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Unformatted text preview: i FRL301 Spring 2018 ExamZ ' that the ﬁrm
1) Alberto currently owns 2,500 shares of Southern Tools. He has just been 2:21.33: prior
is issuing additional shares and he is being given a chance to purchafse song; “mam
to the shares being offered to the general public. What Is this type 0 an 0 ® Rights offer.
B) General cash offer. C) Priority offer.
D) Best efforts offer.
E) Firm commitment offer. a registration statement.
5) Select an underwﬁter, 5) Mobile Units recently offered 30
of 32,000 shares to the public at a
purchased in accordance with wh
A) Loclrup agreement
Green shoe provision
C) Red herring provision ,000 new shares of stock for sale. The underwriters sold a total
price of $14.50 a share. The additional 2 ,000 shares were
ich one of the following? D) Post-issue agreement ‘ E) Quiet provision
price of the ﬁrm‘s . ' the mtl'ket
6) When a ﬁrm announces an upcomllg m“! stock Oﬁm existing shares tends to: A) Increase. . - - fol
B) Decrease momentarily and then immediately W Wally Within an hour
announcement. C) Respond, but the direction of the response is
D) Remain constant. ([5) Decrease. not predictable as shown by past studies. 7) With Dutch (Open 1P0) auction underwriting:
A) The selling ﬁrm receives the maximum possible price for each security 50%
Each winning bidder pays the minimum price offered by any bidder.
All successful bidders pay the same price per share.
D) The bidder for the largest quantity receives the ﬁrst alloeation of securities.
B) All bidders receive at least a portion of the quantity for which they bid. 8) Which one of the following statements concerning venture capitalists is correct?
A) Venture capitalists assume management responsibility for the ﬁrms they ﬁnance.
B) A venture capitalist normally invests in a new idea and ﬁnances that idea until the newly-formed ﬁrm can issue an IPO.
C) Most venture capitaliszsts are long-term investors in a ﬁrm. @ Exit strategy is a key consideration when selecting a venture eapitalist.
E) Venture capitalists limit their services to providing money to start-up ﬁrms. 9) The discount rate assigned to an individual project should be based on the:
A) Average of the ﬁrm's overall cost of eapital for the past ﬁve years.
Current risk level of the overall ﬁrm.
Risks associated with the use of the funds required by the project.
D) Firm's weighted average cost of capital.
E) Actual sources of funding used for the project. 10) Incorporating ﬂotation costs into the analysis of a project will:
A) Have no effect on the present value of the project.
B) Increase the project's rate of return.
(9) Increase the initial cash outﬂow of the project.
D) Increase the net present value of the project. E) Cause the project to be improperly evaluated. JIU‘I’V' ' " '1) Th? subjective approach to project analysis:
:3 L1): 3818:: discount rates 10 Projects based on the discretion of
) S“ e WACC of Firm X as the basis for the discount rate the senior managers of a ﬁrm. for a project under Y.
. ' beta has
C) Allows managers to randomly adjust the discount rate asslged to a project once the Project 5
D)Isusedonlywhenaﬁrmh ' ' u-uctul'e
as an all-eqmty capItal 5 'th equity as compared to those E) Applies a lower discount rate to projects that are ﬁnanced totally WI that are partially ﬁnanced with debt.
xt year. The mark“ 12) Chelsea Fashions is ex .1 di ' end of $1.10 a share lie .
pected to pay an annu . ' ?
price of the stock is $21.80 and the growth rate is 4.5 percent. What is the ﬁrm s cost of «1th
A) 9.24 percent
@9.55percent 72v / i an L’
‘ - O . v ,
C) 10.54 percent 77; 4'
D) 7.91 percent
E) 9.77 percent
13) Grill Works has 7 percent preferred stodt outsmdﬂlg that is currently selling f°':::;?:re
The market rate of return is 14 percent and the firm's tax rate is 37 percent. What is e
cost of preferred stock? M- ) \ 4'
A)l4.54percent (00} X “ ‘7 [i
B) 13.67 percent
C) 13.77 percent
D 13.29 percent
14) The Downtowner has 950,000 shares of W valued at $38 a share along
with 40,000 bonds selling for $1,020 each. What weight should be given to the debt when the ﬁrm
computes its weighted average cost of capital?
