt payment if the residual cash flows are positive
C) equal to the firm cash flows minus the fixed debt payment whether positive or negative
D) equal to the debt payment plus the residual cash flow of the firm.
Answer: B
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Chapter 2: Accounting Statements and Cash Flow
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Q1) Donny Dell Inc.had a days in inventory of 5 (based on 365 days).The inventory turnover was:
A) 5.
B) 60.
C) 73.
D) can not be figured without the inventory value.
Answer: C
Q2) The cash flow of the firm is defined as the cash flow of the assets.This cash flow must be equal to:
A) cash flow to equity minus cash flow to debtholders.
B) cash flow to debtholders minus cash flow to equity.
C) cash flow from changes in working capital plus cash flow to equity.
D) cash flow to equity plus cash flow to debtholders.
Answer: D
Q3) The Statement of Financial Position is based on which following equality:
A) Fixed Assets = (Stockholder's equity + Current Assets)
B) Assets = (Liabilities + Stockholder's equity)
C) Assets = (Current Long Term Debt + Retained earnings)
D) Fixed Asset = (Liabilities + Stockholder's equity)
Answer: B
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Chapter 3: Financial Planning and Growth
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Q1) Marcie's Mercantile wants to maintain its current dividend policy,which is a payout ratio of 40%.The firm does not want to increase its equity financing but is willing to maintain its current debt-equity ratio.Given these requirements,the maximum rate at which Marcie's can grow is equal to:
A) 40% of the internal rate of growth.
B) 60% of the internal rate of growth.
C) the internal rate of growth.
D) the sustainable rate of growth.
E) 60% of the sustainable rate of growth.
Answer: D
Q2) A firm has a fixed debt-to-equity ratio and dividend policy.Assets and net income are proportional to sales,and new equity will not be issued.Which of the following statements is most correct?
A) Almost any growth rate is theoretically possible.
B) Only one growth rate is possible.
C) The firm cannot grow.
D) The firm's growth rate must be less than some maximum.
Answer: B
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Page 5
Chapter 4: Financial Markets and Net Present Value: First Principles of Finance
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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) If the amount of money to be lent is exactly equal to the amount desired to be borrowed then the market is cleared at:
A) the equilibrium interest rate.
B) the marginal rate of substitution.
C) the crossover rate.
D) the short term yield curve rate.
Q3) Components of a loan which is fully paid back are:
A) the interest and financial market payments.
B) the principle repayment and the down payment.
C) the interest payment and principal repayment.
D) the down payment and interest payment.
Q4) The separation theorem in financial markets is fundamental to allowing managers to maximize all shareholders wealth.Explain the separation theorem and how the financial markets provide for all different types of investors.
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Chapter 5: The Time Value of Money
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Q1) Which of the following statements is true?
A) Regardless of the value of the interest rate, increasing the compounding frequency will decrease the future value.
B) Regardless of the value of the interest rate, increasing the compounding frequency will increase the future value.
C) There is a relationship between the future value of investment and the effect of compounding frequency. At high interest rates, increases in compounding frequency will decrease the future value.
D) There is a relationship between the future value of investment and the effect of compounding frequency. At low interest rates, increases in compounding frequency will decrease the future value.
Q2) There are three factors that affect the present value of an annuity.Explain what these three factors are and discuss how an increase in each will impact the present value of the annuity.
Q3) What is meant by "amortizing a loan"?
Q4) If you invest $100,000 today at 12% per year over the next 15 years,what is the most you can spend in equal amounts out of the fund each year over that time.
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Chapter 6: How to Value Bonds and Stocks
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Q1) What would be the maximum an investor should pay for the common stock of a firm that has no growth opportunities but pays a dividend of $1.36 per year? The next dividend will be paid in exactly 1 year.The required rate of return is 12.5%.
A) $17.00
B) $9.52
C) $10.88
D) $12.24
Q2) A firm's value increases when it invests in projects that have:
A) a rate of return less than the discount rate.
B) a rate of return equal to the discount rate.
C) a rate of return greater than the discount rate.
D) a rate of return equal to or less than the discount rate.
Q3) Consider a bond which pays 7% semi-annually and has 8 years to maturity.The market requires an interest rate of 8% on bonds of this risk.What is this bond's price?
