Managerial Finance Practice Questions
Course Introduction
Managerial Finance provides students with an in-depth understanding of the key financial principles and tools used by managers to make strategic business decisions. The course covers topics such as financial analysis, planning and control, capital budgeting, risk assessment, cost of capital, and working capital management. Emphasis is placed on the application of financial theories to real-world business scenarios, enabling students to interpret financial statements, evaluate investment opportunities, and manage corporate resources effectively. Through case studies, quantitative techniques, and analytical frameworks, students gain practical skills to support organizational goals and drive value creation within various types of enterprises.
Recommended Textbook Corporate Finance 12th Edition by Ross
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Chapter 1: Introduction to Corporate Finance
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Sample Questions
Q1) One disadvantage of the corporate form of business ownership is the:
A)limited liability protection provided for all owners.
B)firm's ability to raise cash.
C)unlimited life of the firm.
D)difficulties encountered when changing ownership.
E)double taxation of profits.
Answer: E
Q2) What should be the primary goal of the financial manager of a corporation? Explain why this is appropriate.
Answer: The appropriate goal is to maximize the current value of the outstanding stock.This goal focuses on enhancing the returns to the current stockholders who are the owners of the firm.Other goals,such as maximizing sales or earnings,focus too narrowly on accounting profits and ignore the importance of market values in managerial finance.
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3
Chapter 2: Financial Statements and Cash Flow
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Sample Questions
Q1) Southwest Co.has equipment with a book value of $3,560 that could be sold today for $3,900.Its inventory is valued at $1,780 and could be sold immediately to a competitor at a discount of 25 percent.The firm has $260 in cash and customers owe the firm $950,of which 98 percent is collectible.What is the current market value of the firm's assets?
A)$6,086
B)$5,536
C)$6,426
D)$6,316
E)$5,946
Answer: C
Q2) Which one of these statements is correct?
A)Pretax income is equal to net income minus taxes.
B)The addition to retained earnings is equal to net income plus dividends.
C)Operating income is equal to operating revenue minus cost of goods sold.
D)Only current taxes are included in the tax expense.
E)Earnings per share can be negative but dividends per share cannot.
Answer: E
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Chapter 3: Financial Statements and Cash Flow
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Sample Questions
Q1) Southern Foods has net income of $39,900,net sales of $318,600,total assets of $663,000,common stock of $106,800 with a par value of $1 per share,and retained earnings of $224,400.The stock has a market value of $5.45 per share.What is the price-earnings ratio?
A)17.12
B)19.94
C)12.82
D)14.59
E)16.64
Answer: D
Q2) The return on equity can be calculated as:
A)ROA × Equity multiplier.
B)Profit margin × ROA.
C)Profit margin × ROA × Total asset turnover.
D)ROA × Net income/Total assets.
E)ROA × Debt-equity ratio.
Answer: A
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Chapter 4: Discounted Cash Flow Valuation
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Sample Questions
Q1) Assume an annuity will pay $1,000 a year for five years with the first payment occurring in Year 4,that is,four years from today.When you compute the present value of that annuity using the PV formula,the PV will be as of which point in time?
A)Today,Year 0
B)Year 1
C)Year 3
D)Year 4
E)Year 2
Q2) Your parents plan to give you $200 a month for four years while you are in college.At a discount rate of 6 percent,compounded monthly,what are these payments worth to you when you first start college?
A)$8,797.40
B)$8,409.56
C)$8,198.79
D)$8,516.06
E)$8,279.32
Q3) Explain the net present value formula and also explain what the net present value represents.
NPV = Cost + PV
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Chapter 5: Net Present Value and Other Investment Rules
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Sample Questions
Q1) Using the internal rate of return method,a conventional investment project should be accepted if the internal rate of return is:
A)equal to,and only if it is equal to,the discount rate.
B)equal to or greater than the discount rate.
C)less than the discount rate.
D)negative.
