All multiple question, major in Hospitality management.

4. The advisors to Creative Bliss Enterprises, the Marx Brothers, ask you to join them as they interview their first potential underwriting firm. SeussGrinch, Mr. Seuss asks if you are familiar with the part of the underwriting contract that specifies how long insiders must wait after an IPO before they can sell stock. You say it is called a . Mr. Grinch asks you if are familiar with the contract provision that gives the underwriter the option to purchase additional shares from the issuer at the offering price. You say it is called a . Which of the following best de scribes your answers? a. Firm commitment clause: Under allotment option b. IPO clause: syndicate clause c. Lockup agreement: Green shoe provision d. Aftermarket provision: Before market provision 5. You remind Mr. Grinch that you understand that the is the compensation to the un derwriter is determined by the difference between the underwriter buying price and offering price. a. direct placement cost b. spread c. privileged subscription d. best efforts price 6. Cindy Lou who of SeussGrinch tells you that she is most concerned about determining the correct offering price of the IPO for Creative Bliss Enterprises. The advisors ask you why would Cindy be concerned and you say: a. If the issue is priced too high, it may be unsuccessful and have to be withdrawn. b. SeussGrinch will only make money if the offering price is above the average of all market prices offered on the initial day of offering. c. If the issue is priced below the true market value, the issuer existing shareholders will expe rience an opportunity loss when they sell their shares for less than they are worth. d. all of the above. e. only a and c 7. Betty Lou Who of SeussGrinch asks us to consider which of the following? a. There are substantial economies of scale regarding the costs of issuing debt and equity be cause the underwriter spreads are smaller on larger issues. b. the costs associated with selling debt are substantially less than the costs of selling equity. c. Shelf registration allows a company to register all issues it expects to sell within two years at one time, with subsequent sales at any time within those two years d. all of the above e. only a. and c above 8. The Marx Brothers thank SeussGrinch for the information and the decide to meet privately. Groucho explains that he has done some preliminary calculations. Harpo reminds his col leagues on the team of advisors for Creative Bliss ENterprises that flotation costs are the costs of issuing new securities to the public. The initial proposal from SeussGrinch indicates that di rect costs of issuing new securities are 5%. He states that Creative Bliss Enterprises needs to net $95 million for its projects development team. is the amount that must be raised by SeussGrinch. a. $5 million b. $95 million c. $100 million d. None of the above. CHAPTER 1 9. During our first weekly meeting we are introduced to Michael Miken, Philanthropist and fi nancier. Tinkerbelle explains that Mr. Milken has been tremendously successful in both the for profit and notforprofit marketplace. In his Overview of Financial Management, Mr. Milken tells us which of the following: a. The goal of financial management is to maximize the current value per share of the existing stock. b. Capital structure is the mixture of debt and equity used by the firm to finance its operations. c. Agency problems are conflicts between stockholders and management in a large corporation. d. all of the above. e. Only a. and c above CHAPTER 2 10. In his discussion of Financial statements, Taxes, and Cash Flow Mr. Milken asks you if Net Income as it is computed on the income statement is cash flow. What do you say? a. No, because the average tax rate is relevant for most financial decisions. b. Yes, because book values are equal to market values. c. No, because a noncash expense, depreciation, is deducted when net income is computed. d. Yes, because of the Generally Accepted Accounting Principles. CHAPTER 3 11. Mr. Milken in his discussion to Working with Financial Statements he reminds us that the breaks down return on equity into three component parts: operating efficiency of the firm, its as set use efficiency, and financial leverage. a. Du point identity. b. Equity multiplier c. REturn on assets d. Statement of cash flows CH 4 12. To check for understanding, Mr. Williams asks if all other components of a present value problem remain the same, what happens to the present value if we increase the interest rate? a. The present value decreases. b. The present value remains the same. c. The present value increases. 