## [answered] 1. QUESTION 1 What is the effective borrowing rate (EBR) fo

I need this completed ?correctly in 1.5 hours. 32 multiple choice questions. test.

1. QUESTION 1 What is the effective borrowing rate (EBR) for the following 6-month

(182-day) line of credit: CL = total credit line \$650,000; AL = Average

outstanding amount \$289,000; CF = Commitment fee 0.36% (not

annualized) on unused line; IR = Annual Interest rate 2.1% over LIBOR (which

is currently 4.7%)?

A

. 0.22

06

B 0.03

.

64

C 0.07

.

72

D 0.07

.

30

E. 0.14

12

1 points QUESTION 2 1. The asset beta for a particular firm is 0.90. Use Equation 9.6 to

estimate the equity betas for the firm with 30% debt ratio and 35% tax rate.

What is the firm?s equity beta?

0.94

84

B 0.86

.

63

C 1.15

.

07

D 1.21

.

25

E. 1.02

29

A

. 1 points 1. QUESTION 3 A company has total book value of common stock equal to \$850,000, a

par value of \$4 per share, 50,000 shares issued and outstanding, and the

market value of the common stock is \$83 a share. What is the company's

A

.

B

.

C

. \$650,00

0

\$150,00

0

\$4,150,0

00 \$700,00

0

E. \$1,000,0

00

D

. 1 points 1. QUESTION 4 Using M&amp;M propositions with corporate taxes and the following

information, what is the value of the levered firm? NOI = \$80,000; Corporate

Taxes = 40%; the firm borrows \$700,000 at a rate of 8%. The required rate of

return on assets in this industry is 8%.

A

. \$972,9

10

B \$900,0

.

00

C \$618,4

.

61

D \$880,0

.

00

E. \$839,5

18

1 points QUESTION 5 1. Payment of interest on __________ is required only when earnings are

available from which to make such payments.

A

.

B

.

C

.

D

. collateral trust bonds

income bonds

debentures equipment trust

certificates

E. subordinated

debentures

1 points 1. QUESTION 6 The unlevered firm expects to earn \$250,000 in net operating income

each year for the foreseeable future. It has a tax rate of 40% and has a

capitalization rate of 8% equal to the industry required return for this type of

firm. It calculates that there is a 10% chance the firm will fall into bankruptcy

in any given year and that, if bankruptcy does occur, it will impose direct and

indirect costs totaling \$48,000. Assume that, in the event of bankruptcy, the

firm will reorganize and continue operations indefinitely, with a constant 10%

probability of reentering bankruptcy. If necessary, use the industry required return for discounting bankruptcy costs. Assume that the firm considers

borrowing \$500,000 debt at an interest rate 5% and use the proceeds to

repurchase an equal amount of outstanding stock. With this level of debt, the

likelihood of falling into bankruptcy in any given year increases to 15%, and

if bankruptcy occurs then it will impose direct and indirect costs totaling

\$48,000. With all benefits and costs considered, what is the overall value of

the levered firm if the proposed \$500,000 debt is used, assuming no

personal taxes on debt or equity income? (YOU MAY WANT TO SAVE YOUR

CALCULATIONS FOR THE OTHER RELATED QUESTIONS.)

\$2,165,0

00

B \$1,985,0

.

00

C \$1,735,0

.

00

D \$2,485,0

.

00

E. \$1,585,0

00

A

. 1 points 1. QUESTION 7 Employing the EFR model, how much external funding will a firm

require if it plans to increase sales from \$2 million to \$3.5 million, has total

assets of \$400,000, accounts payable of \$60,000, net income of \$150,000,

and a dividend payout of 40 percent?

A

.

B

.

C

.

D

. none; it will have a surplus of \$

41,500

\$ 60,000

\$242,500 none; it will have a surplus of

\$202,500

E. \$111,000

1 points 1. QUESTION 8 A company is analyzing two mutually exclusive projects, S and L,

whose cash flows are shown below. Project S: -1,100 (Year 0), 1000 (Year 1),

350 (Year 2), 150 (Year 3). Project L: -1,100 (Year 0), 0 (Year 1), 300 (Year 2),

1,500 (Year 3). The company?s cost of capital is 12 percent. Project S?s NPV is

__________. Project L?s NPV is __________. (YOU MAY WANT TO SAVE YOUR

CALCULATIONS FOR THE OTHER RELATED QUESTIONS.)