A) $942.50
B) $911.52
C) $941.74
D) $1064.81
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8
Chapter 7: Net Present Value and Other Investment Rules
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Q1) The Carnation Chemical Company is investing in an incinerator to dispose of PCB waste.The incinerator costs $1.5 million and will generate end of year cash of $1 million for the next 3 years.At the end of 3 years the incinerator will be worthless and must be disposed of at the cost of $500,000.The internal rate of return for this project is:
A) between 10% and 20%.
B) between 20% and 30%.
C) between 30% and 40%.
D) more than 40%.
Q2) If there is a conflict between mutually exclusive projects due to the IRR,one should:
A) drop the two projects immediately.
B) spend more money on gathering information.
C) depend on the NPV as it will always provide the most value.
D) depend on the AAR because it does not suffer from these same problems.
Q3) Cutler Compacts will generate cash flows of $30,000 in year one,and $65,000 in year two.However,if they make an immediate investment of $20,000,they can expect to have cash streams of $55,000 in year 1 and $63,000 in year 2 instead.The interest rate is 9%.Calculate the NPV of the proposed project.Why would the IRR be a poor choice in this situation?
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Chapter 8: Net Present Value and Capital Budgeting
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Q1) Your boss just turned back your capital budgeting report because she is unsure of your results.The yearly revenues are going up at a constant rate equal to the consumer price index of 4% and the discount used was 6%.The boss also mentions that the long term Treasury bond rate is only 71/2%.Explain the boss' dilemma and how it should be corrected.
Q2) This chapter introduced three new methods for calculating project operating cash flow (OCF).Under what circumstances is each method appropriate?
Q3) Tax shield refers to a reduction in taxes created by:
A) a reduction in sales.
B) an decrease in interest expense.
C) non-cash expenses.
D) a project's incremental expenses.
E) opportunity costs.
Q4) The value of a previously purchased building used by a proposed project is an example of a(n):
A) sunk cost.
B) opportunity cost.
C) erosion.
D) fixed cost.
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Chapter 9: Risk Analysis,real Options,and Capital Budgeting
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Sample Questions
Q1) All else equal,the contribution margin must increase as:
A) both the sales price and variable cost per unit increase.
B) the fixed cost per unit declines.
C) the variable cost per unit declines.
D) sales price per unit declines.
E) the sales price minus the fixed cost per unit increases.
Q2) The Adept Co.is analyzing a proposed project.The company expects to sell 2,500 units,give or take 10%.The expected variable cost per unit is $8 and the expected fixed costs are $12,500.Cost estimates are considered accurate within a plus or minus 5% range.The depreciation expense is $4,000.The sale price is estimated at $16 a unit,give or take 2%.The company bases its sensitivity analysis on the expected case scenario What is the sales revenue under the optimistic case scenario?
A) $40,000
B) $43,120
C) $44,000
D) $44,880
E) $48,400
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Chapter 10: Risk and Return: Lessons From Market History
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Q1) 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.
Q2) Capital market history shows us that the average return relationship between securities where:
A) lowest return is inflation, then corporate bonds, Treasuries, small company stocks, to highest return all common stocks.
B) lowest return is Treasury bills, inflation, small company stocks, highest return all common stocks.
C) lowest return is Treasury bills, corporate bonds, government bonds, all common stocks, highest small company stocks.
D) lowest return is Treasury bills, government bonds, corporate bonds, all common stocks, highest small company stocks.
Q3) A capital gain occurs when:
A) the selling price is less than the purchase price.
B) the purchase price is less than the selling price.
C) there is no dividend paid.
D) there is no income component of return.
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Chapter 11: Risk and Return: the Capital Asset Pricing Model
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Sample Questions
Q1) For a highly diversified equally weighted portfolio,the portfolio variance is:
A) the average covariance.
B) the average expected value.
C) the average variance.
D) the weighted average expected value.
E) the weighted average variance.
Q2) A well-diversified portfolio has negligible:
A) expected return.
B) systematic risk.
C) unsystematic risk.
D) variance.
Q3) Covariance measures the interrelationship between two securities in terms of:
A) both expected return and direction of return movement.
B) both size and direction of return movement.
C) the standard deviation of returns.
D) both expected return and size of return movements.
E) the correlations of returns.
Q4) We routinely assume that investors are risk-averse return-seekers; i.e.,they like returns and dislike risk.If so,why do we contend that only systematic risk and not total risk is important?