13. Mr williams ask us to use our newly purchased financial calculators to determine the present value of $1,000 to be received in three years at 15 percent. Which of the following is our an swer? a. $550 b. $675.50 c. $850.25 d. $1,000.00 14.WIlliams tells us that is the valuation calculating the present value of a future cash flow to determine its value today a. singleperiod b. DCF valuation c. Compound interest d. interest on interest valuation CH 5 15. Mr williams reminds us that for financial decisions. it is important that any rates being com pared be first converted to effective rates. what is the effective annual rate of your home loan if the annual percentage rate if 6% compounded monthly? a. 5.85 b. 6.00 c. 6.17 d. 6.72 CH 6 16. Mr franklin asks which of the following best describe the main differences between debt and equity: a. debt does not represent an ownership interest in the firm, while equity generally does repre sent a share of ownership b. unpaid debt is a legal liability of the firm; dividends on common stock are not a legal liability of the firm. c. interest paid on debt is taxdeductible, dividends paid on equity is not. d. only a and c 17. Mr Franklin explains that some companies on earth use bonds to finance their projects. A new film project tentatively titled \"The twilight transformers versus captain JAck and peter pan\". the 10 year bonds were issued two years ago at a coupon rate of 7 percent. If these bonds cur rently sell for 110% of par value, Mr franklin asks you to calculate the current yield to maturity/ a. 5.4 b. 6.8 c. 7.0 d. 8.5 e. 13.00 18. In his discussions on Interest Rates and Bond Valuation Mr. Franklin states to understand the pricing of bonds it is important to understand the relationship between the bond coupon rate and the yield to maturity(YTM). Which of the following is true? a. If the YTM= the coupon rate, then par value= bond price b. If the YTM is greater than the coupon rate, then par value is greater than the bond price, Therefore, the bond is selling at a discount. c. If the YTM is less than then par value is less than the bond price. Therefore, the bond is sell ing at a premium. d. All of the above. e. None of the above 19. Mr. Franklin reminds us that bond prices and yield move in opposite directions. He also tells us that bond yields reflect the effect of six different things; the real rate and five premiums that investors demand as compensation for inflation, interest rate risk, default risk, taxability, and lack of liquidity. He then asks us If it is true that U.S Treasury bonds are not rated and that the biggest borrower in the world is the U.S government? a. Yes, it is true b. No, it is a false CH7 20. In his discussion of Equity Markets and Stock Valuation Mr. Franklin tells us that a share of common stock is more difficult to value dividend. He tells us that the Kite Electric Investments such as this. If the dividend is expected to grow at a steady 4 percent per year, what is the cur rent value of the stock? a. $25 b. $26 c. $27 d. $52 21. Mr. Franklin also asks us to determine the required rate of return for the Alarm Clock Corpo ration. The dividend yield is 2.0%. If just paid a dividend of $2, and is expected to pay a dividend of $2.14 one year from now. Dividends are expected to grow at a constant rate indefinitely. What is the required rate of return on Alarm Clock Corporaton stock? a. 8% b. 9% c. 9.5% d. 10.6% e. 11.2% CH8 22. In his discussion of Net Present Value and Other Investment Criteria Mr. Franklin tells us that to find the we begin by setting the NPV of a project equal to zero. a. Average accounting return. b. Payback period c. Net present Value d. Internal rate of return e. Profitability index. 23. Mr. Franklin asks us to comment on the Statement 1 and statement 2. Statement1: The profitability Index approach may lead to incorrect decisions in comparisons of mutually exclusive projects. Statement 2: because the actual Net Present Value is unknown, firms typically use multiple criteria to evaluate a proposal. what do you say? a. both are false b. 1 is false and 2 is true c. 1 is true and 2 is false d. both are true CH9 24. Mr Franklin then discussed making capital investment decisions, currency Inc has an asset that costs $1,000,000 and is depreciated straightline to zero over is fiveyear useful life. The asset is to be used in a threeyear project: at the end of the project, the asset can be sold for $500,000. If the relevant tax rate is 25 percent, what is the aftertax cash flow from the sale of this asset? a. $425,000 b. 475,000 c. 500,000 d. 575,000 CH10 25. Father Time starts off with Some lessons from Capital Market History. There are two central lessons that emerge from a study of market history. First: there is a reward for bearign risk. sec ond: the greater the potential reward is: the greater is the risk. The excess return required from an investment in small stocks over that from an investment in U.S treasury bills is called the . a. Average return b. Excess return c. Return premium d. Variance e. Risk Premium 26. Father Time reminds us that capital markets are probably efficient than most real as set. a. less b. more CH 11 27. he also tells us that the capital asset pricing model(CAPM) is the equation of the security market line(SML) showing the relationship between expected return and beta. The expected re turn for a particular asset depends on three things. Which of the following best describes these three things? a. The inflation rate, the amount of the unsystematic risk, and the diversification principle. b. The amount of unsystematic risk, the reward for bearing unsystematic risk, and the inflation rate. c. The pure time value of money, the amount of systematic risk, and the reward for bearing sys tematic risk, d. none of the above 28. Father Time tells us that systematic risk is considered important because a. the risk premium on an asset is determined by its systematic risk. b. the market does not provide a reward for this type of risk c. the risk premium depends on both systematic and unsystematic risk, d. systematic risk can be eliminated by diversification. 