Introduction to Finance
Final Test Solutions
Course Introduction
Introduction to Finance provides students with a comprehensive overview of fundamental financial concepts and practices. The course covers key topics such as the time value of money, risk and return, financial markets and institutions, valuation of stocks and bonds, and the basics of capital budgeting. Students will also explore financial statement analysis and the role of finance in personal and business decision-making. Through real-world examples and practical exercises, this course equips learners with the foundational skills required to make informed financial decisions in both professional and personal contexts.
Recommended Textbook
Corporate Finance 7th Canadian Edition by Jaffe
Available Study Resources on Quizplus
32 Chapters
1515 Verified Questions
1515 Flashcards
Source URL: https://quizplus.com/study-set/3620
Page 2
Chapter 1: Introduction to Corporate Finance
Available Study Resources on Quizplus for this Chatper
31 Verified Questions
31 Flashcards
Source URL: https://quizplus.com/quiz/71895
Sample Questions
Q1) The division of profits and losses among the members of a partnership is formalized in the:
A) indemnity clause.
B) indenture contract.
C) statement of purpose.
D) partnership agreement.
Answer: D
Q2) How can shareholders attempt to control managerial behavior to match shareholder interest?
Answer: Vote for directors with shareholder's interest to select management. Provide incentive contracts; performance shares or options.
Outside threat of takeover,(Board should not be willing to launch poison pills.)
Managerial labor market.
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
To view all questions and flashcards with answers, click on the resource link above.
Page 3
Chapter 2: Accounting Statements and Cash Flow
Available Study Resources on Quizplus for this Chatper
56 Verified Questions
56 Flashcards
Source URL: https://quizplus.com/quiz/71884
Sample Questions
Q1) Assuming that the current ratio is currently 2,which of the following actions will increase it?
A) Purchasing inventory with cash.
B) Purchasing inventory on short-term credit.
C) Paying off a short-term bank loan with long-term debt.
D) A customer paying an overdue bill.
Answer: C
Q2) Intangible fixed assets would include:
A) building.
B) machinery.
C) trademarks.
D) equipment.
Answer: C
Q3) The earnings before interest and taxes,EBIT,on the income statement provides results on:
A) the post financing effect on the earnings capability of the firm.
B) the operating income for the period.
C) the gross margin of the firm.
D) the extraordinary items of the firm for the period.
Answer: B
To view all questions and flashcards with answers, click on the resource link above. Page 4
Chapter 3: Financial Planning and Growth
Available Study Resources on Quizplus for this Chatper
37 Verified Questions
37 Flashcards
Source URL: https://quizplus.com/quiz/71873
Sample Questions
Q1) The sustainable growth rate will be equivalent to the internal growth rate when:
A) a firm has no debt.
B) the growth rate is positive.
C) the plowback ratio is positive but less than 1.
D) a firm has a debt-equity ratio exactly equal to 1.
E) net income is greater than zero.
Answer: A
Q2) 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.
Q3) A firm wishes to maintain a growth rate of 4% per year,a debt-to-equity ratio of .26,and a dividend payout of 40%.If the profit margin is 10%,and next year's sales are projected at $500,what is the total asset projection?
Answer: 11ea8884_9833_7093_a96f_ab88922ce4cb_TB5261_11 ; X = 975.00
To view all questions and flashcards with answers, click on the resource link above.
Page 5
Chapter 4: Financial Markets and Net Present Value: First Principles of Finance
Available Study Resources on Quizplus for this Chatper
35 Verified Questions
35 Flashcards
Source URL: https://quizplus.com/quiz/71869
Sample Questions
Q1) One of the functions of financial intermediaries is to make sure the market clears.This means:
A) setting the appropriate interest rates.
B) recording the parties to the transactions.
C) making sure the total amount to be lent equals the total amount to be borrowed.
D) minimizing the spread between rates.
Q2) If the corporation had cash on hand of $25,000 before raising any capital for the investment and the financial market rate is 9%.Graph and explain the investment choice the corporation should make.(Hint: Determine the NPV.)
Q3) An individual has income of $20,000 in period 0 and $42,000 in period 1.An investment opportunity that costs $15,000 in period 0 is worth $18,000 in period 1.The market interest rate is 6%.What is the maximum possible consumption in period 1 if the individual consumes $16,000 in period 0 and follows the NPV rule?