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Chapter 12: An Alternative View of Risk and Return: the Arbitrage Pricing Theory
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Q1) Suppose the JumpStart Corporation's common stock has a beta of 0.8.If the risk-free rate is 4% and the expected market return is 9%,the expected return for JumpStart's common stock is:
A) 3.2%.
B) 4.0%.
C) 7.2%.
D) 8.0%.
E) 9.0%.
Q2) To estimate the cost of equity capital for a firm using APT or CAPM,it is necessary to have:
A) company financial leverage, beta, and the market risk premium.
B) company financial leverage, beta, and the risk-free rate.
C) beta, company financial leverage, and the industry beta.
D) beta, company financial leverage, and the market risk premium.
E) beta, the risk-free rate, and the market risk premium.
Q3) Systematic risk is defined as:
A) a risk that specifically affects an asset or small group of assets.
B) any risk that affects a large number of assets.
C) any risk that has a huge impact on the return of a security.
D) the random component of return.
Page 14
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Chapter 13: Risk,return,and Capital Budgeting
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Sample Questions
Q1) What is the market value of debt and its' net cost to the firm?
A) 9,642,857; 8.4%.
B) 9,642,857; 12%.
C) 6,750,000; 8.4%.
D) 6,750,000; 12%.
E) 4,725,000; 12%.
Q2) Peter's Audio Shop has a cost of debt of 7%,a cost of equity of 11%,and a cost of preferred stock of 8%.The firm has 104,000 shares of common stock outstanding at a market price of $20 a share.There are 40,000 shares of preferred stock outstanding at a market price of $34 a share.The bond issue has a total face value of $500,000 and sells at 102% of face value.The tax rate is 34%.What is the weighted average cost of capital for Peter's Audio Shop?
A) 6.14%
B) 6.54%
C) 8.60%
D) 9.14%
E) 9.45%
Q3) Explain the factors that determine beta and how an asset beta can differ from equity betas.
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Page 15
Chapter 14: Corporate Financing Decisions and Efficient
Capital Markets
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Q1) Suppose that firms with unexpectedly high earnings earn abnormally high returns for several months after the announcement.This would be evidence of:
A) efficient markets in the weak form.
B) inefficient markets in the weak form.
C) efficient markets in the semi-strong form.
D) inefficient markets in the semi-strong form.
E) inefficient markets in the strong form.
Q2) When the stock return data has been divided into market capitalization groups the return performance of:
A) all such groups has been the same over time.
B) small capitalization stocks have outperformed large capitalization stocks even after risk adjustment.
C) small capitalization stocks have under performed large capitalization stocks once adjusted for risk.
D) small and large capitalization stocks have performed equally on a risk-adjusted basis.
Q3) Explain why it is that in an efficient market,investments have an expected NPV of zero.
Q4) Define the three forms of market efficiency.
Page 16
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Chapter 15: Long-Term Financing: an Introduction
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Q1) A grant of authority allowing someone else to vote shares of stock that you own is called a:
A) power-of-share authorization.
B) proxy.
C) share authority grant (SAG).
D) restricted conveyance.
Q2) If a debenture is subordinated,it:
A) has a higher priority status than specified creditors.
B) is secondary to equity.
C) must give preference to the specified creditor in the event of default.
D) has been issued because the company is in default.
Q3) Retained earnings are:
A) the amount of cash that the firm has saved up.
B) the difference between the net income earned and the dividends paid in a year.
C) the difference between the market price of the stock and the book value.
D) the amount of stock repurchased.
Q4) From this information,calculate Enstat's book value per share.
Q5) Rework the shareholder's equity as it appears on the books if the company issues 40,000 new share of common at $70 per share.
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Chapter 16: Capital Structure: Basic Concepts
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Q1) Bryan invested in Bryco,Inc.stock when the firm was financed solely with equity.The firm is now utilizing debt in its capital structure.To unlever his position,Bryan needs to:
A) borrow some money and purchase additional shares of Bryco stock.
B) maintain his current position as the debt of the firm did not affect his personal leverage position.
C) sell some shares of Bryco stock and hold the proceeds in cash.
D) sell some shares of Bryco stock and loan it out such that he creates a personal debt-equity ratio equal to that of the firm.