E)positive.
Q2) The payback method:
A)is the most frequently used method of capital budgeting analysis.
B)is a more sophisticated method of analysis than the profitability index.
C)considers the time value of money.
D)applies mainly to projects where the actual results will be known relatively soon.
E)generally results in decisions that conflict with the decision suggested by NPV analysis.
Q3) The IRR rule is said to be a special case of the NPV rule.Explain why this is so and why IRR has some limitations NPV does not.
Q4) Explain the differences and similarities between net present value (NPV)and the profitability index (PI).
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Chapter 6: Making Capital Investment Decisions
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Sample Questions
Q1) Sue purchased a house for $89,000,spent $56,000 upgrading it,and currently had it appraised at $212,900.The house is being rented to a family for $1,200 a month,the maintenance expenses average $200 a month,and the property taxes are $4,800 a year.If she sells the house she will incur $20,000 in expenses.She is considering converting the house into professional office space.What opportunity cost,if any,should she assign to this property if she has been renting it for the past two years?
A)$178,500
B)$120,000
C)$185,000
D)$192,900
E)$232,900
Q2) The most valuable investment given up if an alternative investment is chosen is referred to as a(n):
A)salvage value expense.
B)net working capital expense.
C)sunk cost.
D)opportunity cost.
E)erosion cost.
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Chapter 7: Risk Analysis, real Options, and Capital Budgeting
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Sample Questions
Q1) Northern Woods is considering two methods of production for a new product.The first method will require fixed assets costing $450,000 that will be depreciated straight-line to zero over the product's 3-year life.Annual fixed costs are $316,000 and variable costs per unit are $8.64.The second method will require fixed assets costing $790,000,annual fixed costs of $211,000,and variable costs per unit of $6.57.The firm expects to sell 46,000 units per year at $20 a unit.The discount rate is 16 percent and the tax rate is 21 percent.Should the product be produced and if so,which method of production should be implemented and why?
A)Yes; Method A; because A has the lower initial cost
B)Yes; Method A; because it will break-even on a financial basis with fewer annual sales
C)Yes; Method B; because it has lower annual costs
D)Yes; Method B; because B has a financial break-even quantity that is less than the expected sales units
E)No; Neither method of production will financially break-even within the expected life of the project.
Q2) Discuss some potential shortcomings of the standard decision tree analysis.
Q3) Other than quantifying the potential NPV of a project,what other benefits do decision trees offer to managers?
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Chapter 8: Interest Rates and Bond Valuation
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Sample Questions
Q1) Rosina purchased one 15-year bond at par value when it was initially issued.This bond has a coupon rate of 7 percent and matures 13 years from now.If the current market rate for this type and quality of bond is 7.5 percent,then Rosina should expect:
A)the bond issuer to increase the amount of all future interest payments.
B)the yield to maturity to remain constant due to the fixed coupon rate.
C)to realize a capital loss if she sold the bond at today's market price.
D)today's market price to exceed the face value of the bond.
E)the current yield today to be less than 7 percent.
Q2) Suzette owns a corporate bond with a yield to maturity of 7.45 percent.She is in the 12 percent tax bracket.What is her equivalent rate of return on a municipal bond? Ignore state taxes.
A)6.17 percent
B)5.89 percent
C)6.56 percent
D)8.26 percent
E)8.47 percent
Q3) Normally,the Treasury yield curve is upward-sloping.Explain the conditions required for a downward-sloping yield curve to exist.
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Chapter 9: Stock Valuation
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Sample Questions
Q1) The constant dividend growth model:
A)is more complex than the differential growth model.
B)requires the growth period be limited to a set number of years.
C)is never used because firms rarely attempt to maintain steady dividend growth.
D)can be used to compute a stock price at any point in time.
E)most applies to stocks with differential growth rates.