Q4) At what market rates of interest would make the individual indifferent between (1)all consumption in Period 0 and none in Period 1 and (2)no consumption in Period 0 and all consumption in Period 1?
To view all questions and flashcards with answers, click on the resource link above. Page 6
Chapter 5: The Time Value of Money
Available Study Resources on Quizplus for this Chatper
69 Verified Questions
69 Flashcards
Source URL: https://quizplus.com/quiz/71868
Sample Questions
Q1) The Ajax Co.just decided to save $1,500 a month for the next five years as a safety net for recessionary periods.The money will be set aside in a separate savings account which pays 3.25% interest compounded monthly.It deposits the first $1,500 today.If the company had wanted to deposit an equivalent lump sum today,how much would it have had to deposit?
A) $82,964.59
B) $83,189.29
C) $83,428.87
D) $83,687.23
E) $84,998.01
Q2) Mr.Miser,who is 35 years old,has just inherited $11,000 and decides to use the windfall towards his retirement.He places the money in a bank,which promises a return of 6% per year until his planned retirement at age 65.If his funds earn 6% interest compounded annually,how much will he have at retirement? Repeat the analysis for both semi-annual and continuous compounding.
Q3) What is meant by "amortizing a loan"?
Q4) 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.
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: How to Value Bonds and Stocks
Available Study Resources on Quizplus for this Chatper
81 Verified Questions
81 Flashcards
Source URL: https://quizplus.com/quiz/71867
Sample Questions
Q1) 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.
Q2) A consol is selling at $1,200 with an interest rate of 5%.How much would this bond sell for if the interest rate were 8% instead?
A) $200.
B) $750.
C) $1,650.
D) $1,920.
Q3) Your firm offers a 10-year,zero coupon bond.The yield to maturity is 8.8%.What is the current market price of a $1,000 face value bond?
A) $430.24
B) $473.26
C) $835.56
D) $919.12
E) $1,088.00
To view all questions and flashcards with answers, click on the resource link above.
Page 8
Chapter 7: Net Present Value and Other Investment Rules
Available Study Resources on Quizplus for this Chatper
52 Verified Questions
52 Flashcards
Source URL: https://quizplus.com/quiz/71866
Sample Questions
Q1) The Ziggy Trim and Cut Company can purchase equipment on sale for $4,300.The asset has a three-year life,will produce a cash flow of $1,200 in the first and second year,and $3,000 in the third year.The interest rate is 12%.Calculate the project's payback assuming end of year cash flows.Also,calculate project's IRR.Should the project be taken? Check your answer by computing the project's NPV.
Q2) The problem of multiple IRRs can occur when:
A) there is only one sign change in the cash flows.
B) the first cash flow is always positive.
C) the cash flows decline over the life of the project.
D) there is more than one sign change in the cash flows.
Q3) 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%.
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Net Present Value and Capital Budgeting
Available Study Resources on Quizplus for this Chatper
46 Verified Questions
46 Flashcards
Source URL: https://quizplus.com/quiz/71865
Sample Questions
Q1) The Equivalent Annual Cost method allows comparison of the costs of equipment with unequal lives.If Quick-roll machine has an eleven year life,and an NPV of $2,100,while the Zip-roller machine has a seven year life and an NPV of $2,000.Which machine would you choose if the business is expected to continue and the discount rate for both is 14%?
Q2) 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.
Q3) 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
Q4) When is it appropriate to use the equivalent annual cost (EAC)methodology,and how do you make a decision using it?
To view all questions and flashcards with answers, click on the resource link above. Page 10
Chapter 9: Risk Analysis,real Options,and Capital Budgeting
Available Study Resources on Quizplus for this Chatper
33 Verified Questions
33 Flashcards
Source URL: https://quizplus.com/quiz/71864
Sample Questions
Q1) Given the following information,calculate the present value break-even point. Fixed costs: $2000/year.(Initial investment $2000).
Variable costs: $6/unit.
Depreciation: $250/year.
Price: $20/unit.
Discount rate: 10%.
Project life: 4 years.
Tax rate: 34%.
A) 100 units/year.
B) 143 units/year.
C) 202 units/year.
D) 286 units/year.