A

. \$107.46; \$274.91

B \$300.00;

.

\$700.00

C \$135.91;

.

\$274.91

D \$107.46;

.

\$206.83

E. \$178.64;

\$206.83

1 points 1. QUESTION 9 A firm's operating cycle: A

. is the amount of time that suppliers are willing to extend credit for

operations

B is the months over which a firm prepares its annual report of

.

operations, which may not necessarily be January to December

C is the time that elapses from the firm's receipt of raw materials to begin

.

production to its collection of cash from the sale of the finished product

D is the length of time necessary for a firm to operate equipment to

.

produce a product

E. is the number of days a firm's plant operates during a year

1 points 1. QUESTION 10 Suppose there is an informational role for dividends, but there are no

taxes. Ferndale Equipment Corp. has decided to raise its dividends. The stock

price is likely to __________ on __________.

A

.

B

.

C

.

D

. Rise, the ex-dividend date

Drop, the payment date

Rise, the announcement date Remain unchanged due to dividend

irrelevance, all dates

E. Drop, the date of record

1 points 1. QUESTION 11 Which of the following legal traditions offers the greatest protection to

outside investors?

A

.

B

. English Common

Law

Scandinavian Law C

.

D

. German Law

French Civil Law

1 points 1. QUESTION 12 You own a stock that will pay a dividend of \$2.25. The stock currently

sells for \$21.61. You purchased this security 3 months ago for \$19.90. If you

sell this security on the ex-dividend date, tomorrow, what is your annualized

after-tax return if you expect the stock price to drop by \$1.17? Assume a

capital gains tax of 15% and dividend tax rate of 32%.

A

. 39.98

%

B 16.64

.

%

C 39.44

.

%

D 28.34

.

%

E. 9.86

%

1 points QUESTION 13 1. A company is analyzing two mutually exclusive projects, S and L,

whose cash flows are shown below. Project S: -1,100 (Year 0), 1000 (Year 1),

350 (Year 2), 150 (Year 3). Project L: -1,100 (Year 0), 0 (Year 1), 300 (Year 2),

1,500 (Year 3). Which project should be chosen and why? (YOU MAY WANT TO

SAVE YOUR CALCULATIONS FOR THE OTHER RELATED QUESTIONS.)

A

.

B

.

C

. Both, because both projects have positive NPV and their IRRs are both

higher than cost of capital, 12 percent.

S, because it has higher NPV, which is also positive. L, because it has higher IRR, which is also higher than the cost of

capital, 12 percent.

D L, because it has higher NPV, which is also positive.

.

E. S, because it has higher IRR, which is also higher than the cost of

capital, 12 percent.

1 points 1. QUESTION 14 The __________ of the financial lease makes it quite similar to certain

types of long-term debt.

A

. indenture B

. noncancelable

feature

renewal options C

.

D length of time

.

E. lease rating feature

1 points 1. QUESTION 15 A company offers credit terms 5/20 net 40. What is the effective

annual rate (i.e., the rate incorporating compounding) faced by borrowers

who do not take the discount?

A

. 143.8

%

B 96.1

.

%

C 192.1

.

%

D 109.9

.

%

E. 23.9

%

1 points QUESTION 16 1. PureMeds is a highly profitable pharmaceutical company that places

great importance on funding research and development projects. According

to finance research, the expected capital structure for PureMeds:

would show a low financial leverage

level

B would contain a high long-term debt

.

level

C would show a high book-value

.

leverage level

D would show a high market-value

.