Q2) Allison's is expected to have annual free cash flow of $62,000,$65,400,and $68,900 for the next three years,respectively.After that,the free cash flow is expected to increase at a constant rate of 2 percent per year.At a discount rate of 14.5 percent,what is the present value of this firm?
A)$469,118
B)$603,509
C)$577,088
D)$524,467
E)$497,364
Q3) What are the components of the required rate of return on a share of stock? Briefly explain each component.
Q4) What is the difference between the EV/EBITDA ratio and the PE ratio?
Q5) Explain the differences between a market order,a limit order,and a stop order.
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Chapter 10: Lessons From Market History
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Sample Questions
Q1) A symmetric,bell-shaped frequency distribution that is completely defined by its mean and standard deviation is the ________ distribution.
A)gamma
B)Poisson
C)bimodal
D)normal
E)uniform
Q2) Of these countries,which one has the highest historical equity risk premium for the period 1900-2010?
A)Italy
B)Ireland
C)Switzerland
D)Spain
E)Norway
Q3) Assume you are comparing two stocks that are identical in every way except that one stock pays dividends and the other does not.How would you expect this difference to affect the annual performance of the dividend-paying stock as compared to the non-dividend-paying stock?
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Chapter 11: Return, risk, and the Capital Asset Pricing Model
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Sample Questions
Q1) The expected return on a portfolio:
A)can be greater than the expected return on the best performing security in the portfolio.
B)can be less than the expected return on the worst performing security in the portfolio.
C)is independent of the performance of the overall economy.
D)is limited by the returns on the individual securities within the portfolio.
E)is an arithmetic average of the returns of the individual securities when the weights of those securities are unequal.
Q2) Terry owns a stock that is expected to earn 8.7 percent in a booming economy,9.2 percent in a normal economy,and 12.6 percent in a recessionary economy.Each economic state is equally likely to occur.What is his expected rate of return on this stock?
A)10.38 percent
B)11.90 percent
C)10.17 percent
D)9.98 percent
E)11.01 percent
Q3) Why are some risks diversifiable and some nondiversifiable? Give an example of each.
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Chapter 12: An Alternative View of Risk and Return: the Arbitrage Pricing Theory
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Sample Questions
Q1) Explain the concept of a benchmark and why benchmarks provide value when evaluating the performance of a security or portfolio.
Q2) Alpha stock has an expected return of 8.2 percent and betas of: <sub>GNP</sub> = 1.23; <sub>I</sub> = .97; and <sub>Ex</sub> = 1.08.This expectation is based on a three-factor model with expected values of: GNP growth of 1 percent; inflation of 2.4 percent; and export growth of 3.5 percent.However,actual growth in these factors turns out to be .55 percent,1.8 percent,and 2.6 percent,respectively.Assuming there was no unexpected news related specifically to the stock,what was the stock's total rate of return?
A)8.04 percent
B)8.55 percent
C)8.47 percent
D)7.85 percent
E)8.85 percent
Q3) In a multifactor model,explain what a factor represents and the role that beta plays in relation to factors.How do factors and betas affect the actual return?
Q4) Verbally describe a graph that illustrates the one-factor model.
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Chapter 13: Risk, cost of Capital, and Valuation
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Sample Questions
Q1) Peter's Audio has a yield to maturity on its debt of 7.8 percent,a cost of equity of 12.4 percent,and a cost of preferred stock of 8 percent.The firm has 105 shares of common stock outstanding at a market price of $22 a share.There are 25 shares of preferred stock outstanding at a market price of $45 a share.The bond issue has a total face value of $1,500 and sells at 98 percent of face value.If the tax rate is 21 percent,what is the weighted average cost of capital assuming all interest is tax deductible?
A)9.68 percent
B)8.54 percent
C)8.69 percent
D)9.52 percent
E)9.45 percent
Q2) A firm with cyclical earnings is characterized by:
A)revenue patterns that vary with the business cycle.
B)high levels of debt in its capital structure.
C)high fixed costs.