Q2) Consider the following statement by a project analyst: "I analyzed my project using scenarios for the base case,best case,and worst case.I computed break-evens and degrees of operating leverage.I did sensitivity analysis and simulation analysis.I computed NPV,IRR,payback,AAR,and PI.In the end,I have over a hundred different estimates and am more confused than ever.I would have been better off just sticking with my first estimate and going by my gut reaction." Critique this statement.
To view all questions and flashcards with answers, click on the resource link above.
11
Chapter 10: Risk and Return: Lessons From Market History
Available Study Resources on Quizplus for this Chatper
48 Verified Questions
48 Flashcards
Source URL: https://quizplus.com/quiz/71894
Sample Questions
Q1) The total annual returns on common stocks averaged 13.3% from 1957 to 2003.Small company stocks averaged 10.64%,long-term bonds averaged 8.96%,while Treasury Bills averaged 6.8%.What was the average risk premium earned by long-term Bonds,and small company stocks respectively?
A) 9.5%; 1.8%
B) 4.4%; 11.9%
C) 2.16%; 3.84%
D) 1.8%; 13.3%
Q2) Kids Toy Co.has had total returns over the past five years of 0%,7%,-2%,10%,and 12%.What was the mean return on this stock and its variability in percent return?
A) 6.75%; 6.15%.
B) 5.40%; 6.15%.
C) 6.75%; 6.33%.
D) 5.40%; 5.50%.
Q3) Capital gains are defined as:
A) the change in the firm's dividend payout over year.
B) assets sold at prices greater than their purchasing price.
C) assets sold at prices less than their purchasing price.
D) taxes collected by Federal but not by State governments.
To view all questions and flashcards with answers, click on the resource link above.
Page 12
Chapter 11: Risk and Return: the Capital Asset Pricing Model
Available Study Resources on Quizplus for this Chatper
63 Verified Questions
63 Flashcards
Source URL: https://quizplus.com/quiz/71893
Sample Questions
Q1) If you have a portfolio of two risky stocks which turns out to have no diversification.The reason you have no diversification is:
A) the returns are too small.
B) the returns move perfectly opposite of one another.
C) the returns are too large to offset.
D) the returns move perfectly with one another.
E) the returns are completely unrelated to one another.
Q2) Total risk can be divided into:
A) standard deviation and variance.
B) standard deviation and covariance.
C) portfolio risk and beta.
D) portfolio risk and unsystematic risk.
E) portfolio risk and covariance.
Q3) A portfolio exists containing stocks D,E,and F held in proportions 30%,40%,and 30% respectively.The expected returns on the three stocks are given by 12%,20%,and 28% respectively.Calculate the portfolio's expected return.
Q4) Why are some risks diversifiable and some nondiversifiable? Give an example of each.
To view all questions and flashcards with answers, click on the resource link above.
Page 13
Chapter 12: An Alternative View of Risk and Return: the Arbitrage Pricing Theory
Available Study Resources on Quizplus for this Chatper
40 Verified Questions
40 Flashcards
Source URL: https://quizplus.com/quiz/71892
Sample Questions
Q1) 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.
Q2) Assume that the single factor APT model applies and a portfolio exists such that 2/3 of the funds are invested in Security Q and the rest in the risk-free asset.Security Q has a beta of 1.5.The portfolio has a beta of:
A) 0.00.
B) 0.50.
C) 0.75.
D) 1.00.
E) 1.50.
Q3) 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?
To view all questions and flashcards with answers, click on the resource link above.
Page 14
Chapter 13: Risk,return,and Capital Budgeting
Available Study Resources on Quizplus for this Chatper
62 Verified Questions
62 Flashcards
Source URL: https://quizplus.com/quiz/71891
Sample Questions
Q1) The WACC is used to _______ the expected cash flows when the firm has
A) discount; debt and equity in the capital structure.
B) capitalize; short term financing on the balance sheet.
C) increase; debt and equity in the capital structure.
D) decrease; short term financing on the balance sheet.
Q2) Explain the factors that determine beta and how an asset beta can differ from equity betas.
Q3) What is the market value of firm and the debt respectively?
