QUESTION 1

Le Place has sales of $439,000, depreciation of $32,000, and net working capital of $56,000. The firm has a tax rate of 34% and NOPAT is 6% of sales. The firm has no interest expense. What is the amount of the operating cash flow?

		$49,384
		$52,616
		$54,980
		$58,340
		$114,340

QUESTION 2

Cape Cod Canning Co. has a new automated production line it is considering. The project has a cost of $675,000 and is expected to provide after-tax cash flows of $126,250 for 9 years. Management has found that the cost of capital is 9.5 percent. What is the projects IRR?

		12.9%
		7.8%
		9.5%
		11.9%

QUESTION 3

A futures trader who bets on the future direction of prices by taking either a long or a short position is called a:

		hedger
		short seller
		speculator
		dealer

QUESTION 4

What is the fundamental purpose of a stock split?

		A split shows the companys preference for retaining funds.
		A split increases the threat of a hostile takeover.
		A split immediately increases the investors wealth.
		A split immediately brings the stock price to a lower trading range.

QUESTION 5

Kurt's Kabinets is looking at a project that will require $80,000 in fixed assets and another $20,000 in net working capital. The project is expected to produce sales of $110,000 with associated costs of $70,000. The project has a 4-year life. The company uses straight-line depreciation to a zero book value over the life of the project. The tax rate is 35%. What is the operating cash flow for this project?

		$7,000
		$13,000
		$27,000
		$33,000
		$40,000

QUESTION 6

Speculative risks are symmetrical in the sense that they offer the chance of a gain as well as a loss, while pure risks are those that can only lead to losses.

True

False

QUESTION 7

In theory, reducing the volatility of its cash flows will always increase a company's value.

True

False

QUESTION 8

The basic characteristics of relevant project flows include all of the following except ________.

		cash flows
		incremental flows
		financing flows
		after-tax flows

QUESTION 9

A firm is considering the purchase of an asset whose risk is greater than the current risk of the firm, based on any method for assessing risk. In evaluating this asset, the decision maker should

		Increase the NPV of the asset to reflect the greater risk
		Reject the asset, since its acceptance would increase the risk of the firm
		Ignore the risk differential if the asset to be accepted would comprise only a small fraction of the total assets of the firm
		Increase the cost of capital used to evaluate the project to reflect the higher risk of the project

QUESTION 10

Which of the following statements is most correct?

		An options value is determined by its exercise value, which is the market price of the stock less its strike price. Thus, an option cant sell for more than its exercise value.
		The potential loss on a call option increases as the underlying stock sells at higher and higher prices because the profit margin gets bigger.
		Issuing options provides companies with a low-cost method of raising capital
		The market value of an option depends in part on the options time to maturity and on the variability of the underlying stocks price.

QUESTION 11

Jamie's Motor Home Sales currently sells 1,000 Class A motor homes, 2,500 Class C motor homes, and 4,000 pop-up trailers each year. Jamie is considering adding a mid-range camper and expects that if she does so she can sell 1,500 of them. However, if the new camper is added, Jamie expects that her Class A sales will decline to 950 units while the Class C campers decline to 2,200. The sales of pop-ups will not be affected. Class A motor homes sell for an average of $125,000 each. Class C homes are priced at $39,500 and the pop-ups sell for $5,000 each. The new mid-range camper will sell for $47,900. How much revenue from existing camper sales would be lost if the mid-range camper is added?

		$6,250,000
		$18,100,000
		$53,750,000
		$93,150,000
		$118,789,500

QUESTION 12

Under which of the following conditions will the IRR of a project be equal to the WACC?

		when the payback is equal to the MIRR
		when the profitability index is equal to the WACC
		when the NPV is equal to zero
		when the payback is equal to the IRR

QUESTION 13

The _____ designates the date on which the corporation lists the shareholders who are entitled to receive a dividend payment.

		declaration date
		ex-dividend date
		date of record
		payment date

QUESTION 14

An analyst is interested in using the Black-Scholes model to value call options on the stock of QU, Inc. The analyst has accumulated the following information:

Stock price	$40
Strike price	$40
Time until maturity	6 months
Standard deviation of the stock	12%
Risk free rate of return	16%

Using the Black-Scholes model, what is the value of the call option?

		$1.94
		$0.30
		$3.76
		$3.38
		$2.12

QUESTION 15

How can a gold futures contract be used as a hedge against a potential decrease in the price of gold for a firm that uses gold in making computer chips?

		the company should sell gold futures contracts
		the company should buy gold futures contracts
		this would be a situation that shouldnt be hedged
		the company should lower the price it pays for gold

QUESTION 16

A ______ which of the following is a contract that requires the holder to buy or sell a stated commodity at a specified price at a specified time in the future.

		option
		convertible contract
		futures
		warrant

QUESTION 17

Edelman Electric Systems is considering a project that has the following cash flow and WACC data. What is the project's MIRR?
WACC:			10.00%
Year:			0	1	2	3
Cash flows:			-$800	$350	$350	$350
			8.62%
			9.58%
			10.64%
			11.82%
			13.14%

QUESTION 18

It is now June 2017 (in case you forgot). If producers can be found, the cost to stage the revival of Pirates of the Caribbean on Ice: The Revenge of the Daiquiri would be $30 million. This cost wont be incurred until 2019. The company will stage the show in 2020 and 2021, generating net cash inflows of $20 million each year. In 2022, the show will be cancelled at an overall net loss of $5,000,000. What is the IRR of this project?