f 13) 53.06 percent
B) 46.67 percent
C) 51.79 percent
D) 55.05 percent
E) 48.27 percent
15) Hydro Systems has 15-yeal’20Wa coupon rate of 6 percent. Interest is paid
annually. The face amount of each bond is $1,000. What is the company's pretax cost of debt if the
bonds currently sell for $1,080? - g L ‘
A)5.36percent N - ml . W: (080'. L
B) 5.55 percent 7 / , .2. 2. ’
94.42 percent T (L V ‘ (NV student/f D) 5.22 percent
E) 4.71 percent does not issue
16) Kelso's has a debt-equity ratio of .6 and a tax rate of 35 percent. The firm ° 4.8 reent.
preferred stock. The cost of “1|“th and a" aftertax cost of debt I: pe What is the weighted avenge cost of capital?
A) [1.38 percent - 0.6
910.86percent WW: (”far/(2143 7" I i: X0643
lO.46percent ( '
D)l0.67perccnt c 5109254 ow
E)ll.57percent 17) The Daily Brew has adebt .Theﬁrmis mlyzinganew project ‘1'"
requires an initial cash outlay of $420,000 for equipment. The ﬂotation cost afﬁliate” for
‘uity an @pereent for debt. What is the initial cost of the pro'eet includin the ﬂotation costs?
3456,32 B) $302400 C)$583,333 D) $368,924 E) $456,700 ﬁt... A
ﬁquﬂb t OWHlWQOSQindie/c ' » ii i . , :
13) Which one of the following is the equity risk that is most related to the daily operations of a
ﬁrm? nomad a‘.jji‘,i2
A) Extrinsic n'sk
B) Systematic risk
C) Financial risk
D) Market risk
(E); Business risk 19) A ﬁrm should select the capital structure that:
A) is fully unlevered. (Ev) Maximizes the value ofthe ﬁrm.
C) Equatee the value of debt with the value of equity. D) Produces the highest cost of capitaL
E) Minimizes taxes. 20) Which one of the following states that a firm's cost of equity capital is directly and
proportionally related to the firm's capital structure?
A) Homemade leverage B) M&M Proposition l
(0) MM Proposition 11
D) Pecking-order theory
E) Static Theory of capital structure )tuaem/ y 21) M&M Proposition I with no tax supports the argument that‘
tAXnie debt-equity ratio of a ﬁrm is completel irrelevant °
8) The cost of equity rises as leverage rises y .
C) Homemade leverage is irrelevant -
D) Business risk is irrelevant. . E) Business risk has no effect on the return on assets. :2) Which one of the fouowing is . direct cost of bankruptcy?
B) rhos-Inga-key company employee,
(59) P m g a flew-equity ratio that is lower than the optimal ratio.
D . aylng an Outside a(‘IC‘vOI-Intant to prepare bankruptcy reports.
) Bypassing a POSitive NPV project to avoid additional debt.
E) Firm investing in cash reserva,
00 shares of stock outstanding. The 23) The Jean Outlet is an all-equity ﬁrm that has 152,0 COmpany has decided to borrow $1 1 million to repurchase 7,500 shares of its stock from the estate of a deceased shareholder. What is the total value of the ﬁrm if you ignore taxes? } A 22’293’333 lmllqm - _ Nb NHL
$18,500,” /gll4)( % 1 [$1 L/WX C) $19,666,667 _ D) $18,387,702 ~ 13) $21,413,333 24) Winter's Toyland has a debt-equity ratio of .65. The pretax cost of debt is 8.7 percent and the required return on assets is 16.1 percent. What is the cost 01' equity if you ignore tags? A 19. y ’ x 0‘ ' ) 3lperoent ’27:: 0.19! 7‘(0«(k‘ 00,” S 20.9l percent 3 3 i C C)20.29percent 0.0 “it ‘- D) 20.46 percent E) 19.74 percent 6.7 percent and earnings before interest and taxes 25) An unlevered ﬁrm has a cost of capital of l
assets has face value of debt of $650,000 of $489,602. A levered ﬁrm with the same operations and
with a coupon rate of 7.5 percent that sells at par. The applicable tax rate is 35 percent. What is the value of the levered firm? 0‘ l9 E a b
A) $2,398,256.67 __ -: / 0 S \ Q ‘-
B) $2,001,018.21 W -, QQQBOL/Y l- 0 3C) "\ ‘0. [if-F. (I $2,397,212.30 ' -
_ $2,133,136.53 \/L 2 0,59% 48” K ‘WU - -
E) $2,402,509.08 ...
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