A) 22,500,000; 6,750,000
B) 32,142,857; 9,642,857
C) 32,142,857; 22,500,000
D) 15,750,000; 9,642,857
E) 9,642,857; 22,500,000
Q4) What is the firm's WACC?
A) 10.44%
B) 13.16%
C) 14.24%
D) 19.04%
E) 14.28%
Page 15
To view all questions and flashcards with answers, click on the resource link above.
Chapter 14: Corporate Financing Decisions and Efficient
Capital Markets
Available Study Resources on Quizplus for this Chatper
44 Verified Questions
44 Flashcards
Source URL: https://quizplus.com/quiz/71890
Sample Questions
Q1) An investor discovers that predictions about weather patterns published years in advance and found in the Farmer's Almanac are amazingly accurate.In fact,these predictions enable the investor to predict the health of the farm economy and therefore certain security prices.This finding is a violation of the:
A) moderate form of the efficient market hypothesis.
B) semi-strong form of the efficient market hypothesis.
C) strong form of the efficient market hypothesis.
D) weak form of the efficient market hypothesis.
Q2) In an efficient market when a firm makes an announcement of a new product or product enhancement with superior technology providing positive NPV the price of the stock will:
A) rise gradually over the next few days.
B) decline gradually over the next few days.
C) rise on the same day to the new price.
D) stay at the same price, with no net effect.
E) drop on the same day to the new price.
Q3) Why should a financial decision maker such as a corporate treasurer or CFO be concerned with market efficiency?
Q4) Define the three forms of market efficiency.
Page 16
To view all questions and flashcards with answers, click on the resource link above.
Chapter 15: Long-Term Financing: an Introduction
Available Study Resources on Quizplus for this Chatper
44 Verified Questions
44 Flashcards
Source URL: https://quizplus.com/quiz/71889
Sample Questions
Q1) A standard arrangement for the orderly retirement of long-term debt calls for the corporation to make regular payments into a(n):
A) custodial account.
B) sinking fund.
C) retirement fund.
D) irrevocable trustee fund.
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) 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.
Q4) From this information,calculate Enstat's book value per share.
To view all questions and flashcards with answers, click on the resource link above.
Page 17
Chapter 16: Capital Structure: Basic Concepts
Available Study Resources on Quizplus for this Chatper
56 Verified Questions
56 Flashcards
Source URL: https://quizplus.com/quiz/71888
Sample Questions
Q1) A firm has zero debt in its capital structure.Its overall cost of capital is 10%.The firm is considering a new capital structure with 60% debt.The interest rate on the debt would be 8%.Assuming there are no taxes or other imperfections,its cost of equity capital with the new capital structure would be:
A) 9%.
B) 14%.
C) 13%.
D) 10%.
Q2) Given a level of operating income of $2,500,show the specific strategy that Mike has in mind.
Q3) The difference between a market value balance sheet and a book value balance sheet is that a market value balance sheet:
A) places assets on the right hand side.
B) places liabilities on the left-hand side.
C) does not equate the right hand with the left-hand side.
D) lists items in terms of market values, not historical costs.
E) uses the market rate of return.
To view all questions and flashcards with answers, click on the resource link above. Page 18
Chapter 17: Capital Structure: Limits to the Use of Debt
Available Study Resources on Quizplus for this Chatper
52 Verified Questions
52 Flashcards
Source URL: https://quizplus.com/quiz/71887
Sample Questions
Q1) Given the following information,leverage will add how much value to the unlevered firm per dollar of debt? Corporate tax rate: 30%
Personal tax rate on income from bonds: 20%
Personal tax rate on income from stocks: 0%
A) $0.125.
B) $0.472.
C) $0.528.
D) $0.825.
Q2) Conflicts of interest between stockholders and bondholders are known as:
A) trustee costs.
B) financial distress costs.
C) dealer costs.
D) agency costs.
E) underwriting costs.
Q3) The optimal capital structure has been achieved when the:
A) debt-equity ratio is equal to 1.
B) weight of equity is equal to the weight of debt.
C) cost of equity is maximized given a pre-tax cost of debt.
D) debt-equity ratio selected results in the lowest possible weighed average cost of capital.
