Course Introduction
Financial Decision Making
Pre-Test Questions
Financial Decision Making explores the processes, tools, and analytical frameworks used to make effective financial choices in both personal and organizational contexts. The course covers the principles of financial analysis, budgeting, investment appraisal, and risk management, providing students with the skills necessary to evaluate financial statements, assess the value of investment opportunities, and understand the impact of financial decisions on business performance. Through case studies and real-world applications, students learn to integrate quantitative and qualitative factors for informed decision-making in dynamic financial environments.
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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Q1) 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
Q2) A financial manager's most important job is to create value from capital budgeting,financing,and liquidity activities.Explain how financial managers create value. Answer: Buy assets that generate more than their cost. Sell financial securities that raise more cash than they cost. Minimize cash payouts to non-investors,ie.,taxes to governments.
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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Page 3
Chapter 2: Accounting Statements and Cash Flow
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Q1) According to IFRS,revenue is recognized as income when:
A) a contract is signed to perform a service or deliver a good.
B) the transaction is complete and the goods or services delivered.
C) payment is received.
D) income taxes are paid.
Answer: B
Q2) Accounting liquidity is defined as:
A) the amount of cash the firm has.
B) the turnover ratio.
C) the ability of the assets to generate income.
D) the ease and quickness with which assets can be converted to cash.
Answer: D
Q3) Tan Co.had total operating revenues of $720 over the past year.During that time,average receivables were $90.What was the average collection period (ACP)given a 365-day year?
A) 8.00 days.
B) 4.56 days.
C) 40.97 days.
D) 45.63 days.
Answer: D
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Chapter 3: Financial Planning and Growth
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Q1) A firm wishes to maintain a growth rate of 12% per year and a dividend payout of 10%.The ratio of total assets to sales is constant at 1.5,and profit margin is 10%.What must be the debt-to-equity ratio?
A) 0.52
B) 0.67
C) 0.79
D) 0.84
Answer: C
Q2) The addition to retained earnings for the financial planning period is equal to:
A) Net Income + Taxes - Dividends.
B) Net Income - Dividends.
C) Net income + Depreciation - Dividends.
D) Sales - Dividend.
Answer: B
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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Q1) Which of the following is not true?
A) Financial markets can be used to adjust consumption patterns over time.
B) Corporate investment decisions have nothing to do with financial markets.
C) Financial markets deal with cash flows over time.
D) Investment decisions rely on the economic principles of financial markets.
Q2) 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.
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.
Q4) If the corporation had cash on hand of $25,000 before raising any capital for the investment and the financial market rate is 9%.How much will the current shareholders earn.?
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Chapter 5: The Time Value of Money
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Q1) What is the effective annual rate if a bank charges you 7.64% compounded quarterly?
A) 7.79%
B) 7.86%
C) 7.95%
D) 7.98%
E) 8.01%
Q2) A "little seven" accounting firm offers to pay you a year-end bonus of $5,000 for 3 years if you will accept employment with them and stay for the entire 3-year period.Which of the following amounts is closest to the present value of the bonus if the interest rate is 10%?
A) $5,000.
B) $11,270.
C) $12,434.
D) $15,000.
E) $31,576.
Q3) An investment today of $3300 is worth $10,000 in 8 years.At what rate has your investment been growing (annually)over the 8 years?
Q4) What is meant by "amortizing a loan"?
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Chapter 6: How to Value Bonds and Stocks
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Q1) Which of the following values is closest to the amount that should be paid for a stock that will pay a dividend of $10 one year from now and $11 two years from now? The stock will be sold in 2 years for an estimated price of $120.The appropriate discount rate is 9%.
A) $114.
B) $119.
C) $124.
D) $129.
E) $138.
Q2) The term structure can be described as the:
A) relationship of spot rates of interest and bond prices.
B) relationship of coupon rates and money rates.
C) relationship of spot rates of interest and maturity.
D) relationship of coupon rates and maturity.
Q3) The discount rate can be thought of as the sum of what two parts?