E) create a personal debt-equity ratio that is equal to exactly 50% of the debt-equity ratio of the firm.
Q2) A levered firm is a company that:
A) is financed by common stock.
B) has some debt in the capital structure.
C) has all equity in the capital structure.
D) has no debt in the capital structure.
Q3) Mike tells Steve that while his analysis looks good on paper,Steve will never be able to borrow at 8%,but would have to pay a more realistic rate of 12%.If Mike is right,what will Steve's payout be?
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Chapter 17: Capital Structure: Limits to the Use of Debt
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Q1) The optimal capital structure will tend to include more debt for firms with:
A) the highest depreciation deductions.
B) the lowest marginal tax rate.
C) substantial tax shields from other sources.
D) lower probability of financial distress.
E) less taxable income.
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.
Q3) Given a situation where the corporate tax rate is 34%,and the personal tax rate on dividends is 28%,what must the personal tax rate on interest be to achieve the Miller equilibrium?
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Chapter 18: Valuation and Capital Budgeting for the Levered Firm
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Q1) The Tip-Top Paving Co.wants to be levered at a debt to value ratio of .6.The cost of debt is 11% and the cost of equity for an all equity firm is 14.73%.What will be Tip-Top's cost of equity?
A) 3.06%
B) 14.00%
C) 0.08%
D) 16.97%
Q2) The value of a corporation in a levered buyout is composed of which following four parts:
A) unlevered cash flows and interest tax shields during the debt paydown period, unlevered terminal value, and asset sales.
B) unlevered cash flows and interest tax shields during the debt paydown period, unlevered terminal value and interest tax shields after the paydown period.
C) levered cashflows and interest tax shields during the debt paydown period, levered terminal value and interest tax shields after the paydown period.
D) levered cashflows and interest tax shields during the debt paydown period, unlevered terminal value and interest tax shields after the paydown period.
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Page 20
Chapter 19: Dividends and Other Payouts
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Q1) The important relationship between the ex-dividend date and the record date is:
A) it determines the timing of when the payment is made.
B) the record date occurs before ex-dividend date allowing you to sell your stock and still get the dividend payment.
C) the ex-dividend date occurs two business days before the date of record, if you purchase the stock before this date you are entitled to the dividend.
D) if you hold your stock past the record date and do not sell before the ex-dividend date then you will be taxed at the capital gain rate.
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) Schaeffer Shippers announced that on May 1,2014,that it will pay a dividend of $5.00 per share on June 15 to all holders on record as of May 31<sup>st</sup>.The firm's stock price is currently at $70 per share.Assume that all investors are in the 33% tax bracket.Given that the ex-dividend date is May 29,what should happen to Schaeffer's stock price on May 29?
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Page 21
Chapter 20: Issuing Equity Securities to the Public
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Q1) A rights offering is:
A) the issuing of options on shares to the general public to acquire stock.
B) the issuing of an option directly to the existing shareholders to acquire stock.
C) the issuing of proxies which are used by shareholders to exercise their voting rights.
D) strictly a public market claim on the company which can be traded on an exchange.
E) the awarding of special perquisites to management.
Q2) The ZYX Corporation has a new rights offering,you can buy one share of stock with 3 rights and $20 per share.The stock is now selling ex-rights for $26.The value of the right and the price rights-on are:
A) $2.00, $22.00.
B) $6.00, $28.00.
C) $2.00, $28.00.
D) $6.00, $32.00.
Q3) What are venture capitalists and what is their role in raising capital for firms?
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22
Chapter 21: Long-Term Debt
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Q1) Milonas Mining has $30 million in land value and $15 in mortgage bonds issued on the property.Given that the indenture does not limit the amount of additional bonds that can be issued,the company issues an additional $10 million in mortgage bonds against the property.If Milonas is forced to liquidate its property for $20 million,and the company has no other assets,how much will the original bondholders receive?
Q2) What is the correct coupon amount if the bond is priced to sell at par?
A) $65.00.
B) $75.42.
C) $82.50.
D) $87.86.
Q3) If the bond is priced at $1,000,what is the cost to the firm of the call provision?
Q4) A description of property used as security and the details of the protective covenants are:
A) key terms in a rights agreement.
B) the basic terms of a bond.
C) key parts of a typical bond indenture.
D) key parts of a typical bond debenture.
Q5) If the bond sells for par today,what is the coupon?