To view all questions and flashcards with answers, click on the resource link above. Page 19
Chapter 18: Valuation and Capital Budgeting for the Levered Firm
Available Study Resources on Quizplus for this Chatper
54 Verified Questions
54 Flashcards
Source URL: https://quizplus.com/quiz/71886
Sample Questions
Q1) The Alto Horns Corp.is planning on introducing a new line of saxophones.They expect sales to be $200,000 with total fixed and variable costs representing 70% of sales.The discount rate on the unlevered equity is 17%,but the firm plans to raise $77,820 of the initial $150,000 investment as 9% perpetual debt.The corporate tax rate is 34% and the target debt to value ratio is .3.Calculate the all equity NPV and the levered NPV using the flow-to-equity method.
Q2) The Delta Dam Company has a capital structure of 20% risky debt with a of .9 and 80% equity with a of 1.7.Their current tax rate is 34%.What is the for Delta Dam Company?
A) 1.49
B) 1.06
C) 1.54
D) 0.59
E) 0.82
Q3) The acronym APV stands for:
A) applied present value.
B) all purpose variable.
C) accepted project verified. D) adjusted present value.
Page 20
To view all questions and flashcards with answers, click on the resource link above.
Chapter 19: Dividends and Other Payouts
Available Study Resources on Quizplus for this Chatper
46 Verified Questions
46 Flashcards
Source URL: https://quizplus.com/quiz/71885
Sample Questions
Q1) Dividends are relevant and dividend policy irrelevant when:
A) cash dividends are always constant and dividend policy is changed as management needs.
B) cash dividends are increased for one payment while others are held constant and dividend policy establishes the trade-off between dividends at different dates.
C) cash dividends are always constant and dividend policy establishes the trade-off between dividends at different dates.
D) cash dividends are increased for one payment while others are held constant and dividend policy is changed as management needs.
Q2) Although dividend payments reduce the total firm funds to pay bondholders the payment of dividends can reduce agency costs by:
A) doing so on a regular schedule.
B) sharing the dividend payments with the bondholders.
C) reducing the free cash flows to reduce the perquisite consumption.
D) transferring the wealth from shareholder to bondholder.
To view all questions and flashcards with answers, click on the resource link above.
21
Chapter 20: Issuing Equity Securities to the Public
Available Study Resources on Quizplus for this Chatper
44 Verified Questions
44 Flashcards
Source URL: https://quizplus.com/quiz/71883
Sample Questions
Q1) Potential investors learn of the information concerning the firm and its new issue from the:
A) registration statement.
B) prospectus.
C) letter of commitment.
D) tombstone.
E) rights offering.
Q2) Bradley Power wants to raise $40 million in new equity.The subscription price is $25.There are currently 5 million shares outstanding,each with 1 right.How many rights are needed to purchase 1 share?
A) 1.000.
B) 3.000.
C) 3.125.
D) 4.525.
E) 6.525.
Q3) A shareholder who has rights is:
A) not always better off to exercise the rights.
B) not always better off to sell the rights into the market.
C) never better off to let them expire.
D) never in the same ownership position again with rights.
To view all questions and flashcards with answers, click on the resource link above. Page 22
Chapter 21: Long-Term Debt
Available Study Resources on Quizplus for this Chatper
50 Verified Questions
50 Flashcards
Source URL: https://quizplus.com/quiz/71882
Sample Questions
Q1) As a part of a bond issue,a corporation makes annual payments into an account managed by a trustee for the purpose of repurchasing bonds.This arrangement is called:
A) a call provision.
B) a sinking fund.
C) a funding provision.
D) a trust maintenance fund.
Q2) 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.
Q3) What is the cost of the call provision to the firm if the bond sells for $1,000 today?
A) -$71.43.
B) $0.00.
C) $77.41.
D) $178.57.
Q4) What is the bond's value today if the coupon is set at $70?
To view all questions and flashcards with answers, click on the resource link above. Page 23
Chapter 22: Leasing
Available Study Resources on Quizplus for this Chatper
43 Verified Questions
43 Flashcards
Source URL: https://quizplus.com/quiz/71881
Sample Questions
Q1) Capital leases would show up on the balance sheet of the firm in which manner for a six year machinery lease worth $700,000:
A) capital leases do not have to be put on the balance sheet only financial leases do.
B) Asset-Machinery $700,000; Liabilities-Long term debt $700,000 because of debt displacement.