29. A sleepy Dory interrupts the lesson and asks Father Time about the Rule of 72. Father Time gently reminds Dory that we have discussed this material earlier. He reminds Dory that the Rule of 72 is a easy way to determine how long it will take to double your money at a specific interest rate without using a calculator. So, if you invest 5,000 at 6%, how long will it take before you have a total of $40,000? a. 6 years b. 12 years c. 18 years d. 24 years e. 36 years 30. Father Time asks Dory if we can return to our discussion of Risk and Return. With a nod from Dory, Father Time reminds us that is the amount of systematic risk present in a particular risky asset relative to that in an average risky asset. He also reminds us that if the is less than 1.0, it means that the investor in this particular risky asset should expect to earn a return that is than the average risky asset in the market. which of the following answer best completes the sentences above? a. Beta Coefficient; Beta coefficient; and, less b. Portfolio; portfolio; and more c. Cost of capital; cost of capital; and less d. Beta coefficient; Beta coefficient; and more 31. Father Time asks us what is the expected return on asset A if it has a beta of .75, the ex pected market return is 12%, and the riskfree rate is 4%? a. 6.0% b. 6.5 c. 7.0 d. 8.0 e. 10.0 32. Father Time tells Nemo that Asset A has an expected return of 10% and a beta of 2.00. The riskfree rate is 2%. He asks Nemo to calculate the market risk premium. What is Nemo an swer? a. 2 b. 4 c. 5 d. 6 e. 8 CH12 33. Mother Earth asks us, Which is more relevant, the pretax or the aftertax cost of debt? why? a. the pretax cost of debt is more relevant, because it is the cost that is most easily calculate b. the aftertax cost of debt is more relevant, because it is the actual cost of debt to the com pany. c. the pretax cost of debt is equal to the aftertax cost of debt, so it makes no difference. d. None of the above. 34. Rip Van Winkle awakens from a short nap and tells us that he read in The Wall Street jour nal that the appropriate cost of capital . a. depends primarily on the source of the funds, rather than the use. b. is the total risk of the fir equity c. depends primarily on the use of the funds, not the source d. the interest rate on the firms outstanding longterm bonds 35. mother earth tells us that the cost of debt for a firm: a. can be observed directly even if the firms equity and then using the SML. b. is estimated by finding the yield on previously issued bonds of similar risk. c. is the return that the firm creditors demand on new borrowing activities 36. Mother earth reminds us that WACC is the overall return the firm must earn on its existing assets to maintain the value of its stock. All else being the same, a lower corporate tax rate . a. Will increase the WACC of a firm with debt and equity in its capital structure. b. will not affect the WACC of a firm with debt in its capital structure. c. Will decrease the WACC of a firm with some debt in its capital structure. d. will decrease the WACC of a firm with only equity in its capital structure 37. Mother Earth tells us that the stock of the Fun Corporation has a beta of .80. The market risk premium is 9 percent, and the riskfree rate is 6 percent, Today, Fun Corporation paid a divi dend of $1.00 per share, and the dividend expected to grow at 8 percent indefinitely. The stock currently sells for $18. She asks us to calculate the cost of equity capital for the Fun Corporation using the Security Market Line approach. As a reminder, the Capital Asset Pricing Model (CAPM) is the equation of the Security Market Line showing the relationship between expected return and beta. Which of the following is our answe? a. 7.2 b. 8.1 c. 1.32 d. 14 38. Based on the information in the previous question Mother Earth also asks us to calculate the cost of equity capital for the Fun Corporation using the Dividend Growth Model approach. Which of the following is our answer? a. 7.2 b. 8.1 c. 13.2 d. 14 39. to see if we have been paying attention, mother earth asks us which of the following state ments is true a. A primary advantage of using the dividend growth model approach to estimating the cost of equity is its simplicity. a disadvantage of using the dividend growth model approach is that it does not explicitly consider risk b. a firm that uses its WACC as a cutoff will tend to reject profitable projects with risks less than those of the overall firm. c. then SML approach to estimating the cost of equity has two advantages; it explicitly adjusts for risk and it is applicable to companies other than those with steady dividend growth d. all of the above e. only a and c 40. on the Gingerbread Board Tinkerbelle writes the following equation first in words followed by the same equation written in symbols: Words: the weighted average cost of capital(WACC) equals [(debt divided by assets)X{(cost of debt)X(1tax rate)}] + {equity divided by asset} X(Cost of equity) symbols WACC= [(Debt/asset)x(Cost of debt)]x (1tax rate)]+{(equity/asset)x(cost of equity)} Mother earth tells us that the target debt equity ratio for the creativity inc. is 25%, the cost of debt is 8%, the cost of equity is 15% and the tax rate is 20%. she asks us to calculate the Weighted AVerage Cost of Capital. which of the