A) ROE, retention ratio.
B) Dividend yield, growth rate in dividends.
C) Price, growth rate in dividends.
D) Dividend yield, price.
E) ROA, ROE.
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Page 8
Chapter 7: Net Present Value and Other Investment Rules
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Q1) An investment with an initial cost of $16,000 produces cash flows of $5000 annually.If the cash flow is evenly spread out over the year and the firm can borrow at 10%,the discounted payback period is _____ years.
A) 4.55
B) 4.05
C) 3.20
D) 3.52
Q2) You have a choice between two projects,Project1 pays $12,000 back at the end of 1 period on an investment of $10,000.Project 2 pays back $6,500 at the end of 1 period on an investment of $5,000.Which project should be chosen and what is the problem that you must be concerned with in this choice?
A) Project 1; discount rate.
B) Project 2; discount rate.
C) Project 1; project scales.
D) Project 2; project scales.
E) Project 1, cash flow timings.
Q3) Explain the differences and similarities between net present value (NPV)and the profitability index (PI).
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9
Chapter 8: Net Present Value and Capital Budgeting
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Q1) The QT Company is generating cash flow of $333,000 per year.If they invest in a new press they expect to increase their cash flow to $400,000 per year.The cash outflow for the new press is $250,000; to accept or reject the investment they have to consider: A) the press cost of $250,000 and total cash flow of $400,000.
B) the change in cash flow of $67,000 versus the price cost of $250,000.
C) the current cash flow of $333,000 and the price cost of $250,000.
D) the opportunity cost of the facility of $333,000.
Q2) Jackson & Sons uses packing machines to prepare its products for shipping.One machine costs $136,000 and lasts about 4 years before it needs replaced.The operating cost per machine is $6,000 a year.What is the equivalent annual cost of one packing machine if the required rate of return is 12%? (Round your answer to whole dollars.)
Q3) Bruno's,Inc.is analyzing two machines to determine which one it should purchase.The company requires a 14% rate of return and uses straight-line depreciation to a zero book value.Machine A has a cost of $290,000,annual operating costs of $8,000,and a 3-year life.Machine B costs $180,000,has annual operating costs of $12,000,and has a 2-year life.Whichever machine is purchased will be replaced at the end of its useful life.Which machine should Bruno's purchase and why? (Round your answer to whole dollars.)
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Page 10
Chapter 9: Risk Analysis,real Options,and Capital Budgeting
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Sample Questions
Q1) The present value break-even point is superior to the accounting break-even point because:
A) present value break-even is more complicated to calculate.
B) present value break-even covers the economic opportunity costs of the investment.
C) present value break-even is the same as sensitivity analysis.
D) present value break-even covers the fixed costs of production, which the accounting break-even does not.
E) present value break-even covers the variable costs of production, which the accounting break-even does not.
Q2) In the present-value break-even the EAC is used to:
A) determine the opportunity cost of investment.
B) allocate depreciation over the life of the project.
C) allocate the initial investment at its opportunity cost over the life of the project.
D) determine the contribution margin to fixed costs.
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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Q1) The market portfolio of common stocks earned 20.4% last year.Treasury bills earned 5.3% on average last year.The average inflation rate was 2.5%.What was the real return on T-Bills?
A)2.8%.
B)5.3%
C)7.8%
D)3.9%
Q2) The market portfolio of common stocks earned 14.7% last year.Treasury bills earned 5.7% on average last year.The average inflation rate was 4.0%.What was the real risk premium on equities?
A) 5.0%.
B) 9.0%.
C) 6.5%.
D) 12.2%.
E) 18.7%.
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.
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Page 12
Chapter 11: Risk and Return: the Capital Asset Pricing Model
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Q1) When stocks with the same expected return are combined into a portfolio:
A) the expected return of the portfolio is less than the average expected return of the stocks.
B) the expected return of the portfolio is greater than the average expected return of the stocks.
C) the expected return of the portfolio is equal to the average expected return of the stocks.
D) there is no relationship between the expected return of the portfolio and the expected return of the stocks.