C) Asset-Assets under capital lease $700,000; Liabilities-Obligations under capital lease $700,000.
D) Assets-Assets under capital lease $700,000; Liabilities-Long term debt $700,000 because of debt displacement.
Q2) What is the NPV of the lease relative to the purchase?
A) -$125,000
B) -$36,970
C) $75,000
D) $125,000
Q3) Calculate the NPV of the lease versus the purchase decision.
Q4) Should the asset be purchased or leased? Support your answer.
Q5) What is the discount rate to be used?
Q6) What are the cashflows in years 1 through 8?
To view all questions and flashcards with answers, click on the resource link above. Page 24
Chapter 23: Options and Corporate Finance: Basic Concepts
Available Study Resources on Quizplus for this Chatper
62 Verified Questions
62 Flashcards
Source URL: https://quizplus.com/quiz/71880
Sample Questions
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) Which one of the following provides the option of selling a stock anytime during the option period at a specified price even if the market price of the stock declines to zero?
A) American call
B) European call
C) American put
D) European put
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?
To view all questions and flashcards with answers, click on the resource link above.
Chapter 24: Options and Corporate Finance: Extensions and Applications
Available Study Resources on Quizplus for this Chatper
24 Verified Questions
24 Flashcards
Source URL: https://quizplus.com/quiz/71879
Sample Questions
Q1) The NPV approach must be:
A) augmented by added analysis if there are a few embedded options.
B) augmented by added analysis if a decision has significant embedded options.
C) jettisoned if there are any embedded options.
D) computed carefully to identify the options.
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.
Q4) What is the value of Mr.Maxim's options?
To view all questions and flashcards with answers, click on the resource link above. Page 26
Chapter 25: Warrants and Convertibles
Available Study Resources on Quizplus for this Chatper
47 Verified Questions
47 Flashcards
Source URL: https://quizplus.com/quiz/71878
Sample Questions
Q1) The holder of a $1,000 face value bond can exchange the bond any time for 25 shares of stock.The conversion ratio is:
A) 40.
B) 25.
C) 100.
D) 50
Q2) From the shareholder's point of view,the optimum time to call a convertible bond is when the bond's conversion value is:
A) less than the call price, but greater than the face value.
B) greater than the call price, but less than straight debt's value.
C) equal to the face value.
D) less than straight debt's value, but greater than the call price.
E) none of these options are correct.
Q3) Illustrate and explain how a convertible bond value is based on both debt and equity value.What is the option value?
Q4) Explain why there is neither a "Free" nor "Expensive Lunch" when convertible bonds are issued?
Q5) Why are warrants and convertibles issued?
To view all questions and flashcards with answers, click on the resource link above. Page 27
Chapter 26: Derivatives and Hedging Risk
Available Study Resources on Quizplus for this Chatper
49 Verified Questions
49 Flashcards
Source URL: https://quizplus.com/quiz/71877
Sample Questions
Q1) The duration of a 2 year annual 10% bond that is selling for par is:
A) 2.00 years
B) 1.00 years
C) 1.91 years
D) 2.09 years
Q2) 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
Q3) 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.
To view all questions and flashcards with answers, click on the resource link above. Page 28
Chapter 27: Short-Term Finance and Planning
Available Study Resources on Quizplus for this Chatper
53 Verified Questions
53 Flashcards
Source URL: https://quizplus.com/quiz/71876
Sample Questions
Q1) Net working capital is defined as:
A) the current assets in a business.
B) the difference between current assets and current liabilities.
C) the present value of short-term cashflows.
D) the difference between all assets and liabilities.
Q2) Which of the following statements is not true?
A) Net working capital is the difference between short-term assets and short term liabilities.
B) Short-term financing deals with the management of short-term liabilities and short-term assets.
C) Short-term financing is concerned with determining reasonable amounts of cash to hold, which customers should get credit and others related issues.
D) Net working capital does not utilize the concept of present value since all flows are short-term.
Q3) Which of the following is not included in current assets?
A) Accounts receivable.
B) Accrued wages.
C) Cash.
D) Inventories.
To view all questions and flashcards with answers, click on the resource link above.
Chapter 28: Cash Management
Available Study Resources on Quizplus for this Chatper
34 Verified Questions
34 Flashcards
Source URL: https://quizplus.com/quiz/71875
Sample Questions
Q1) The most common cash management technique used to speed up collections is:
A) concentration banking.