D)high costs per unit.
E)low contribution margins.
Q3) Explain a)the factors that determine a security's beta and b)how asset beta relates to equity beta.
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Page 15
Chapter 14: Efficient Capital Markets and Behavioral Challenges
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Sample Questions
Q1) The U.S.Securities and Exchange Commission periodically charges individuals with insider trading and claims those individuals have made unfair profits.Based on this fact,you would tend to argue that the financial markets are at best ________ form efficient.
A)weak
B)semiweak
C)semistrong
D)strong
E)perfect
Q2) Which one of the following statements is true?
A)Highly positive serial correlations are indicators of market efficiency.
B)Abnormal returns limited to the announcement date are indicators of market inefficiency.
C)Market studies indicate that stock markets are only weak form efficient.
D)Studies seem to indicate stock markets are semistrong but not strong form efficient.
E)Mutual funds provide little,if any,benefit to investors.
Q3) Why should a financial decision maker such as a corporate treasurer or CFO be concerned with market efficiency?
Q4) Explain why in an efficient market all investments have an expected NPV of zero.
Page 16
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Chapter 15: Long-Term Financing
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Sample Questions
Q1) Which type of bond grants the bond holder the right to force the bond's issuer to repay the bond at a stated price given that a certain situation(s)occurs?
A)Put bond
B)Cat bond
C)NoNo bond
D)Income bond
E)Warrant bond
Q2) DLT has cumulative preferred stock outstanding that calls for quarterly dividend payments of $1.50 each.Due to its financial situation,the firm has not paid these preferred dividends for the past two quarters.What amount per share must be paid to the preferred shareholders this quarter if the firm also wants to pay a dividend on its common stock?
A)$1.50
B)$3.00
C)$4.50
D)$6.00
E)$7.50
Q3) Explain the main differences between debt and equity.
Q4) Identify three key duties of a bond trustee.
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Chapter 16: Capital Structure: Basic Concepts
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Sample Questions
Q1) Uptown Interior Designs is an all-equity firm that has 40,000 shares of stock outstanding.The company has decided to borrow $74,000 to buy out the 2,100 shares of a deceased stockholder.What is the total value of this firm if you ignore taxes?
A)$2,008,157
B)$1,388,056
C)$1,409,524
D)$3,885,000
E)$2,630,620
Q2) MM Proposition II is the proposition that:
A)supports the argument that the capital structure of a firm is irrelevant to the value of the firm.
B)the cost of levered equity depends solely on the return on debt,the debt-equity ratio,and the tax rate.
C)a firm's cost of equity capital is a positive linear function of the firm's capital structure. D)the cost of equity is equivalent to the required return on the total assets of a levered firm.
E)the cost of debt is inversely related to a firm's debt-equity ratio.
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Page 18
Chapter 17: Capital Structure: Limits to the Use of Debt
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Sample Questions
Q1) In a world with taxes and financial distress,when a firm is operating with the optimal capital structure the:
A)debt-equity ratio will be minimized.
B)weighted average cost of capital will be maximized.
C)firm will be all-equity financed.
D)required return on assets will be at its maximum point.
E)overall benefits of debt have all been realized.
Q2) Assume BJ Companies is indifferent between issuing equity and issuing debt.Assume the corporate tax rate is 21 percent and dividends are taxed at the personal level at 20 percent.What is the personal tax on interest income?
A)20 percent
B)42 percent
C)40 percent
D)14 percent
E)37 percent
Q3) What is the pecking order theory and what are the implications that arise from this theory?
Q4) Is there an easily quantifiable debt-equity ratio that will maximize the value of a firm? Why or why not?
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Chapter 18: Valuation and Capital Budgeting for the Levered Firm
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Sample Questions
Q1) Alpha Company has riskless debt,a debt-equity ratio of .46,a tax rate of 21 percent,and an unlevered firm beta of 1.23.What is the equity beta?
