1. Company A bought Company B with a mix of cash and debt. The value of the purchase in excess of market value was reflected in the following quarter's balance sheet as

Select one:

a. Intangible assets on the Asset side, and Additional Paid-In Capital on the Liabilities & Equity side.b. Goodwill on the Asset side,and Additional Paid-In Capital and Debt on the Liabilities & Equity side.c. Goodwill on the Asset side, and both additional Debt and Other Liabilities on the Liabilities & Equity side.d. Intangible Assets on the Asset side, and Other Liabilities and Debt on the Liabilities & Equity side.

Question2

If an acquiring company uses additional debt to finance the purchase of a target company, valuation of both the target and the acquirer changes because the beta must be adjusted to accomodate the additional debt used for the purchase.

Select one:

TrueFalse

Question3

Maxwell Publications (MP) had a beta of .76 prior to its purchase of Technical Journals, Inc.(TJI), which had a pre-merger beta of 2.15. If TJI had $367 million in equity and $759 million in debt before the merger, and the company was purchased for $600 million in cash plus assumption of existing debt, what is the new levered beta for TJI?

Select one:

a. Insufficient Information.b. No change in beta; the debt remains the same.c. 1.59d. 1.25e. 2.61

Question4

In the Family Dollar merger case, which of the following was not a rationale to go ahead with the acquisition?

Select one:

a. The new combination broadened Dollar Tree's geographic and demographic reach.b. There were synergies possible.c. The combination would leverage complimentary merchandise expertise.d. The combination would compliment similar financial structures.e. The combination would have complimentary business models across all price-points.

Question5

All but which of the following were reasons that Family Dollar decided to find a merger partner.

Select one:

a. Morgan Stanley suggested it.b. Although the company had shown good past performance, they had reached a point when organic top-line growth would have become impossible or difficult to achieve.c. The company had achieved maximum market saturation.d. The company was not as efficient a retailer as its bigger rivals Dollar General and Dollar Tree.

Question6

Advantages to private equity for LBO's include all of the following except:

Select one:

a. LBOs eliminate those pesky shareholders, who, because of their q-t-q needs, fail to see the big picture or the long term.b. LBOs can lower WACC by eliminating costly equity.c. Over time, debt is lowered or eliminated through cash flows from the acquired firm.d. Usually the assets are left "as-is" and can be used as equity claw-backs later.e. Because private equity use of near-100% leverage, returns to private equity investors are very high and worth the added risk of leverage.

Question7

What is a "split-up" plan?

Select one:

a. It is when private equity tenders all outstanding shares of the target company and allocates the purchased shares among the private equity investors.b. It is the act of "repackaging" a target company and then brought public again through a new IPO.c. A plan to employ leverage to buy and dismantle a larger competitor.d. A plan whereby management and/or employees secure financing and buy out existing shareholders.e. It is a plan to divest company divisions and/or subsidiaries because the separate businesses of a company are received to be worth more than the corporation as a whole.

Question8

When a firm begins to pay dividends, what does the market think?

Select one:

a. It depends on conditions in the marketb. The stock generally rises because a dividend payout provides credible evidence that the firm is doing well enough to distribute its excess cash to its shareholders.c. The stock generally declines because it suggests that the firm cannot invest it funds for higher returns within the company itself.d. The stock generally rises because mutual funds take greater interest in stocks that pay dividends.e. The stock generally declines because dividends may lead to dilution.

Question9

Which of the following is not true regarding share repurchases?

Select one:

a. Share repurchases are, in effect, a form of dividend payout to existing shareholders, because they lead to an increase in the stock's overall yield.b. Share repurchases almost always lead to a higher stock price because it is anti-dilutive.c. Share repurchases are less effective when the repurchase is undertaken as the stock hits new highs.d. Share repurchases are one of five things that can be done with excess corporate cash.e. Share repurchases are an indication that the company is defending against a buyout.

Question10

Companies don't like to cut dividends because it sends a bad signal to the market that company management foresees a long period of negative or flat growth.

Select one:

TrueFalse

11. Which of these statements is true?

I. Dividends are "sticky", but usually favored over other methods of excess cash utilization.

II. Reinvestment in the firm only makes sense if the reinvestment will be additive to cash flow and value.

III. Some companies may seek to grow by using excess cash to purchase other companies, rather than to grow through existing operations.

