Your firm is considering building a new office complex. Your firm already owns land suitable for the new complex. The current book value of the land is $100,000, however a commercial real estate agent has informed you that an outside buyer is interested in purchasing this land and would be willing to pay $650,000 for it. When calculating the NPV of your new office complex, ignoring taxes, the appropriate incremental cash flow for the use of this land is:

A.$650,000

B.$0

C.$100,000

D.$750,000

Suppose that Bondi Inc. is a holding company that owns both Pizza Hut and Kentucky Fried Chicken Franchised Restaurants. If the value of Bondi is $130 million, and the Pizza Hut Franchises are worth $70 million, then what is the value of the Kentucky Fried Chicken Franchises?

A.$60 million

B.$70 million

C.$130 million

D.Unable to determine with the information provided

Suppose you have $1000 today and the risk-free rate of interest (rf) is 3.5%. The equivalent value in one year is closest to:

A.$965.00 today.

B.$966.18 today.

C.$1000.00 today.

D.$1035.00 today.

Which of the following is NOT considered to be an important choice when estimating beta?

A.The choice of the time horizon to use for estimation

B.The choice of method used to extrapolate beta

C.The choice between weekly and monthly returns

D.The choice of index used as the market portfolio

Suppose an investment is equally likely to have a 35% return or a -20% return. The variance on the return for this investment is closest to:

A..151

B..0378

C.0

D..075

A tax free municipal bond pays an effective annual rate of 7.2%. If your tax rate is 30%, then the effective annual rate that a comparable corporate bond would have to offer you to earn an equivalent after tax return would be closest to:

A.5.0%

B.7.2%

C.9.4%

D.10.3%

Which of the following statements regarding arbitrage is the most correct?

A.Any situation in which it is possible to make a profit without taking any risk is known as an arbitrage opportunity.

B.Any situation in which it is possible to make a profit without making any investment is known as an arbitrage opportunity.

C.We call a competitive market in which there are no arbitrage opportunities an arbitrage market.

D.The practice of buying and selling equivalent goods in different markets to take advantage of a price difference is known as arbitrage.

Reset Selection

Which of the following is NOT a systematic risk?

A. The risk that oil prices rise, increasing production costs

B.The risk that the Federal Reserve raises interest rates

C.The risk that the economy slows, reducing demand for your firm's products

D.The risk that your new product will not receive regulatory approval

Reset Selection

When discounting dividends you should use:

A.the weighted average cost of capital.

B.the after tax weighted average cost of capital.

C.the equity cost of capital.

D.the before tax cost of debt.

Suppose you have $500 today and the risk-free interest rate (rf) is 5%. The equivalent value in one year is closest to:

A.$475

B.$476

C.$500

D.$525

You are trying to decide between three mutually exclusive investment opportunities. The most appropriate tool for identifying the correct decision is:

A.NPV.

B.profitability index.

C.IRR.

D.incremental IRR.

You expect Whirlpool Corporation (WHR)to have earnings per share of $6.10 over the coming year. If the average P/E ratio for the appliance industry sector is 17.0, the value of a share of Whirlpool stock based upon the comparables approach is closest to:

A.$103.70

B.$27.90

C.$35.90

D.$23.10

If you want to value a firm but don't want to explicitly forecast its dividends, share repurchases, or its use of debt, what is the simplest model for you to use?

A.Discounted free cash flow model

B.Dividend discount model

C.Enterprise value model

D.Total payout model

The excess return is the difference between the average return on a security and the average return for:

A.Treasury Bonds.

B.a portfolio of securities with similar risk.

C.a broad based market portfolio like the S&P 500 index.

D.Treasury Bills.

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Cash is a:

A.long-term asset.

B.current asset.

C.current liability.

D.long-term liability.

Which of the following adjustments is NOT correct if you are trying to calculate cash flow from financing activities?

A.Add dividends paid

B.Add any increase in long term borrowing

C.Add any increase in short-term borrowing

D.Add proceeds from the sale of stock

You are considering adding a microbrewery on to one of your firm's existing restaurants. This will entail an increase in inventory of $8000, an increase in Accounts payable of $2500, and an increase in property, plant, and equipment of $40,000. All other accounts will remain unchanged. The change in net working capital resulting from the addition of the microbrewery is:

A.$45,500

B.$10,500

C.$6500

D.$5500

Wyatt Oil is contemplating issuing a 20-year bond with semiannual coupons, a coupon rate of 7%, and a face value of $1000. Wyatt Oil believes it can get a BBB rating from Standard and Poor's for this bond issue. If Wyatt Oil is successful in getting a BBB rating, then the issue price for these bonds would be closest to:

A.$800

B.$891

C.$901

D.$1000

The distinguishing feature of a corporation is that:

A.their is no legal difference between the corporation and its owners.

B.it is a legally defined, artificial being, separate from its owners.

C.it spreads liability for its corporate obligations to all shareholders.

D.provides limited liability only to small shareholders.

Which of the following organization forms accounts for the most revenue?

A."S" corporation

B.Limited partnership

C."C" corporation

D.Limited liability company

A decrease in the sales of a current project because of the launching of a new project is:

A. cannibalization.

B.a sunk cost.

C.an overhead expense.

D.irrelevant to the investment decision.

Details of acquisitions, spin-offs, leases, taxes, and risk management activities are given:

A.in the management discussion and analysis.

B.in the Securities and Exchange Commission's commentary.

C.in the auditor's report.

D.in the notes to the financial statements.

Rearden Metals has a current stock price of $30 share, is expected to pay a dividend of $1.20 in one year, and its expected price right after paying that dividend is $33. Rearden's expected dividend yield is closest to:

A.3.40%

B.3.65%

C.4.00%

D.4.20%

Common risk is also called:

A.diversifiable risk.

B.correlated risk.

C.uncorrelated risk.

D.independent risk.

Which of the following statements regarding arbitrage and security prices is INCORRECT?

A.We call the price of a security in a normal market the no-arbitrage price for the security.

B.In financial markets it is possible to sell a security you do not own by doing a short sale.

C.When a bond is underpriced, the arbitrage strategy involves selling the bond and investing some of the proceeds.

D.The general formula for the no-arbitrage price of a security is Price(security) = PV (All cash flows paid by the security).

Which of the following costs would you consider when making a capital budgeting decision?

A.Sunk cost

B.Opportunity cost

C.Interest expense

D.Fixed overhead cost

Which of the following is NOT an assumption used in deriving the Capital Asset Pricing Model (CAPM)?

A.Investors have homogeneous expectations regarding the volatilities, correlation, and expected returns of securities.

B.Investors have homogeneous risk adverse preferences toward taking on risk.

C.Investors hold only efficient portfolios of traded securities, that is portfolios that yield the maximum expected return for the given level of volatility.

D.Investors can buy and sell all securities at competitive market prices without incurring taxes or transactions cost and can borrow and lend at the risk-free interest rate.

Nielson Motors is considering an opportunity that requires an investment of $1,000,000 today and will provide $250,000 one year from now, $450,000 two years from now, and $650,000 three years from now. If the appropriate interest rate is 10%, then the NPV of this opportunity is closest to:

A.($88,000)

B.$88,000

C.$300,000

D.$1,300,000

A sole proprietorship is owned by:

A.one person.

B.two of more persons.

C.shareholders.

D.bankers.