A).67
B).73
C).86
D)1.68
E)1.47
Q2) Webster's latest project has an initial cost of $1.23 million and unlevered perpetual cash flows of $238,000.The firm has a debt-equity ratio of .42,a pretax cost of debt of 7.6 percent,a cost of equity of 13.3 percent,and a tax rate of 21 percent.What is the NPV of the project?
A)$864,010
B)$887,982
C)$906,056
D)$909,411
E)$892,020
Q3) Explain how flotation costs affect the analysis of a levered project.
Q4) Assume a project is non-scale enhancing.Describe the basic steps required to determine the net present value of the project.
Page 20
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Chapter 19: Dividends and Other Payouts
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Q1) The date on which the board of directors passes a resolution authorizing payment of a dividend to the shareholders is the ________ date.
A)ex-rights
B)ex-dividend
C)record
D)payment
E)declaration
Q2) Explain why executives who hold stock options prefer stock repurchases over stock dividends.
Q3) Davidsons has 15,000 shares of stock outstanding with a par value of $1 per share and a market value of $45 per share.The balance sheet shows $15,000 in the common stock account,$158,000 in the capital in excess of par account,and $132,500 in the retained earnings account.The firm just announced a stock dividend of 50 percent.What is the value of the retained earnings account after the dividend?
A)$125,000
B)$117,500
C)$132,500
D)$140,000
E)$147,500
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Page 21
Chapter 20: Raising Capital
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Sample Questions
Q1) You currently own 200 shares of a stock valued at $21 a share.A rights offer has just been announced that grants the option of obtaining one new share for two rights plus $17.Each current share is entitled to one right.What is the value of each right?
A)$1.33
B)$1.25
C)$.33
D)$.67
E)$1.67
Q2) Corporations primarily use the shelf registration method of security sales because:
A)preregistered securities can be quickly brought to market.
B)SEC registration is avoided.
C)their stock is rated as junk.
D)they are issuing securities to the general public for the first time.
E)they are doing a private offering.
Q3) Discuss what a Dutch auction is and how it works.
Q4) Discuss the stages of venture capital financing,defining each in detail.
Q5) What are venture capitalists and what is their role in raising capital for firms?
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Page 22
Chapter 21: Leasing
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Q1) Hi-Tek Industries is considering a lease with four annual payments of $4,000 each.The firm can borrow at a rate of 6.7 percent and has a tax rate of 21 percent.The leased asset would cost $15,000 to purchase,have a tax life of 4 years,and would be depreciated on a straightline basis to zero.What would be the incremental cash flow in Year 4 from leasing instead of purchasing if the purchased asset had a pretax salvage value of $500?
A) $4,318.10
B) $3,605.50
C) $4,211.51
D) $4,342.50
E) $3,900.00
Q2) Which of these are offered as key considerations in the lease versus purchase decision according to the research findings of Smith and Wakeman?
A)Price discrimination opportunities and debt displacement options
B)Cash flows and sensitivity to use and maintenance decisions.
C)Attracting clients with low prices and debt displacement
D)Cash flows and debt displacement
E)Price discrimination opportunities and sensitivity to use and maintenance decisions
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Chapter 22: Options and Corporate Finance
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Q1) Jillian owns a call option on WAN stock with a strike price of $20 a share.Currently,WAN is selling for $24.50 a share.Jillian would like to profit on this option but is not permitted to exercise the option for another two weeks.She believes the stock will decline in value before the two weeks is up.What should she do?
A)Sell her option today
B)Place an order to exercise her option on its expiration date
C)Purchase an additional call option on WAN today with a strike price of $20
D)Place an order to exercise her option as soon as she is permitted to do so
E)Convert her American option into a European option
Q2) 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?
Q3) The intrinsic value of a put is equal to the:
A)lesser of the strike price or the stock price.
B)lesser of the stock price minus the exercise price or zero.
C)lesser of the stock price or zero.