IV. Repurchases are a last resort to companies with high leverage.

Select one:

a. I and II.b. III and IV.c. II and III.d. I and IV.e. All of them.

Question12

A company has a dividend payout ratio of 35% and a return on equity of 14.3%. What is its current sustainable growth rate?

Select one:

a. 5.0%b. 9.3%c. 14.3%d. 35%

Question13

Acme Sports Management has an ROE of 15.7%, a D/E ratio of .75, and sustains a dividend yield of 2.75% with a DPR of 64.6%. If the risk-free rate is 3.25% and the market risk premium is 6.9%, what is the firm's sustainable growth rate?

Select one:

a. About 5.6%b. About 10.1%c. About 18.5%d. None of the above

Question14

Look at the following table. Which company has the highest WACC?

	Stock A	Stock B	Stock C	Stock D
Risk-free Rate	3.5%	3.5%	3.5%	3.5%
Market Premium	6.9%	6.9%	6.9%	6.9%
Beta	1.75	1.2	.95	2.1
Kd	6.85%	5.25%	4.5%	6.15%
D/E Ratio	.4	.35	.8	1.2

Select one:

a. Stock Ab. Stock Bc. Stock Cd. Stock De. Its a tie!

Question15

Refer to the following chart. Which stock has theLOWESTWACC?

	Stock A	Stock B	Stock C	Stock D
Risk-free Rate	3.5%	3.5%	3.5%	3.5%
Market Risk Premium	6.9%	6.9%	6.9%	6.9%
Beta	1.75	1.2	.95	2.1
Kd	6.45%	5.25%	4.50%	6.15%
D/E Ratio	.4	.35	.8	1.2

Select one:

a. Stock Ab. Stock Bc. Stock Cd. Stock De. It's a tie!

Question16

For almost all companies, there exists an optimal capital structure. This is because of which of these reasons?

I. Because debt is always cheaper than equity, debt always lowers overall costs of capital.

II. Too much debt can cause the firm to take on too much fixed costs which leaves it vulnerable to a downturn, but too little debt results in a high cost of capital.

III. There is a tax shield benefit to increased leverage.

IV. Debt is easier to raise and creates better financial flexibility.

Select one:

a. All of the above are reasons.b. Only I and II.c. Only III and IV.d. Only II, III, and IVe. Only II and III

Question17

An increase in a firm's debt ratio can cause

I.a decline in the firm's P/E ratio because of increased costs and increased risk.

II.an increase in the firm's beta as risk rises.

III. a decline in the firm's weighted average cost of capital, up to a point.

IV. an increase in the cost of equity eventually if leverage gets too high.

Select one:

a. All are effects.b. None are effects.c. Only I, II and III.d. Only IV.e. Only I and IV.

Question18

According to the following financial information, what is this firm's free cash flow for this year?

Total Revenue	53,713
COGS	36,664
Gross Profit	17,049
S G & A	14,602
EBIT	2,447
Interest Expense	1,391
Earnings Before Taxes	1,056
Income Taxes	0
NET OPERATING INCOME	1,056
DEPRECIATION	1,237
CAPEX	224
Net Working Capital 2015	-743
Net Working Capital 2016	11,674

Select one:

a. $5, 087b. $11,674c. -$743d. -$8,957e. None of the above

Question19

Which of the following is NOT a component of FCF?

Select one:

a. Earnings before Interest and Taxesb. Depreciationc. Capital EXpenditured. Inventorye. Net Working Capital

Question20

If the company has earned $1,056,000 for this fiscal year, and based on the following financial information, what is the firm's ROE?

CURRENT ASSETS	22,719,000
P P & E	745,000
GOODWILL	10,864,000
INTANGIBLES	500,000
OTHER	36,000
TOTAL ASSETS	34,864,000
CURRENT LIABILITIES	11,045,000
LONG-TERM DEBT	232,000
OTHER LIABILITIES	45,000
TOTAL LIABILITIES	11,322,000
TOTAL EQUITY	23,542,000

Select one:

a. 2.58%b. 4.45%c. 5.67%d. 8.65%