Here are some more Q's!

28.

The SML relates its required return to a firm's market risk.

A) True

B) False

29.

Theory would suggest that differences in firm's capital structures may be due to

A) expected costs of banruptcy

B) corporate taxes

C) Maslow's heirarchy of needs

D) (a) and (b)

E) all of the above

30.

If D0 = $2.00, g (which is constant) = 6%, and P0 = $40, what is the stock's expected dividend yield for the coming year?

A) 5.0%

B) 5.1%

C) 5.3%

D) 5.6%

E) 5.8%

31.

Thomson Electric Systems is considering a project that has the following cash flow and WACC data. What is the project's NPV?

WACC = 10%

Cash FlowsYear-10000500150025003

A) $243.43

B) $251.23

C) $268.91

D) $272.46

E) $289.53

32.

Blanchford Enterprises is considering a project that has the following cash flow data. What is the project's IRR?

Cash FlowsYear-1000040140240310404

A) 10%

B) 40%

C) 20%

D) 4%

E) 8%

33.

Currently, in the spot market $1 = 106.5 Japanese yen, 1 Japanese yen = 0.0096 euro, and 1 euro = 10.1 Mexican pesos. What is the exchange rate between the U.S. dollar and the Mexican peso?

A) 10.326 pesos/$

B) 10.693 pesos/$

C) 10.910 pesos/$

D) 11.158 pesos/$

E) 11.448 pesos/$

34.

A television set sells for $1,000 U.S. dollars. In the spot market, $1 = 110 Japanese yen. If purchasing power parity holds, what should be the price (in yen) of the same television set in Japan?

A) 80,000 yen

B) 90,000 yen

C) 100,000 yen

D) 110,000 yen

E) 120,000 yen

35.

According to the internal rate of return method, a firm that uses both debt and equity financing should accept a project if the ____________________.

A) internal rate of return is less than the cost of capital

B) internal rate of return exceeds the cost of capital

C) cost of capital exceeds the internal rate of return

D) internal rate of return exceeds the firm's cost of debt

E) internal rate of return exceeds the firm's cost of equity

36.

According to the net present value technique, a project is considered acceptable if

A) the sum of all cash inflows and outflows is positive.

B) the difference between all discounted cash inflows and outflows exceeds zero.

C) it lowers costs below an acceptable hurdle rate.

D) its rate of return is greater than the firm's cost of capital.

E) it returns the initial investment faster than competing projects.

37.

Analysts at Tabby Fur Storage predict that the net present value of a proposed new $10 million warehouse is $1. How should these findings be interpreted?

A) Although NPV is positive, its value is too low for such a large expenditure and as a result, the project should be rejected.

B) The project should be rejected because the NPV is less than the cost of the warehouse.

C) The project should be accepted because it will add value to the firm.

D) More information such as the payback period should be evaluated since the reliance on only one capital budgeting technique should be discouraged.

E) The project does not meet the acceptance criteria of the NPV method and should be rejected.

38.

The internal rate of return may be defined as the

A) percentage increase in the value of an investment over its useful life.

B) the minimum return required by investors to hold a firm's securities.

C) the discount rate at which a project's NPV is negative.

D) the discount rate at which a project's NPV equals zero.

E) the maximum rate of return expected from a project.

39.

If the ___________ is greater than or equal to the ___________, the project should be accepted.

A) IRR; NPV

B) cost of capital; IRR

C) IRR; cost of capital

D) NPV; IRR

E) None of the above.

40.

Two projects each require a current cash expenditure of $10,000. Project A will generate cash inflows of $2,000 per year for the next twelve years. Project B is expected to return $6,000 in 1 year, $4,000 at the end of year 2, and $3,000 in 3 years. Which project should be selected if funds are available to finance only one of these projects and capital costs are 6%?

A) Project B because it has a shorter payback period.

B) Project B because it has a higher IRR

C) Project A because it has a higher IRR

D) Project A because it has a higher NPV

E) Project B because it has a higher NPV

41.

The dividend just paid on Thompson Industry stock was $2 per share and it is expected to grow 8% each year. If the stock is currently selling at $30 per share, what is Thompson's cost of equity (r)?

A) 12%

B) 15%

C) 18%

D) 21%

E) 13%

42.

What is the weighted average cost of capital after taxes for Moss Diet Centers if the target weights are 25% equity and 75% debt, and the costs of equity and after-tax debt are 15% and 12% respectively?

A) 11.0%

B) 12.8%

C) 13.5%

D) 14.0%

E) 12.5%

43.