D)greater of the strike price minus the stock price or zero.
E)greater of the stock price minus the exercise price or zero.
Q4) How do options apply to capital budgeting? Explain and provide an example.
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Chapter 23: Options and Corporate Finance: Extensions and Applications
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Q1) The call option on a dividend-paying stock compared to a comparable non-dividend paying stock is:
A)more valuable because of the dividend payments.
B)equal in value.
C)less valuable because cash dividends lower the stock price.
D)equal to the cost of the non-dividend paying stock option.
E)either equal to or greater than the value of the non-dividend paying stock option.
Q2) Why would a company pay an executive in options as opposed to salary?
Q3) Assume you are being granted at-the-money stock options today when the stock is trading at $32 a share.These options mature in one year,the continuously compounded risk-free rate is 4.2 percent,and the volatility of the stock's returns is 22 percent.What is the value of d<sub>2</sub> as it is used in the Black-Scholes model?
A).0927
B).0752
C).0809
D).0847
E).0936
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Page 25
Chapter 24: Warrants and Convertibles
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Q1) Aztec's convertible bonds each have a face value of $1,000 and a market value of $1,041.25.Each bond can be exchanged 25 shares of stock.The stock is selling for $41.54 a share.The straight bond value is $1,010.What is the option value per bond?
A)$0
B)$2.75
C)$3.08
D)$38.50
E)$.11
Q2) Westover Industries has 60,000 shares outstanding.Each share has one-third of a warrant attached.One warrant plus $25 can be exchanged for one new share of stock.The stock is currently selling for $27 per share.All else held constant,what will the stock price be if all the warrants are exercised?
A)$26.38
B)$26.50
C)$25.00
D)$27.00
E)$26.67
Q3) Why are warrants and convertibles issued?
Q4) Explain how a noncallable convertible bond's value is determined.
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Chapter 25: Derivatives and Hedging Risk
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Q1) When interest rates shift,the price of zero coupon bonds are ________ volatile
A)more; if they have a short maturity rather than a long maturity.
B)not; because their duration always matches their maturity.
C)equally; regardless of their maturity.
D)less; than coupon bonds of the same maturity.
E)more; than coupon bonds of the same maturity.
Q2) Assume a futures contract on gold is based on 100 troy ounces with prices quoted in dollars per troy ounce.Assume one contract called for delivery some time during the month of April.The price of gold opened the month at $1,194.The low quote for April was $1,189,the high was $1,212,and the end of month settle quote was $1,197.By what amount did the value on one contract vary over the month of April?
A)$30
B)$23
C)$3,000
D)$2,300
E)$300
Q3) Identify several of the differences between a forward contract and a futures contract.
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Chapter 26: Short-Term Finance and Planning
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Q1) The manager responsible for applying payments to customer's accounts is the:
A)controller.
B)payables manager.
C)credit manager.
D)purchasing manager.
E)production manager.
Q2) Which one of the following will decrease the net working capital of a firm? Assume the current ratio is greater than 1.0.
A)Selling inventory at a profit
B)Collecting an accounts receivable
C)Paying a payment on a long-term debt
D)Selling a fixed asset for book value
E)Paying an accounts payable
Q3) List and describe three basic types of secured inventory loans.What are the advantages and disadvantages of each type of loan?
Q4) Compensating balances are often included as a requirement for a line of credit.These balances provide income to banks but add to the cost of financing for the borrower.Why,then,would borrowers agree to such an arrangement?
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Chapter 27: Cash Management
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Q1) Most large firms hold a larger cash balance 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.
E)the costs of holding cash for these firms is negligible.
Q2) Probably the most sensible cash management policy would be to maintain:
A)sufficient cash on hand to meet all ordinary business needs plus some excess cash to invest in marketable securities as a precautionary measure.
B)about 90 percent of the firm's ordinary cash needs in cash and delay payment on the remaining 10 percent.
