公司理财期末复习题

公司理财期末复习题
CORPORRATE FINANCE
EXAM PAPER
I. True(T) or False(F). Please fill in the bracket with T or F.
(Chap1) ( )1. Agency problem is Conflict of interest between principal and agent
(4Chap) ( ) 2. Assuming positive cash flows and interest rates, As you increase the length of time involved , the future value decreases and the present value increases
(26Chap) ( )3. Net working capital equals current assets less current liabilities.
(4Chap) ( ) 4. With an annuity due the payments occur at the end of each period.
(8Chap) . ( ) 5. Municipal bonds offer income tax advantages to individuals.
(9Chap ) ( ) 6.The voting procedure where you must own 50% plus one of the outstanding shares of stock to guarantee that you will win a seat on the board of directors is called cumulative voting
(15Chap) ( )7. Debt is an ownership interest in the firm
(16Chap) ( ) 8. Under MM’s model with corporate taxes, the benefits of debt financing stem solely from the tax deductibility of interest payments.
(15Chap) ( )9. The use of personal borrowing to change the overall amount of financial leverage to which an individual is exposed is called homemade leverage.
(8 Chap) ( ) 10. A bond with a face value of $1,000 that sells for
$1,000 in the market is called a premium bond.
(9 C) ( ) 11. A form of equity which receives preferential treatment in
the payment of dividends is called common stock.
（16Chap) ( ) 12. The tax savings of the firm derived from the deductibility of interest expense is called the. interest tax shield stem solely from the tax deductibility of interest payments.
(20C)( ) 13. A rights offering is an issue of preferred stock to existing stockholders. (26C) ( )14. The cash cycle is the difference between the operating cycle and the accounts receivable periods (20C) ( ) 15. The underwriter makes money on the spread between the price paid to the issuer and the price received from investors when the stock is sold.
(26C)( )16.A restrictive short-term finance policy would maintain a low ratio of current assets to sales.
II. Simple Choice Questions
4. Chap
ANNUITY
1. An annuity stream of cash flow payments is a set of:
a. level cash flows occurring each time period for a fixed length
of time.
b. level cash flows occurring each time period forever.
c. increasing cash flows occurring each time period for a fixed
length of time.
d. increasing cash flows occurring each time period forever.
e. arbitrary cash flows occurring each time period for no more than
10 years.
ANNUAL PERCENTAGE RATE
2. Which one of the following statements concerning the
annual percentage rate is
correct?
a. The annual percentage rate considers interest on interest.
b. The rate of interest you actually pay on a loan is called the annual percentage rate.
c. The effective annual rate is lower than the annual percentage rate when an interest rate i s compounded quarterly.
d. The interest rate expressed as if it were compounded twice per year is called the
annual percentage rate
e. The annual percentage rate equals the effective annual rate when the rate on an
account is designated as simple interest.
(chap.4) DISCOUNT BONDS
3. A bond with a face value of $1,000 that sells for less than $1,000 in the market is
called a _____ bond.
a. par
b. discount
c. premium
d. zero coupon
e. floating rate
Difficulty level: Easy
Cap. 4
CASH FLOWS
4. Discounting cash flows involves
a. discounting only those cash flows that occur at least 10 years in the future.
b. estimating only the cash flows that occur in the first 4 years of a project.
c. multiplying expected future cash flows by the cost of capital.
d. discounting all expected future cash flows to reflect the time value of money.
e. taking the cash discount offered on trade merchandise.
Cap. 8 COUPON RATE
5. The annual coupon of a bond divided by its face value is called the bond’s:
a. coupon.
b. face value.
c. maturity.
d. yield to maturity.
e. coupon rate.
ZERO COUPON BONDS
6. A bond that makes no coupon payments and is initially priced at a deep discount is
called a _____ bond.
a. Treasury
b. municipal
c. floating-rate
d. junk
e. zero coupon
DISCOUNT BONDS
7. A bond with a face value of $1,000 that sells for less than $1,000 in the market is
called a _____ bond.
a. par
b. discount
c. premium
d. zero coupon
e. floating rate
MUNICIPAL BONDS
8. Municipal bonds:
a. offer income tax advantages to individuals.
b. generally pay a higher rate of return than corporate bonds.
c. are those bonds issued only by local municipalities, such as a city or a borough.
d. are rarely callabl
e.
e. pay interest that is always exempt from both federal and state income taxes.
Cap.8
FACE VALUE
.9 Face value is
a. always higher than current price.
b. always lower than current price.
c. the same as the current price.
d. the coupon amount.
e. None of the above.
Chap 9 STRAIGHT VOTING
10. The voting procedure where you must own 50% plus one of the
outstanding shares of stock to guarantee that you will win a seat
on the board of directors is called _____ voting.
a. democratic
b. cumulative
c. straight
d. deferred
e. Proxy
Cap.9
DIVIDEND GROWTH MODEL
11. The stock valuation model that determines the current stock price by dividing the
next annual dividend amount by the excess the discount rate less the dividend
growth rate is called the _____ model.
a. zero growth
b. dividend growth
c. capital pricing
d. earnings capitalization
e. discounted dividend
(Chap13) 12. Operating leverage increases as _______ costs rise and variable costs fall.
a. Financial
b. Tax
c. Interest
d. Fixed
e. Income
MM PROPOSITION I, NO TAX
(Chap16) 13. The proposition that the value of a levered firm is equal to the value of an unlevered firm is known as:
a. MM Proposition I with no tax.
b. MM Proposition II with no tax.
c. MM Proposition I with tax.
d. MM Proposition II with tax.
e. static theory proposition.