What is the weighted average cost of capital after taxes if the desired capital structure is 40% debt and 60% equity and investors require a 10% pre-tax return from debt and 25% from equity and the tax rate is 30%?

A) 19%

B) 18%

C) 20%

D) 15%

E) 11%

44.

Bond A from CIR has a coupon rate of 8%, what should be the current price of the bond? CIR Inc. coupon bonds have a maturity of 2 years. The bonds make semi-annual payments. The YTM on these bonds is 6.0 percent. Face Value is $1000.

A) $756

B) $1231

C) $961

D) $1037

45.

Suppose that Ben Bernake increases the federal funds rate unexpectedly tomorrow from the current rate of 2.0% to 3.50%, according to interest rate parity the dollar should

A) Appreciate

B) Depreciate

C) Unaffected

D) All of the above

46.

A depreciating dollar tends to

A) Encourage imports

B) Encourage exports

C) Have no impact on exports or imports

D) Increase the supply of gold

47.

Suppose the after-tax cost of debt is 8% and the cost of equity is 12%, assuming a project is financed by 50% debt and 50% equity, the weighted average cost of capital is:

A) 8%

B) 12%

C) 10%

D) 20%

48.

Theory would suggest that a firm's dividend policy may be irrelevant because investors can create dividends on their own.

A) True

B) False

49.

Everything else being equal, a __________ bond's price will __________ as the bond approaches maturity.

A) discount; decrease

B) discount; increase

C) discount; remain the same

D) premium; increase

E) premium; remain the same

50.

If D0 = $2.00, g (which is constant) = 10%, and P0 = $22, what is the stock's expected dividend yield for the coming year?

A) 5.0%

B) 9.7%

C) 10.0%

D) 12.0%

E) 15.6%

F) 15.8%

51.

A stock is expected to pay a dividend of $2 next year. The required rate of return is rs = 30%, and the constant growth rate is 5%. What is the current stock price?

A) $8.00

B) $18.00

C) $20.00

D) $12.00

E) $2.00

52.

The return on the market is 12%. A firm's beta is 2, and the risk-free rate is 6%. Estimate the required rate of return.

A) 13.0%

B) 14.7%

C) 5.0%

D) 18.0%

E) None of the above.

53.

A Bond from CIR has an annual coupon rate of 8%, what should be the current price of the bond? The bond has a maturity of 2 years. The bond makes annual payments. The YTM on these bonds is 6%. Face Value is $1000.

A) above $1,000

B) below $1,000

C) $1,000

D) None of the above

54.

The expected return on an asset is 13% and the required return is 12%. You should

A) buy the asset now.

B) sell the asset now.

55.

Suppose you are concerned that the value of your stock portfolio (consisting of the same stocks as the S&P500) may fall, to reduce your risk you should

A) buy put options on the S&P500

B) buy call options on the S&P500

C) buy futures on the S&P500

D) buy option on futures on the S&P500

E) all of the above

56.

Carol plans to visit Japan next week and wishes to convert $1,000 U.S. into yen to cover her travel expenses. If her travel agent quotes her an exchange rate of 115¥/$, how many yen will she obtain?

A) 5.0

B) 8.7

C) 115,000

D) 150,000

E) 110,000

57.

Forward transactions

A) are widely used to reduce exchange rate risk.

B) typically only enable the buyer of the forward contract to benefit from favorable exchange rate changes, but not the seller.

C) are executed in spot markets.

D) seldom benefit manufacturing firms.

E) are processed by dealers, but seldom by money-center banks.

58.

If the dollar appreciates against the Euro

A) U.S. price of Euroland goods will rise.

B) then the Euro also appreciates against the U.S. dollar.

C) Euroland exports to the U.S. should decline.

D) U.S. exports to Euroland will fall.

E) the U.S. inflation rate will have a tendency to rise.

59.

What is the maximum net profit to a speculator with $1 million if interest rates on 1-year Treasuries are 6% in Country X and 4% in the U.S. and the exchange rate is expected to remain the same at today's rate of 2 Country X/$ over the next 1 year?

A) $40,000

B) $30,000

C) $20,000

D) $80,000

E) $1,005,683

60.

Futures contracts may help firms hedge against exchange rate risk by

A) paying the holder of the contract in the event of a loss - much like an insurance policy.

B) giving the owner of the contract the right to swap one currency for another at a later date.

C) giving the holder of the contract the ability to purchase foreign currencies at a predetermined exchange rate at a future date.

D) enabling the hedger to offset foreign currency losses by profiting from the sale of the futures contract.

E) providing riskless arbitrage opportunities.