C)enough cash on hand to meet any potential demand for cash.
D)a zero-cash balance and transfer funds semi-monthly to pay bills.
E)twice the amount of cash on hand that would be typically indicated based on the firm's normal cash flows.
Q3) Explain repurchase agreements and the role they can play in a firm's everyday operations.
Q4) Processing float
Q5) Explain why money market preferred stock appeals to corporations.
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Chapter 28: Credit and Inventory Management
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Q1) The total restocking cost is calculated as:
A)Fixed cost per order × Number of orders.
B)Order size × Variable cost per unit.
C)Carrying costs + Fixed costs.
D)Number of orders × Variable cost per unit.
E)Fixed cost per unit × Average inventory.
Q2) Green Garden is a cash-only company.The company is considering switching to a 30-day credit policy with no discounts.What factors should the firm consider before making the switch?
Q3) Explain the purpose of a safety stock and how this relates to reorder points.
Q4) The upper limit to the credit period is best expressed as the length of the:
A)seller's operating cycle.
B)seller's cash cycle.
C)seller's payables period.
D)buyer's operating cycle.
E)buyer's cash cycle.
Q5) There are generally considered to be five key factors that should be evaluated when trying to determine if a customer will pay.Write five questions that a credit manager should answer when reviewing a credit application that would address these factors.
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Chapter 29: Mergers,acquisitions,and Divestitures
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Q1) Jay's has a market value of $3,600 and believes that if it acquires Benny's in a stock transaction the combination of the new firm will be worth $6,000 given the expected synergy of $200.If Jay's wants to keep 75 percent of the synergy for itself,what should be the value of the stock it issues to Benny's?
A)$2,050
B)$2,250
C)$2,150
D)$2,000
E)$2,500
Q2) Firm A has a market value of $6,000 with 150 shares outstanding and a price per share of $40.Firm B has a market value of $800 with 40 shares outstanding and a price per share of $20.Firm A is acquiring Firm B by exchanging 25 of its shares for all 40 of Firm B's shares.Assume the merger creates $500 of synergy.What will be the value of Firm B's shareholders' stake in the merged firm?
A)$800
B)$1,021.30
C)$1,050.00
D)$1,042.86
E)$1,000.00
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Chapter 30: Financial Distress
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Q1) Chapter 11 of the Federal Bankruptcy Reform Act of 1978:
A)was replaced by Section 363 in 2009.
B)was expanded to allow liquidations in 2010 as a result of the financial crisis of 2008.
C)underwent a major revision in 2011.
D)was amended in 2005 by the Bankruptcy Abuse Prevention and Consumer Protection Act.
E)has never been revised or amended.
Q2) Which one of the following is most apt to protect an individual creditor's interests in a formal bankruptcy proceeding?
A)The bankrupt firm's financial structure may be complicated with several groups and types of creditors.
B)The indirect costs of bankruptcy may result in lost revenues and poor maintenance.
C)The bankruptcy administrative costs may be high due to the length and complexity of the process.
D)The absolute priority rule can be violated.
E)The creditor may hold liens on specific assets.
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Chapter 31: International Corporate Finance
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Q1) Assume the spot rate for the Japanese yen currently is ¥106.83 per dollar while the one-year forward rate is ¥107.20.Also assume a risk-free asset in Japan is currently earning 4.6 percent.If interest rate parity holds,approximately what rate can you earn on a one-year risk-free U.S.security?
A)4.24 percent
B)5.08 percent
C)4.62 percent
D)4.78 percent
E)4.96 percent
Q2) "The change in exchange rates is determined by the difference in the inflation rates of the two countries." This statement expresses the concept of:
A)absolute purchasing power parity.
B)relative purchasing power parity.
C)the international Fisher effect.
D)unbiased forward rates.
E)interest rate parity.
Q3) What is triangle arbitrage?
Q4) Explain the difference between a spot trade and a forward trade as they relate to currencies.
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