leverage level

E. would contain a high total debt level

A

. 1 points QUESTION 17 1. 21. The unlevered firm expects to earn \$250,000 in net operating

income each year for the foreseeable future. It has a tax rate of 40% and has

a capitalization rate of 8% equal to the industry required return for this type

of firm. It calculates that there is a 10% chance the firm will fall into bankruptcy in any given year and that, if bankruptcy does occur, it will

impose direct and indirect costs totaling \$48,000. Assume that, in the event

of bankruptcy, the firm will reorganize and continue operations indefinitely,

with a constant 10% probability of reentering bankruptcy. If necessary, use

the industry required return for discounting bankruptcy costs. Assume that

the firm considers borrowing \$500,000 debt at an interest rate 5% and use

the proceeds to repurchase an equal amount of outstanding stock. With this

level of debt, the likelihood of falling into bankruptcy in any given year

increases to 15%, and if bankruptcy occurs then it will impose direct and

indirect costs totaling \$48,000. What is the present value of the interest tax

shields for the levered firm if the proposed \$500,000 debt is used? (YOU MAY

WANT TO SAVE YOUR CALCULATIONS FOR THE OTHER RELATED QUESTIONS.)

\$300,0

00

B \$12,00

.

0

C \$100,0

.

00

D \$200,0

.

00

E. \$192,0

00

A

. 1 points 1. QUESTION 18 A company is analyzing two mutually exclusive projects, S and L,

whose cash flows are shown below. Project S: -1,100 (Year 0), 1000 (Year 1),

350 (Year 2), 150 (Year 3). Project L: -1,100 (Year 0), 0 (Year 1), 300 (Year 2),

1,500 (Year 3). The company?s cost of capital is 12 percent. Project S?s IRR is

__________. Project L?s IRR is __________. (YOU MAY WANT TO SAVE YOUR

CALCULATIONS FOR THE OTHER RELATED QUESTIONS.)

A

. 25.07%;

21.83%%

B 20.46%;

.

19.08%

C 17.19%;

.

16.38%%

D 25.07%;

.

19.08%

E. 20.46%;

21.83%

1 points QUESTION 19 1. Which of the followings are common cash disbursements? A

.

B

.

C

. interest payments and taxes

rent and lease payments fixed asset outlays and cash

purchases

D payments of accounts payable

.

and wages

E. all of the answer selections in this

question

1 points 1. QUESTION 20 Your firm has sales of \$10,000,000, net income of \$800,000, total

assets of \$10,000,000, and equity of \$4,000,000. Your firm projects an

increase in sales of 15 percent and has a dividend payout ratio of 40

percent? What is the sustainable growth rate, g?

A

. 13.64

%

B 14.32

.

%

C 10.76

.

%

D 16.28

.

%

E. 18.95

%

1 points QUESTION 21 1. Which of the following in not a component of float?

A

.

B

.

C

.

D

. Computi

ng

Processi

ng

Clearing

Mail

1 points 1. QUESTION 22 For firms with more than \$150 million in outstanding common stock,

__________ are commonly used for debt issues in order to save time and

money.

A

. Rule 144A offerings B

. shelf registrations

(Rule 415)

reverse LBOs C

.

D secondary offerings

.

E. rights offerings

1 points QUESTION 23 1. A company has total book value of common stock equal to \$850,000, a

par value of \$4 per share, 50,000 shares issued and outstanding, and the

market value of the common stock is \$83 a share. What is the company's

market capitalization?

\$1,000,0

00

B \$4,150,0

.

00

C \$150,00

.

0

D \$4,000,0

.

00

E. \$700,00

0

A

. 1 points 1. QUESTION 24 If a lease is classified as an operating lease, __________, while a lease

classified as a financial lease __________.

A

. its duration is usually five years or less and the underlying asset has

significant market value when the lease ends; is for a longer term and

ownership of the underlying asset must be transferred to the lessee

B the lessee generally receives an option to cancel and the lease need

.

not be capitalized; obligates the lessee to make payments over a

predefined period and must be shown on a firm's balance sheet

C the asset that is leased has a useful life that is longer than the lease's

.

term; deals with assets prone to obsolescence

D it may contain an option to purchase at a &quot;bargain price&quot;; may contain

.

an option to purchase at &quot;fair market value&quot;

E. total payments over the lease period are greater than the lessor's initial

cost; includes a lessor which supplies about 20 percent of the cost of

the asset

1 points QUESTION 25 1. WACKO Ltd. has \$30 million in debt, equity of \$55 million, a before-tax

cost of debt of 7.5 percent, a cost of equity of 9 percent, and a tax rate of 25

percent. The firm's weighted average cost of capital (WACC) is

7.81

%

B 7.94

.