Q2) When many assets are included in a portfolio or index the risk of the portfolio or index will be:
A) less than the risk of the securities because the correlations are greater than 1.
B) equal to the risk of the securities because the correlations are equal to 1.
C) less than the risk of the securities because the correlations are usually less than 1.
D) unaffected by the risk of securities because their correlations are less than 1.
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13
Chapter 12: An Alternative View of Risk and Return: the Arbitrage Pricing Theory
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Q1) If the expected rate of inflation was 3% and the actual rate was 6.2%; the systematic response coefficient from inflation, <sub>I</sub>,would result in a change in any security return of:
A) 9.2%.
B) 3.2 <sub>I</sub>%.
C) -3.2 <sub>I%.</sub>
D) 3.0%.
E) 6.2 <sub>I%.</sub>
Q2) An investor is considering the three stocks given below: A.
Stock B and C: Rp = .5(13.3%) + .5(9.2%) = 11.25%
Stock B and C: p = .5(2.1) + .5(0.75) = 1.425
Stock B and T-bills: <sub>B&TBILL</sub> = .5(2.1) + .5(0) = 1.05
Stock's B and A: <sub>B&A</sub> = .5(2.1) + .5(-0.1) = 1.00
C. Demonstrate that holding stock A actually reduces risk by comparing the risk of a portfolio equally weighted between stock B and T-Bills with a portfolio equally weighted between stock B and
Q3) Explain the conceptual differences in the theoretical development of the CAPM and APT.
Page 14
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Chapter 13: Risk,return,and Capital Budgeting
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Q1) XYZ INC has several divisions and the one managed by Dr.Donaldson has asset base of $4 million and earnings after taxes is $2 million.A new project would earn $2 million per year on an investment of $5 million.As a result,ROA of the division changed from:
A) 50% to 44%.
B) 55% to 40%.
C) 44% to 50%.
D) 50% to 70%.
Q2) Firms whose revenues are strongly cyclical and whose operating leverage is high are likely to have:
A) low betas.
B) high betas.
C) zero betas.
D) negative betas.
Q3) If the project beta,IRR co-ordinates plot above the SML the project should be:
A) accepted because it is overvalued.
B) accepted because it is undervalued.
C) rejected because it is overvalued.
D) rejected because it is undervalued.
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Chapter 14: Corporate Financing Decisions and Efficient
Capital Markets
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Q1) The Nu-Tux Seat Company has an expansion opportunity and is considering selling their 100,000 share investment in Slip-Cover currently worth $2 million or raising other external funding.The share price has been holding in a narrow range day to day.If Nu-Tux decides to unload their holding is there any concern about getting the full $2 million,aside from investment banker/brokerage fees.Explain these concerns about market behavior and cite the evidence.
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.
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) Which of the following does not represent a major difference between debt and equity?
A) Creditors do not have voting power as stockholders do.
B) Payment on interest on debt in considered an expense, while payment of dividends is not.
C) Unpaid debt is a liability of the firm, and if not paid, can result in liquidation of the firm. Unpaid dividends cannot.
D) One of the costs of issuing equity is the possibility of financial distress, while no financial distress is associated with debt.
Q2) 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.
Q3) From this information,calculate Enstat's book value per share.
Q4) 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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Page 17
Chapter 16: Capital Structure: Basic Concepts
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Q1) The change in firm value due to infusion of debt in the presence of corporate taxes is:
A) positive as equityholders face a lower effective tax rate.
B) positive as equityholders gain the tax shield on the debt interest.
C) negative because of the increased risk of default and fewer shares outstanding. D) negative because of a reduction of equity outstanding.
Q2) A firm has zero debt in its capital structure.Its overall cost of capital is 9%.The firm is considering a new capital structure with 40% debt.The interest rate on the debt would be 4%.Assuming that the corporate tax rate is 34%,its cost of equity capital with the new capital structure would be?
A) 10.32%.
B) 11.20%.
C) 11.00%.
D) 13.95%.