following is our answer? a. 5.7 b. 9.3 c. 11.5 d. 13.3 CH13 41. Mother Earth asks Mr. Red and Mr. Green to review Leverage and capital structure. Mr. Red and Mr. Green ask us to comment on Statement1 and 2. Statement 1: the value of the firm is maximized when the WACC is minimized Statement 2: financial leverage acts to magnify gains and losses to shareholders. a. both are false b. 1 false 2 is true c. 1 true 2 is false d. both true 42. Mr. Red tells us that The Static Theory of capital structure states that firms borrow up to the point where the tax benefits from an extra dollar of debt are exactly equal to the cost that comes from the increased probability of financial distress. The explicit and implicit costs associated with corporate default are the of the firm. a. financial distress costs b. default beta coefficient costs c. flotation costs d. none of the above 43. Mr green reminds us that if we ignore taxes, financial distress costs, and other iperfections, we find the there is no optimal capital structure. The value of the firm is independent of its capi tal structure. What is the name of this theory? a. the capital asset pricing model b. M&M proposition I. c. the law of one price d. M&M proposition II. e. The efficient Market Hypothesis 44. Mr. red reminds us that a firm is said to be in when its total book liabilities exceed the book value of the assets a. accounting insolvency b. business failure c. chapter 7 bankruptcy d. technical insolvency e. chapter 11 bankruptcy 45. mother earth reminds us that arises from decisions that affect the lefthand side of the balance sheet arise from decisions that affect the righthand side of the balance sheet. a. systematic risk; unsystematic risk b. business risk; diversifiable risk c. systematic risk; financial risk d. unsystematic risk; systematic risk e. business risk; financial risk cH 18 46. Scrooge asks what we should know about the international financial market. His clerk, Bob Cratchit, tells him which of the following? a. international organizations have to consider the exchange rate risk and politicalrisk of invest ing in each area of the world b. there are more financing opportunities when you consider the international capital markets and this may decrease the firm's cost of capital c. the foreign exchange market is the world largest financial market and an exchange rate is simply the price of one country's currency expressed in terms of another country currency d. all of the above e. only a .c above CH 17 47. As part of their research Tinkerbelle and Uncle Walter ask the team of advisors if they would like to use some of the funds of creative Bliss enterprises to invest in a hotel. This led to a dis cussion of the Valuation of Hospitality Real Estate. Of the three approaches to valuation which one was mentioned as the best approach in today marketplace? a. income capitalization b. cost c. sales comparison d. management contracts e. none of the above CH14 48. Tinkerbelle and Uncle Walter ask you which of the following is true regarding asset manage ment in the hospitality industry? a. an asset management company works with the owner of a property to develop a strategic plan for managing the property assets to achieve optimum performance on the hospitality in vestment. b. a market analysis, physical plant analysis, and valuation of the property are not a part of the strategic plan for asset management to analyze the market. c. an asset management company does perform a hotel operations audit and does not thor oughly examine the hospitality operation d. all of the above e. only a and c above. CH 16 49. Tinkerbelle and Uncle Walter are considering becoming a franchisee of the Hogwarts Hotel Corporation. You state that franchising is a form of , , and all in one. However, you are concerned that a proposed 150 room Hogwarts Hotel may not be able to capture its fair share in an area that already has a 200 room Twilight hotel, a 450 room Pixar Hotel, and a 200 room star wars hotel. A comiccon convention is expected to occupy 900 rooms in the competi tive market area. Tinkerbelle and Uncle Walter ask you how many rooms would be occupied at the hogwarts hotel if it capture its fair share of the comiccon, convention rooms? a. franchising is a form of Accounting, finance ,and managing, the fair share for the hogwarts hotel would be 150 rooms b. franchising is a form of operations, human resources, and financ. the fair share for the hog warts hotel would be 100 rooms c. franchising is a form of advertising, marketing, and cost control. the fair share of the hogwarts hotel would be 120 rooms. d. franchising is a form of finance, marketing, and management. The fair share for the proposed hogwarts hotel would be 135 rooms. CH 19 50. the chief operating officer, albus Dumbledore, suggests that creative bliss enterprise might also consider a management contract with the hogwarts hotel corporation. Tinkerbelle and Un cle Walter ask why a hotel company would consider managing a hotel owned by someone else. Mr dumbledore describes the advantages of management contracts to lodging companies. which of the following best describes the advantages of management contracts to lodging man agement companies? a. reduced financial risk b. little or no capital investments c. allows for rapid expansion d. ability for chain operators to enhance their reputation e. all of the above