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Chapter 22: Leasing
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Q1) An advantage of leasing is that the lessee does not own the asset and can cancel:
A) only financial leases.
B) only operating leases.
C) only capital leases.
D) any kind of leases anytime.
Q2) In a lease arrangement,the user of the asset is:
A) the lesser.
B) the lessee.
C) the lessor.
D) the leaser.
Q3) What is the NPV of the lease?
A) $111,690
B) $295,040
C) $305,388
D) $309,690
Q4) What is the discount rate to be used?
Q5) Should the asset be purchased or leased? Support your answer.
Q6) What are the cashflows in years 1 through 8?
Q7) Calculate the NPV of the lease versus the purchase decision.
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Chapter 23: Options and Corporate Finance: Basic Concepts
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Q1) The put option allows:
A) the holder to sell shares if desired and requires the put seller to buy the shares at a fixed price.
B) the put seller to sell shares and requires the holder to buy shares at a fixed price.
C) the holder to buy shares if desired and requires the put seller to sell the shares at a fixed price.
D) the put seller to sell shares and allows the holder to sell shares at a fixed price.
Q2) If a firm with risky debt outstanding pays a large cash distribution,the value of the bonds:
A) will be unaffected as payment is to the stockholders.
B) will increase because the value of the call options increases.
C) will increase because the value of the call option decreases.
D) will decrease because the value of the put option will decrease.
E) will decrease because the value of the put option will increase.
Q3) Explain how the value of a firm can be viewed as an option.How can the call and put views be resolved?
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Chapter 24: Options and Corporate Finance: Extensions and Applications
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Q1) If Mr.Maxim earned $500,000 in regular annual salary why might why might he prefer to have $1,500,000 in straight salary versus salary and options?
Q2) Calculate N(d<sub>2</sub>).
A) 0.5688
B) 0.5278
C) 0.6085
D) 0.7085
E) 0.7142
Q3) The Nu-Tech Company has a new project available to it at a cost of $6 million.The project that they can sell 13,000 personal organizers at $172 in net cash flow for each of the next five years.Nu-Tech's discount rate is 15%.What is the NPV of the investment? The executives of Nu-Tech are concerned about the potential of future competition and a subsequent drop in sales and price.If after two year you can dispose of the asset for 1.0 million at what price would it make sense to abandon the project?
Q4) What is the value of Mr.Maxim's options?
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) Why are warrants and convertibles issued?
Q2) What would the conversion price and conversion ratio be if Mikayla had a 4 for 1 stock split?
A) $5.33; 75
B) $8.33; 120
C) $22.00; 125
D) $27.50; 135
Q3) If all warrants are exercised,what will your fraction of ownership be if you owned 20,000 shares originally?
A) 13.33%
B) 12.12%
C) 13.07%
D) 14.04%
Q4) If a corporate security can be exchanged for a fixed number of shares of stock,the security is said to be:
A) callable.
B) convertible.
C) protected. D) putable.
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Chapter 26: Derivatives and Hedging Risk
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Q1) A futures contract on gold states that buyers and sellers agree to make or take delivery of an ounce of gold for $400 per ounce.The contract expires in 3 months.The current price of gold is $350 per ounce.If the price of gold rises and continues to rise by $1 every day over the 3 month period,then when the contract is settled,the buyer will _____ and the seller will ____.
A) lose; gain
B) gain; lose
C) gain; break even
D) gain; gain
E) lose; lose
Q2) Duration is defined as the weighted average time to maturity of a financial instrument.Explain how this knowledge can help protect against interest rate risk.
Q3) To protect against interest rate risk,the mortgage banker should:
A) buy futures, as this position will hedge loses if rates rise.
B) sell futures, as this position will hedge losses if rates rise.
C) sell futures, as this position will add to his gains if rates rise.
D) buy futures, as this position will add to his gains if rates rise.
Q4) 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) Which of the following statements is not true?
A) A flexible policy toward total asset requirement involves cash surplus.
B) A flexible policy toward total asset requirement involves a permanent need for short-term borrowing.
C) A restrictive policy toward total asset requirement involves a large investment in net working capital.
D) Maturity hedging seeks to avoid financing long-term assets with short-term borrowing.
E) Usually, long-term borrowing costs are lower than short-term borrowing costs.