Q3) The JumpStart Corporation is unlevered and valued at $500,000.JumpStart has 200,000 shares outstanding.The company announces that in the near future it will issue $200,000 of debt and buy back $200,000 of stock.If the firm is in the 34% tax bracket,how many shares of stock will be repurchased?
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Page 18
Chapter 17: Capital Structure: Limits to the Use of Debt
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Q1) Studies have found that firms with high proportions of intangible assets are likely to use ____________ debt compared with firms with low proportions of intangible assets.
A) more
B) the same amount of C) less
D) either more or the same amount of
Q2) The optimal capital structure of a firm _____ the marketed claims and _____ the nonmarketed claims against the cash flows of the firm.
A) minimizes; minimizes B) minimizes; maximizes C) maximizes; minimizes D) maximizes; maximizes
Q3) Covenants restricting the use of leasing and additional borrowings primarily protect: A) the equityholders from added risk of default.
B) the debtholders from the added risk of dilution of their claims.
C) the debtholders from the transfer of assets.
D) the management from having to pay agency costs.
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Chapter 18: Valuation and Capital Budgeting for the Levered Firm
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Q1) The APV method is comprised of the all equity NPV of a project and the NPV of financing effects.The four side effects are:
A) tax subsidy of dividends, cost of issuing new securities, subsidy of financial distress and cost of debt financing.
B) cost of issuing new securities, cost of financial distress, tax subsidy of debt and other subsidies to debt financing.
C) cost of issuing new securities, cost of financial distress, tax subsidy of dividends and cost of debt financing.
D) subsidy of financial distress, tax subsidy of debt, cost of other debt financing and cost of issuing new securities.
Q2) 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%
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Page 20
Chapter 19: Dividends and Other Payouts
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Q1) Which of the following statements is not true?
A) Dividend payments but not capital gains are costs to the firm.
B) Stockholder's expected return equals the firm's cost of equity.
C) Payments to current stockholders are the implicit cost of the infusion of new equity capital.
D) The security market line provides information as to the cost of equity for a firm.
E) The return that the investor in a security receives is the cost of that security to the company that issued the security.
Q2) On the date of record the stock price drop is:
A) a full adjustment for the dividend payment.
B) a partial adjustment for the dividend payment because of the tax effect.
C) zero because it happened on ex-dividend date.
D) zero because it happens on payment date.
Q3) An investor is more likely to prefer a high dividend payout if a firm:
A) has high flotation costs.
B) has few, if any, positive net present value projects.
C) has lower tax rates than the investor.
D) has a stock price that is increasing rapidly.
E) offers high capital gains which are taxed at a favorable rate.
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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) If a shareholder or investor wants to acquire new stock under a rights plan they must:
A) acquire new stock in the market to get a controlling fraction of shares to be eligible for rights.
B) simply pay a registration fee and turn in the subscription price.
C) acquire the correct rights per share desired, turn the rights and the total subscription price into the subscription agent.
D) acquire the correct rights and wait for the company to send you the stock.
Q3) What are venture capitalists and what is their role in raising capital for firms?
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Chapter 21: Long-Term Debt
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Q1) Corporations typically have the right to repurchase a debt issue prior to maturity by paying the face value of the bond plus:
A) a call premium.
B) the amortized value.
C) the principal discount.
D) a balloon payment.
Q2) 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?
Q3) What is the bond's value today if the coupon is set at $70?
Q4) Debt ratings issued by companies such as Moody's and Standard and Poor's depend on:
A) the probability of firm default and protection given in indenture in case of default.
B) how large the company is and the number of restrictive covenants.
C) the size of the fee paid by the issuer and their industry.
D) the issue size, type of issue and their industry.
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Page 23
Chapter 22: Leasing
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Q1) What is the after-tax cash flow from leasing in year 0?
A) -$300
B) -$852
C) -$948
D) -$495
Q2) What are the cashflows in years 1 through 8?
Q3) This lease would be classified as a(n):
A) operating lease because the asset will be obsolete.
B) operating lease because there is no amortization.
