ca_exm_fn2_2004-06

d. Which of the following statements is correct with respect to futures and forward contracts? 1) Futures contracts can be tailored to fit the particular needs of the buyer and seller. 2) Forward contracts involve a clearing house that covers and guarantees the contract so that if the buyer defaults, the seller does not have to sue the buyer or take the loss. 3) Cancellation of a futures contract requires negotiations between the buyer and the seller. 4) Forward contracts lack the liquidity associated with futures contracts as there are no secondary markets for forward contracts. Continued...
g. A company issues additional common shares via a rights offering. Under which of the following conditions will the rights be more valuable? 1) 2) 3) 4) If the exercise price is higher in relation to the market price of the shares If the rights have less time to expiry If the underlying share price is less variable If the risk-free rate is higher
13%
E D
12%
C
11%
M
Return
10%
9%
Rf
B
8%
A
7% 0%
5%
10% Standard deviation
15%
20%
The capital market line
f.
Everything else being equal, which type of loan will have the highest effective annual interest cost for the borrowing firm? 1) 2) 3) 4) A 5% simple interest loan with interest paid every 3 months A 10% simple interest loan with interest paid once a year A 5% discount loan with interest paid once a year A 10% discount loan with interest paid every 3 months
1) Project D should be selected because it has the highest expected return at 13.45%. 2) Project C should be selected because it has a standard deviation of only 5.25%. 3) Project C should be selected because it has the highest coefficient of variation, which measures the expected return per unit of risk. 4) Project D should be selected because it has the lowest coefficient of variation, which measures the risk per unit of expected return. b. A $50,000 loan at 8% will be amortized over 4 years with equal annual payments. What will be the interest payment required in the second year (round all calculations to the nearest dollar)? 1) 2) 3) 4) c. $2,154 $3,000 $3,112 $4,000
b. Which of the following statements best describes the significance of the degree of operating leverage (DOL) of a firm? 1) 2) 3) 4) c. DOL measures the sensitivity of a firm’s profits to changes in selling prices. DOL is smallest when the firm is at its break-even point and earning no profits. DOL is positive at all sales levels below the break-even point. DOL measures the sensitivity of a firm’s earnings before interest and taxes (EBIT) to changes in sales.
EFN2J04
©CGA-Canada, 2004
Page 2 of 5来自18Question 2 Note:
3 marks each
a.
A new subsidiary of a firm has to select a project from among four mutually exclusive projects with the risk and return characteristics in the table below. Which of the following statements best describes how this selection should be made? Project A B C D Expected Return 7.50% 8.00% 9.00% 13.45% Standard Deviation 5.25% 6.50% 5.25% 7.00%
Time: 4 Hours
2. 3.
14
Question 1 Note:
2 marks each
a.
Why is net present value (NPV) superior to other capital budgeting techniques? 1) NPV can be positive when the profitability index (PI) is less than 1. 2) NPV is the only approach that directly measures a project’s contribution to shareholder wealth in dollars. 3) NPV takes into account all cash flows up to the end of the payback period. 4) NPV is the only time-adjusted approach that takes the time value of money into account.
CGA-CANADA FINANCE 2 EXAMINATION June 2004 Marks
Notes:
1. Questions 1 and 2 are multiple choice. For these questions, select the best answer for each of the unrelated items. Answer each of these items in your examination booklet by giving the number of your choice. For example, if (1) is the best answer for item (a), write (a)(1) in your examination booklet. If more than one answer is given for an item, that item will not be marked. Incorrect answers will be marked as zero. Marks will not be awarded for explanations. Except for multiple-choice questions, answers should include all supporting calculations where appropriate. If you provide alternative answers to Questions 3, 4, 5, or 6, only the first answer will be marked. If you wish to change your answer, you must cross out the answer you do not wish to submit for marking.
EFN2J04 ©CGA-Canada, 2004 Page 1 of 5
e.
Exhibit 1-1 shows the efficient set of portfolios and the capital market line. Which of the following statements best describes the point M on the capital market line? 1) M is the most desirable portfolio for all investors because it is the tangency point between the capital market line and the efficient set. 2) M is the only portfolio on the capital market line that is not efficient. 3) M is a portfolio of all securities in the market held in proportion to their market values, relative to the value of the total market portfolio. 4) The portfolio M earns an average return because it includes risk-free securities and all risky securities in the market. EXHIBIT 1-1 Capital Market Line
Which of the following statements best describes an advantage or disadvantage of a vertical merger? 1) Vertical mergers are attractive if the activity is complex and difficult to define under conventional legal contracts. 2) Vertical mergers are more attractive if economies of scale in the intermediate activity are large and the volume of the intermediate output required by the company is small. 3) Vertical mergers are more attractive when overhead costs are higher. 4) Vertical mergers are more attractive if there are costs associated with entering a new and possibly unfamiliar business.