(20 Chap) 14. Which one is not the cost of New Issues
a. Spread or underwriting discount
b Indirect expenses
c. Abnormal returns
d. Underpricing
e. dividends
f. Green Shoe Option
(16 Chap) CAPITAL STRUCTURE DEFINITION
15. The firm's capital structure refers to:
a. the way a firm invests its assets.
b. the amount of capital in the firm.
c. the amount of dividends a firm pays.
d. the mix of debt and equity used to finance the firm's assets.
e. how much cash the firm holds.
(8 Chap) MUNICIPAL BONDS
16. Municipal bonds:
a. offer income tax advantages to individuals.
b. generally pay a higher rate of return than corporate bonds.
c. are those bonds issued only by local municipalities, such as a city or a borough.
d. are rarely callabl
e.
e. pay interest that is always exempt from both federal and state income taxes.
(Chap9) DIVIDEND GROWTH MODEL
18. The dividend growth model:
I. assumes that dividends increase at a constant rate forever.
II. can be used to compute a stock price at any point of time.
III. states that the market price of a stock is only affected by the amount of the dividend.
IV. considers capital gains but ignores the dividend yield.
a. I only
b. II only
c. III and IV only
d. I and II only
e. I, II, and III only
(C9) DIVIDENDS
19. Payments made by a corporation to its shareholders, in the form of either cash,
stock or payments in kind, are called:
a. retained earnings.
b. net income.
c. dividends.
d. redistributions.
e. infused equity.
Chap.13
20. The most important factors, cyclicality of revenues, operating leverage, and financial leverage, are determined ______ of a firm (stock).
a. Discount bonds
b. Interest rate
c. Dividend Discount Model
d. Beta
e. Perpetuity
(Chap. 15) 21. Concerning the main difference between debt and equity, which statement is false.
Debt Equity
Yes No
A. Repayment is an obligation of
the firm
B. Grants ownership of the firm No Yes
C. Provides a tax shield No Yes
Yes No
D. Liquidation will result if not
paid
(Chap.20-1p.646) 22. Debt offerings are much more common than equity offerings and typically much larger as well. Which statement are not correct reason
A. A company‘s internally generated cash flow provides a source of equity financing.
B. For a profitable company, outside equity may never be needed.
C. Large companies have the greatest access to public debt markets
D. Small companies tend to borrow more from public lenders
E. To maintain a debt-equity ratio, a company must issue new bonds when the current
bonds mature.
(Chap. 26) 23. Which statement is not the characteristics of a firm with a long operating cycle:
A. Firm tend to keep inventory on hand,
B. With relatively long receivables periods. Thus, such and
C. they allow customers to purchase on credit and
D. Customers take a relatively short time to pay.
E. With relatively long inventory periods
(Chap.16) MM PROPOSITION I
24. The proposition that the value of the firm is independent of its capital structure is called:
a. the capital asset pricing model.
b. MM Proposition I.
c. MM Proposition II.
d. the law of one pric
e.
e. the efficient markets hypothesis
(Chap16) UNLEVERED COST OF CAPITAL
5. The unlevered cost of capital is:
a. the cost of capital for a firm with no equity in its capital structure.
b. the cost of capital for a firm with no debt in its capital structure.
c. the interest tax shield times pretax net income.
d. the cost of preferred stock for a firm with equal parts debt and common stock in its capital
structure.
e. equal to the profit margin for a firm with some debt in its capital structure.
III. Fill in the blanks with the words given (2*10 marks)
( Chap 4 )( )1.The interest rate expressed as if it were compounded once per year is called the _________ annual rate.
(Cap. 8) ( )2. The annual coupon of a bond divided by its face value is called the bond’s _______ rate.
(20Chap) ( )3. ____________must make their “best effort” to sell the __________ at an agreed-upon offering price.
(13Chap)( ) 4. Beta is determined by the ______________ leverage, financial leverage and cyclicality of a firm's ______________.
( )5. The company bears the ________ of the _______ not being sold.
( )6. The offer may be pulled if there is not enough _______ at the offer price.
(15Chap) ( ) 7. During the bankruptcy the ________ are paid after ____________. As a result of this, the risks and benefits associated with owning debt and equity are different.
( )8. The company does not get the _______, and they have still incurred substantial flotation __________.
( )9. This type of __________ is not as common as it used to be.
(16Chap)LEVERAGE ( )10. The use of personal borrowing to change the overall amount of financial leverage to which an individual is exposed is called __________ leverage.
(Cap.9)DIVIDEND GROWTH MODEL
( ) 11. The stock valuation model that determines the current stock price by dividing the next annual dividend amount by the excess the __________ rate less
the dividend growth rate is called the ___________ model.