C) leveraged lease because it is being financed.
D) capital lease because the lease life is greater than 75% of the economic life.
Q4) A financial lease is likely to be most beneficial to both parties when:
A) the lessor's tax rate is lower than the lessee's.
B) the lessor's tax rate is higher than the lessee's.
C) the lessor's tax rate is equal to the lessee's.
D) a financial lease cannot be beneficial to both parties.
Q5) What is the discount rate to be used?
Q6) Calculate the NPV of the lease versus the purchase decision.
Q7) Should the asset be purchased or leased? Support your answer.
Page 24
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Chapter 23: Options and Corporate Finance: Basic Concepts
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Q1) In relating stockholder value in terms of put options,the stockholders own the firm,they owe promised payments to the bondholders,and they have bought a put on the firm's assets with an exercise price equal to the promised payment to the bondholders.If the firm's cash flow is less than these promised payments:
A) the put is out-of-the-money, is not exercised, and the stockholders retain ownership. B) the put is out-of-the-money, is exercised, and the stockholders retain ownership. C) the put is in-the-money, is exercised, and the stockholders walk away from their promise to the bondholders.
D) the put is in-the-money, is exercised, and the stockholders retain ownership.
Q2) Options can be used to explain how the choice of a project can determine investor value.Options are also useful in evaluating alternatives open within a project choice,such as investing now or delaying.Give an example of how options can be used in investment timing.
Q3) Explain the rationale behind the statement that equity is a call option on the firm's assets.When would a shareholder allow the call to expire?
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Page 25
Chapter 24: Options and Corporate Finance: Extensions and Applications
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Q1) 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?
Q2) The risk-neutral probabilities for an asset,with a current value equal to the present value of future payoffs are:
A) given by the probability of each state occurring.
B) given by the value of the underlying asset under good news and the risk free rate.
C) given by the value of the underlying asset under good news and bad news.
D) given by the value of the underlying asset under good news, bad news, and the risk free rate.
Q3) Options are granted to top corporate executives because:
A) executives will make better business decision in line with benefiting the shareholders.
B) executive pay is at risk and linked to firm performance.
C) options are tax-efficient and taxed only when they are exercised.
D) All of the choices are correct.
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Chapter 25: Warrants and Convertibles
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Q1) What is the conversion price?
A) $35.57
B) $770.00
C) $28.57
D) $1,000.00
Q2) Based on empirical studies,firms tend to call convertible bonds when the conversion value is:
A) less than the conversion price.
B) greater than the straight bond value.
C) greater than the call price.
D) less than the face value.
Q3) 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
Q4) Why are warrants and convertibles issued?
Q5) Explain why there is neither a "Free" nor "Expensive Lunch" when convertible bonds are issued?
27
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Chapter 26: Derivatives and Hedging Risk
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Q1) A pure discount bond pays:
A) no coupons, therefore its duration equal to its maturity.
B) discounted coupons, therefore its duration is greater than its maturity.
C) level coupons, therefore its duration is equal to its maturity.
D) declining coupons, therefore its duration is less than its maturity.
Q2) Interest rate and currency swaps allow one party to exchange a:
A) floating interest rate or currency value for a fixed interest or value over the contract term.
B) fixed interest rate or currency value for a lower fixed value over the contract term.
C) floating interest rate or currency value for a lower floating value over the contract term.
D) a fixed interest rate position for a currency position over the contract term.
Q3) A Treasury Note with a maturity of 2 years pays interest semi-annually on a 9 percent annual coupon rate.The $1,000 face value is returned at maturity.If the effective annual yield for all maturities is 7 percent annually,what is the current price of the Treasury Note?
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) The inventory turnover for the Sneeky Company is 8 times and its day's sales outstanding is 55.What is the operating cycle for Sneeky given a 365-day year.
A) 63.00
B) 6.86
C) 100.63
D) 46.98
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) In an "ideal" economy:
A) cash is zero.
B) long-term debt is zero.
C) net working capital could be zero.
D) short-term debt is zero.