B) wire transfers.
C) lockbox systems.
D) in-house processing.
Q2) What is the firm's collection float?
A) $10,500
B) -$7,200
C) $1,800
D) -$1,800
Q3) 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.
Q4) What is the savings float and what can you earn if the firm takes Mesa's lockbox service?
Q5) 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.
To view all questions and flashcards with answers, click on the resource link above. Page 30
Chapter 29: Credit Management
Available Study Resources on Quizplus for this Chatper
31 Verified Questions
31 Flashcards
Source URL: https://quizplus.com/quiz/71874
Sample Questions
Q1) Selling goods and services on credit is:
A) an investment in a customer.
B) necessary because customers cannot pay for the goods.
C) a decision independent of customers.
D) permissible if your bank lends the money.
Q2) Robinson Rollingpin Corporation has been asked by its customers to please grant them a 2% discount if they pay their bill within 15 days.The purchase size of each order is $75,000.Normally,the customer pays within 30 days with no discount.Robinson's cost of debt capital is 12%.Should the request be granted?
Q3) Delta PDA Distributors has an investment in accounts receivable of $2,750,000.Daily credit sales are $118,280.Delta's cost of goods sold represent 75% of the sales price.What is the level of accounts receivable?
A) $2,750,00
B) $3,666,667
C) $2,062,500
D) $1,925,000
Q4) The Rapid Roller Co.offers terms of 3/15 net 45.The aging schedule for their customers is as follows:
To view all questions and flashcards with answers, click on the resource link above.
Page 31
Chapter 30: Mergers and Acquisitions
Available Study Resources on Quizplus for this Chatper
55 Verified Questions
55 Flashcards
Source URL: https://quizplus.com/quiz/71872
Sample Questions
Q1) 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?
Q2) An important reason for acquisitions is that the combined firm may generate greater revenue that the two separate firms could.Examples of revenue enhancement would not include:
A) an elimination of a previously ineffective media effort.
B) an elimination of a previously ineffective advertising effort.
C) an elimination of a weak existing distribution effort.
D) economies of scale.
Q3) Compensation paid to top management in the event of a takeover is called a:
A) poison pill.
B) golden parachute.
C) self-tender.
D) buyout.
To view all questions and flashcards with answers, click on the resource link above.
Page 32
Chapter 31: Financial Distress
Available Study Resources on Quizplus for this Chatper
20 Verified Questions
20 Flashcards
Source URL: https://quizplus.com/quiz/71871
Sample Questions
Q1) How much and what percentage of their claim will the unsecured creditors receive,in total?
A) $290,909; 36.36%
B) $300,000; 37.50%
C) $600,000; 75.00%
D) $100,000; 12.50%
Q2) Bankruptcy reorganizations are used by management to:
A) forestall the inevitable liquidation in all cases.
B) provide time to turn the business around.
C) allow the courts' time to set up an administrative structure.
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.
Q4) 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.
To view all questions and flashcards with answers, click on the resource link above. Page 33
Chapter 32: International Corporate Finance
Available Study Resources on Quizplus for this Chatper
54 Verified Questions
54 Flashcards
Source URL: https://quizplus.com/quiz/71870
Sample Questions
Q1) Triangular arbitrage would take place if the _____ rate between two currencies was not _____ to the ratio of the two direct rates.
A) cross; equal.
B) spot; equal.
C) cross; less than.
D) spot; less than.
E) cross; greater than.
Q2) Assume that the Euro is selling in the spot market for $1.10.Simultaneously,in the 3-month forward market the Euro is selling for $1.12.Which one of the following statements correctly describes this situation?
A) The spot market is out of equilibrium.
B) The forward market is out of equilibrium.
C) The dollar is selling at a premium relative to the euro.
D) The Euro is selling at a premium relative to the dollar.
Q3) A Yankee bond is a:
A) dollar-denominated Eurobond issued by a non-U.S. company.
B) a foreign bond issued in the U.S. by a foreign entity.
C) Eurobond issued by a U.S. company.
D) ECU-denominated bond issued by a non-U.S. company.
To view all questions and flashcards with answers, click on the resource link above.
Page 34