Page: 1
- Question 1.1. (TCO B) Which of the following statements concerning the MM extension with growth is not correct?
- Question 2.2. (TCO D) Which of the following statements is most correct?
- Question 3.3. (TCO E) Buster’s Beverages is negotiating a lease on a new piece of equipment that would cost $100,000 if purchased. The equipment falls into the MACRS 3-year class, and it would … for 3 years and then sold,..……..Otherwise, it will buy it. What is the NAL?
- Question 4.4. (TCO I) Suppose hockey skates sell in Canada for 105 Canadian dollars, and 1 Canadian dollar equals 0.71 U.S. dollars. If purchasing power parity (PPP) holds, what is the price of hockey skates in the United States?
Page: 2
- Question 1.1. (TCO C) Dentaltech Inc. projects the following data for the coming year. If the firm follows the residual dividend policy and also maintains its target capital structure, what will its payout ratio be?
- Question 2.2. (TCO F) Warren Corporation’s stock sells for $42 per share. The company wants to sell some 20-year, annual interest, $1,000 par value bonds. Each bond would have 75 warrants … to it, each exercisable into one share of stock at an exercise price of $47. The firm’s straight bonds yield 10%………..order to sell the bonds-with-warrants at par?
- Question 3.3. (TCO B) Reynolds Resorts is currently 100% equity financed. The CFO is considering a recapitalization plan under which the firm would issue long-term debt with a yield of 9%……Which of the following would also be likely to occur if the company goes ahead with the recapitalization plan?
- Question 4.4. (TCO G) Which of the following statements is most correct?
- (a) Our bankruptcy laws were … in the 1800s, … in the 1930s, and have … since that time.
- (b) Federal bankruptcy law deals only with corporate bankruptcies. Municipal and personal bankruptcy are … solely by state laws.
- (c) All bankruptcy petitions are … by creditors seeking to protect their claims against firms in financial distress. Thus, all bankruptcy petitions are involuntary as … from the perspective of the firm’s management.
- (d) Chapters 11 and 7 are the most important bankruptcy chapters for financial management purposes. If a reorganization plan cannot … out under Chapter 11, then the company will … in Chapter 7 of the Act.
- (e) Restructuring a firm’s debt can involve forgiving a certain portion of the debt, but it cannot call for changing the debt’s maturity or its contractual interest rate.
Page 3
- Question 1.1. (TCO I) In 1985, a given Japanese … automobile sold for 1,476,000 yen, or $8,200. If the car still sold for the same amount of yen today but the current exchange rate is 144 yen per dollar, what would the car be selling for today in U.S. dollars
- Question 2.2. (TCO H) Which of the following statements is most correct?
- (a) The acquiring firm’s … rate of return in most horizontal mergers will not … , because the two firms will have similar betas.
- (b) Financial theory says that the choice of how to pay for a merger is really irrelevant because although it may affect the firm’s capital structure, it will not affect its overall … rate of return.
- (c) The basic rationale for any financial merger is synergy, and thus, the estimation of pro-forma cash flows is the single most important part of the analysis.
- (d) In most mergers, the benefits of synergy and the premium the acquirer pays over the market price are summed and then … equally between the shareholders of the acquiring and target firms.
- (e) The primary rationale for most operating mergers is synergy.
- Question 3.3. (TCO A) An investor who writes standard call options against stock held in his or her portfolio is said to be selling what type of options?
- Question 4.4. (TCO F) A swap is a method … to reduce financial risk. Which of the following statements about swaps, if any, is not correct?
- (a) A swap involves the exchange of cash payment obligations.
- (b) The earliest swaps were currency swaps in which companies … in different currencies, say dollars and pounds.
- (c) Swaps are very often … by a financial intermediary, who may or may not take the position of one of the counterparties.
- (d) A problem with swaps is that no … contracts exist, which has … the development of a secondary market.
- (e) A company can swap … interest payments for floating interest payments.