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) Sigma Plus Corporation has a variance of daily cash flow of $8.The daily interest rate is .021% (.00021).Sigma desires a minimum cash balance of $80.The fixed cost of a security transaction is $2.00.Using the Miller-Orr model,calculate Sigma's target cash balance,the upper limit on cash balances,and the average daily cash balance.Explain how this is used to manage cash.
Q2) Most large firms hold a cash balance greater than most models imply because: A) it is too difficult to estimate the costs of security transactions. B) banks are compensated by account balances for payment of services. C) corporations have few bank accounts and it is difficult to manage their cash. D) cash is costless and need not be managed closely.
Q3) A sensible cash management policy would be to:
A) have enough cash on hand to meet ordinary course of business and some excess cash to invest in marketable securities as a precautionary measure. B) have nearly enough cash on hand to meet ordinary course of business. C) have enough cash on hand to meet any potential demand for cash. D) have a zero cash balance and charge all expenditures.
Q4) If Mesa will charge your firm an annual fee of $35,000 and $.20 per check handled will you accept Mesa's services?
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Chapter 29: Credit Management
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Q1) The net credit period for a company with terms of 3/10 net 60 is:
A) 50 days
B) 60 days
C) 10 days
D) 57 days
Q2) The carrying value of its account receivable is $700,000 and the average collection period is 45 days.The firm's credit sales per day are:
A) $15,555.56.
B) $23,333.33.
C) $4,666,666.67.
D) $700,000.00.
Q3) The three components of credit policy are:
A) collection policy, credit analysis, and interest rate determination.
B) collection policy, credit analysis, and terms of the sale.
C) collection policy, interest rate determination, and repayment analysis.
D) credit analysis, repayment analysis, and terms of the sale.
E) interest rate determination, repayment analysis and terms of sale.
Q4) 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) Suppose that Verizon and Sprint were to merge.Ignoring potential antitrust problems,this merger would be classified as a:
A) horizontal merger.
B) vertical merger.
C) conglomerate merger.
D) monopolistic merger.
Q2) Describe the three basic legal procedures that one firm can use to acquire another and briefly discuss the advantages and disadvantages of each.
Q3) When evaluating an acquisition,you should:
A) concentrate on book values and ignore market values.
B) focus on the total cash flows of the merged firm.
C) apply the rate of return that is relevant to the incremental cash flows.
D) ignore any one-time acquisition fees or transaction costs.
E) ignore any potential changes in management.
Q4) The complete absorption of one firm by another is called a: A) merger.
B) consolidation.
C) takeover.
D) spin-off.
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Chapter 31: Financial Distress
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Q1) A corporation is adjudged bankrupt.When do the shareholders receive any payment?
A) After the trustee liquidates the assets and pays the administrative expenses, the shareholders are paid before the creditors.
B) After the trustee liquidates the assets, the administrative expenses and secured creditors are paid, then the unsecured creditors, and, then the shareholders divide any remainder.
C) After the trustee liquidates the assets, the shareholders are paid, next the administrative expenses, the secured creditors, and then the unsecured creditors divide any remainder.
D) After the trustee liquidates the assets, the shareholders are paid first because they are the owners of the firm and have the principal stake.
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%
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Chapter 32: International Corporate Finance
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Q1) Currently,$1 will buy C$1.36 while $1.10 will buy 1.What is the exchange rate between the Canadian dollar and the euro?
A) C$1 = 1.10
B) C$1 = .9091
C) C$1 = 1.2364
D) C$1.36 = 1.10
E) C$1.36 = .9091
Q2) If the direct rate for French francs (FF)is $.143 and the direct rate for Australian dollars (A$)is $0.44,what must the cross rate between A$ and FF be to prevent triangular arbitrage?
A) FF3.08
B) FF0.063
C) FF15.89
D) FF0.325
Q3) Suppose it takes 3.2 DM francs to buy 1 U.S.dollar.The direct exchange rate on dollar is:
A) .3125.
B) .4550.
C) 2.20.
D) 3.20.
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