Q2) The cash cycle for 2014 is:
A) 140.27 days.
B) 50.71 days.
C) 94.55 days.
D) 81.65 days.
E) 98.74 days.
Q3) The minimum total cost of holding current assets occurs at the:
A) intersection of the carrying costs and shortage costs curves.
B) intersection of the marginal cost and average variable costs curves.
C) minimum for both the carrying costs and shortage costs curve.
D) minimum of the average variable cost curve.
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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) Collection float increases book cash immediately but:
A) decreases disbursement float.
B) decreases bank cash.
C) does not immediately change bank cash.
D) offsets net float.
Q3) The Smythe firm expects a total cash need of $9,000 over the next 4 months.They have a beginning cash balance of $1,000,and cash is replenished when it hits zero.The fixed cost of selling securities to replenish cash balances is $4.00.The interest rate on marketable securities is 8% per annum.There is a constant rate of cash disbursement and no cash receipts during the month.Based on the firm's current practice,what is the average daily cash balance (a month has 30 days)?
Q4) The net float of a firm is made up of disbursement float and collection float.Discuss the three components of collection float and how they would work against the firm.
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Chapter 29: Credit Management
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Questions
Q1) Frank's Formals rents apparel throughout the year.They have experienced non-payment by about 15% of their customers with an average loss of $400.Frank's wants to stem their losses by using an instant electronic credit check on the customer.These checks will cost them $15 on each of the 1,000 customers.The opportunity cost is 2.0% for the credit period.Should they pursue the credit check?
Q2) When credit is offered with only the invoice as a formal instrument of credit,the credit procedure is called:
A) invoice account.
B) open account.
C) unsecured account.
D) unsecured note.
Q3) Lengthening the credit period _____ the price paid by the customer.Generally,this acts to _____ sales.
A) increases; increase B) increases; decrease C) decreases; decrease D) decreases; increase E) increases; have no effect on
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Chapter 30: Mergers and Acquisitions
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Q1) Describe the three basic legal procedures that one firm can use to acquire another and briefly discuss the advantages and disadvantages of each.
Q2) Dexter Department Stores has a market value of $400 million and 20 million shares outstanding.Walnut Stores has a market value of $134 million and 13.4 million shares outstanding.Dexter is deciding to acquire Walnut Stores.The top management of Dexter's have determined that due to the synergies between the firms the combination will worth $667 million.Dexter expect to pay a $67 million premium for Walnut Stores.If Dexter offers 10 million shares in exchange for the 13.4 million shares of Walnut,what will the after acquisition stock price of Dexter be?
Q3) If the All-Star Fuel Filling Company,a chain of gasoline stations acquire the Mid-States Refining Company,a refiner of oil products,this would be an example of a: A) conglomerate acquisition.
B) white knight.
C) vertical acquisition.
D) going-private transaction.
E) horizontal acquisition.
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Chapter 31: Financial Distress
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Q1) How much should the unsecured creditors receive?
A) $1,000,000
B) $500,000
C) $750,000
D) $667,000
Q2) How much and what percentage of their claim will the secured creditors receive,in total?
A) $1,200,000; 100.00%
B) $1,009,091; 84.10%
C) $900,000.00; 75.00%
D) $981,818; 81.82%
Q3) 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.
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33
Chapter 32: International Corporate Finance
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Q1) Financial Accounting Standard Statement Number 52 requires that most assets and liabilities be translated at the current exchange rate.Gains and losses are recorded:
A) against shareholder's equity.
B) as a normal part of income.
C) as an extraordinary item against income.
D) as a footnote to the statements.
E) only on the income tax statements.
Q2) Newsat Telco is planning on investing $40 billion in Europe this year for a satellite communications systems.The expected cashflow over the next three years is 20.6 billion Euros per year growing at the rate of inflation.After three year they will abandon the system as worthless.The European current and expected inflation rate is 5.2% per annum over this period and the U.S.inflation rate is expected to be 2.8% per annum.The current exchange rate is $.9/Euro.Newsat has a U.S.cost of capital of 15%.Should Newsat invest?
Q3) The forward rate market is dependent upon:
A) current forward rates exceeding current spot rates.
B) current spot rates exceeding current forward rates over time.
C) current spot rates equaling current forward rates on average over time.
D) forward rates equaling the actual future spot rates on average over time.
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