%

C 5.96

.

%

D 8.12

.

%

E. 6.49

%

A

. 1 points 1. QUESTION 26 Barneycle?s Boat Shop sells 4,000 of its glow-in-the-dark boats each

year and has fixed order costs of \$220.9 per order. Carrying cost per boat is

\$200 per year. What is the optimal order quantity for these boats?

A 133

.

B 170

.

C 94

.

D 85

.

E. 180 0

1 points QUESTION 27 1. Which of the following is an advantage of an IPO to an American

entrepreneur?

A

.

B

. personal wealth and liquidity all of the answer selections in this

question

C listed stock for use as a

.

compensation vehicle

D publicly traded stock for use in

.

acquisitions

E. new capital for the company

1 points QUESTION 28 1. The unlevered firm expects to earn \$250,000 in net operating income

each year for the foreseeable future. It has a tax rate of 40% and has a

capitalization rate of 8% equal to the industry required return for this type of

firm. It calculates that there is a 10% chance the firm will fall into bankruptcy

in any given year and that, if bankruptcy does occur, it will impose direct and

indirect costs totaling \$48,000. Assume that, in the event of bankruptcy, the

firm will reorganize and continue operations indefinitely, with a constant 10%

probability of reentering bankruptcy. If necessary, use the industry required

return for discounting bankruptcy costs. Assume that the firm considers

borrowing \$500,000 debt at an interest rate 5% and use the proceeds to

repurchase an equal amount of outstanding stock. With this level of debt, the

likelihood of falling into bankruptcy in any given year increases to 15%, and

if bankruptcy occurs then it will impose direct and indirect costs totaling

\$48,000. What is the present value of the bankruptcy cost for the levered

firm if the proposed \$500,000 debt is used? (YOU MAY WANT TO SAVE YOUR

CALCULATIONS FOR THE OTHER RELATED QUESTIONS.)

A

.

B

.

C

.

D

. \$60,00

0

\$90,00

0

\$4,800 \$30,00

0

E. \$600,0

00

1 points 1. QUESTION 29 XYZ Corp. has equity beta 1.6 and market value of equity \$210 million.

The required return on XYZ?s debt is 8.2%. The market value of that debt is

\$240 million. The risk-free rate is 2% and the expected return on the market

is 8.2%. What is XYZ?s WACC (no tax)? (Hint: You need to use CAPM to figure

out XYZ?s cost of equity.)

A

. 10.43

%

B 9.40

.

%

C 9.67

.

%

D 9.94

.

%

E. 10.90

% 1 points QUESTION 30 1. Almost-gone is on the verge of being delisted from Nasdaq because its

share price has dropped below the \$1 per share minimum. Management

would most likely undertake:

A

.

B

.

C

.

D

. a stock dividend program

a 1-for-2 split

a 2-for-1 split a share repurchase

program

E. the payment of an extra

dividend

1 points 1. QUESTION 31 Which of the does not shorten the cash conversion cycle? A

.

B

.

C

. Collect accounts receivable as quickly as possible

Turn over inventory as quickly as possible Reduce mail processing and clearing time when collecting

from customers

D Pay accounts payable as quickly as possible

. 1 points QUESTION 32 1. The personal tax rate on debt is 21% and the personal tax on equity is

10%. The corporate tax rate is 16%. There is a firm, initially with no debt and

market value \$3 billion. This firm decides to issue \$200 million of perpetual

risk-free debt paying the risk free interest rate of 3%. The proceeds from the

sale of debt are used to buy back shares. What is the gain from such

leverage, GL?

\$6,329,1

14

B \$5,139,8

.

51

C \$6,297,0

.

91

D \$7,958,4

.

31

E. \$8,607,5

95

A

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