		14.4%
		21.5%
		10.2%
		12.7%

QUESTION 19

Which of the following dividend policies would cause dividends per share to fluctuate the least?

		Constant Payout Ratio
		Constant Dollar
		Small regular plus special
		Residual Dividend Method

QUESTION 20

An option is a contract which gives its holder the right to buy or sell an asset at a predetermined price within a specified period of time.

True

False

QUESTION 21

The exercise price is the price that must be paid for a share of common stock when it is bought by exercising a warrant.

True

False

QUESTION 22

Albany Motors recently completed a 3-for-1 stock split. Prior to the split, the company had 10 million shares outstanding and its stock price was $150 per share. After the split, the total market value of the companys stock equaled $1.5 billion. What was the price of the companys stock following the stock split?

		$ 15
		$ 45
		$ 50
		$150
		$450

QUESTION 23

A stock is currently selling for $20. In three months (91 days), the stock price will be either $30 or $11. If you are considering a call option for this stock with an exercise price of $21, what would be the value of this option today? The risk free rate of return is 4.5%.

		$18.79
		$4.32
		$8.90
		$9.23

QUESTION 24

Target-Mart is planning a new store in Greenwich. The company will lease the needed space for 9 years. Equipment and fixtures for the store will cost $500,000 and will be depreciated totally using the straight-line depreciation method. In addition, inventories valued at $50,000 will also be needed to stock the store at the current time (before opening). Sales are expected to be $1.5 million each year. Operating expenses, ignoring depreciation, will be $750,000 each year. The firm will liquidate the inventory at the end of the 9-year period. The corporate tax rate is 34%. The WACC for Target-Mart is 13.75%.

What is the NPV of this project?

		$2,151,238
		$2,030,850
		$878,360
		$2,220,650

QUESTION 25

The price at which the stock or asset may be purchased from (or sold to) the option writer is referred to as the __________.

		option premium
		open interest
		intrinsic value
		strike price

QUESTION 26

Ledbetters Sweaters has a mutually exclusive project; to produce and sell wool sweaters or to produce and sell cashmere sweaters. The investment into production of wool sweaters is $110,000. The investment into cashmere sweaters is $125,000. The projects respective DCFs given future sales projections are:

What is the NPV of the wool line?

		$41,000
		$6,000
		$56,000
		$21,000

QUESTION 27

Which of the following items should be included with estimating cash flows for projects?

		interest expense
		sunk cost
		principal payment on debt
		opportunity cost

QUESTION 28

Hindelang Inc. is considering a project that has the following cash flow and WACC data. What is the project's MIRR?
WACC:			12.4%
Year:			0	1	2	3	4
Cash flows:			-$900	$300	$320	$340	$360
			12.61%
			14.01%
			15.41%
			14.97%
			18.64%

QUESTION 29

The intrinsic value of a call option equals __________.

		X-P0
		P0-X
		c0-(P0-X)
		p0-(X-P0)

QUESTION 30

Cassie Corp. has an overall (composite) WACC of 10%, which reflects the cost of capital for its average asset. Its assets vary widely in risk, and Cassie evaluates low-risk projects with a discount rate of 8%, average projects at 10%, and high-risk projects at 12%. The company is considering the following projects:

Project	Risk Level	Rate of Return
A	High	15%
B	Average	12%
C	High	11%
D	Low	9%
E	Low	6%

Which set of projects would maximize shareholder wealth?

		A and B
		A, B, and C
		A, B, and D
		A, B, C, and D
		A, B, C, D, and E

QUESTION 31

Van Auken Inc. is considering a project that has the following cash flows:
			Year		Cash Flow
			0		-$1,000
			1		400
			2		300
			3		500
			4		400
The companys WACC is 10%. What are the projects payback, internal rate of return, and net present value?
			Payback = 2.4, IRR = 21.22%, NPV = $260
			Payback = 2.6, IRR = 24.12%, NPV = $300
			Payback = 2.6, IRR = 21.22%, NPV = $300
			Payback = 2.6, IRR = 21.22%, NPV = $260

QUESTION 32

You own a call option. The underlying common stock is selling for $15 and the options exercise price is $12. This option:

		must be sold to the call writer.
		is out-of-the-money.
		must be bought by the call holder.
		is in-the-money.

QUESTION 33

The Federal Reserve recently shifted its monetary policy, causing Lasik Vision's WACC to change. Lasik had recently analyzed the project whose cash flows are shown below. However, the CFO wants to reconsider this and all other proposed projects in view of the Fed action. How much did the changed WACC cause the forecasted NPV to change?
New WACC:			7.00%	Old WACC:		10.00%
Year:			0	1	2	3
Cash flows:			-$1,000	$500	$520	$540
		$72.27
		$79.68
		$83.66
		$87.85

QUESTION 34

Real options are options to buy real assets, like stocks, rather than interest-bearing assets, like bonds.

True

False

QUESTION 35

Real options are most valuable when the underlying source of risk is very low.

True

False

$180,000 20% 60%-- $130,000 Wool Sweater 20% $85.000 $300,000 40% Cashmere Sweater S230,000 20% 40% $0