The words given:
(1)securities, (2)effective, (3) issue, (4)Underwriter, (5) risk,
(6)capital, (7)coupon, (8) cost, (9)underwriting, (10)interest (11)revenues,(12)homemade, (13)debtholder,
(14)operating,(15)equityholder,(16)dividend growth, (17) discount
IV. CALCULATIONS
Chap4
PRESENT VALUE OF A PERPETUITY
1. Your aunt, in her will, left you the sum of $5,000 a year forever with
payments starting immediately. However, the news is better. She has specified that the amount should grow at 5% per year to maintain purchasing power. Given an interest rate of 12%, what is the PV of the inheritance?
SIMPLE & COMPOUND INTEREST
2. If you have a choice to earn simple interest on $10,000 for three years at 8% or
annually compound interest at 7.5% for three years which
one will pay more and by
how much?
FUTURE VALUE – SINGLE SUM
3. Bradley Snapp has deposited $7,000 in a guaranteed investment account with a
promised rate of 6% compounded annually. He plans to leave it there for 4 full
years when he will make a down payment on a car after graduation. How much of
a down payment will he be able to make?
ORDINARY ANNUITY AND PRESENT VALUE
4. Todd is able to pay $160 a month for five years for a car. If the interest rate is 4.9
percent, how much can T odd afford to borrow to buy a car?
ANNUITY DUE INTEREST RATE
5. Your mother helped you start saving $25 a month beginning on your 10th birthday.
She always made you make your deposit on the first day of each month just to
“start the month out right”. Today, you turn 21 and have $4,482.66 in yo ur account.
What is your rate of return on your savings?
PERPETUITY PRESENT VALUE
6. A 9% preferred stock pays an annual dividend of $4.50. What is one share of this
stock worth today?
Cap. 8
PRICE OF COUPON BOND
7. Gugenheim, Inc. offers a 7 % coupon bond with annual payments. The yield to
maturity is 5.85 % and the maturity date is 9 years. What is the market price of a
$1,000 face value bond?
Cap.9
STOCK VALUE – CONSTANT GROWTH
8. Angelina’s made two announcements concerning their common stock today. First, the company announced that their next annual dividend has been set at $2.16 a share. Secondly, the company announced that all future dividends will increase by 4% annually. What is the maximum amount you should pay to purchase a share of Angelina’s stock if your goal is to earn a 10% rate of return?
Cap. 9
STOCK VALUE - CONSTANT GROWTH
9. Majestic Homes stock traditionally provides an 8% rate of return. The company
just paid a $2 a year dividend which is expected to increase by 5% per year. If you are planning on buying 1,000 shares of this stock next year, how much should you expect to pay per share if the market rate of return for this type of security is 9% at the time of your purchase?
(Chap8) PRICE OF COUPON BOND
10. Wine and Roses, Inc. offers a 7 % coupon bond with semiannual payments and a
yield to maturity of 7.73 %. The bonds mature in 9 years. What is the market price
of a $1,000 face value bond?
(Chap.13)12. Ashika Corporation has a target capital structure of 60 percent common stock and 40 percent debt. Its cost of equity is
12 percent, and the cost of debt is 8 percent. The relevant tax
is 35 percent.What is Ashika’s WACC ?
(Chap13) 13.Caculating Cost of Equity
The Dybvig Corporation's common stock has a beta of 1.15. If the risk-free rate is 4.5 percent and the expected return on the market is 11 percent, what is Dybvig's cost of equity capital?
(16ChaP)MM PROPOSITION II, NO TAX
14. Your firm has a debt-equity ratio of .75. Your pre-tax cost of debt is 8.5% and your required return on assets is 15%. What is your cost of equity if you ignore taxes?
(Chap16)MM PROPOSITION I, WITH TAX
15. The Winter Wear Company has expected earnings before interest and taxes of $2,100, an unlevered cost of capital of 14% and a tax rate of 34%. The company also has $2,800 of debt that carries a 7% coupon. The debt is selling at par value. What is the value of this firm?
Cap. 20. IPO Underpricing
16. The W. Co. and the G. Co. have both announced IPOs at $60 per
share. One of these is undervalued by $10, and the other is overvalued by $6 , but you have no way of knowing which is which.
You plan on buying 1,000shares of each issue. If an issue is underpriced , it will be rationed , and only half your order will be filled. If you could get 1,000 shares in woods and 1,000 shares
in Garcia, what would your profit be ? What profit do you
actually expect? What principle have you illustrated?
(Chap26) 17. Calculating Cash Collections The following is the sales budget for
Shleifer,Inc ,for the first quarter of 2010
January February March
Sales budget $173 000 $184 000 $205 000
Credit sales are collected as follows：
65 percent in the month of the sale.
20 percent in the month after the sale.
15 percent in the second month after the sale.
The accounts receivable balance at the end of the previous quarter was $79800（$57200 of which were uncollected December Sales）
A，Computer the sales for November.
B，Computer the sales for December
C，Computer the cash collection from sales for each month from January through March。