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Quiz_2_Version_B_Answers[1] - Fall 2010 FIN 351 Quiz 2...

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Fall 2010 FIN 351 Quiz 2 Version B Student: ___________________________________________________________________________ 1. If In and Out Burger, a maker of fast food, were to acquire Carl’s Jr., a maker of fast food, the merger would be: A. a conglomerate. B. a divestiture. C. vertical. D. horizontal. 2. If Apple was to merge with Toyota, the merger would be: 3. Payout Corp announces a five to four stock split. They current have 100,000 shares outstanding. How many shares outstanding exist after the stock split? A. 125,000 B. 100,000 C. 80,000 4. What happens to the price of a stock on ex-dividend day? A. Price falls in the amount of the dividend. B. Price increase in the amount of the dividend. C. Nothing 5. Company X has 0 debt, a tax rate of 35%, $30,000 of operating cash flows, and wants to issue $500,000 of debt at a 10% interest rate. The discount rate is 12%. What is the present value of the tax shield? 6. The current assets of Firm A are $4,000 and the current liabilities are $2,000 for the most recent year. Last year, Firm A had $2,200 of current assets and $1,000 of current liabilities. Calculate the current ratio for the most current year. Has it improved from last year?
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7. Net income is $1,000. The corporate tax rate is 35% and the dividend tax rate is 15%. The dividend payout ratio is 50%. What is the implicit tax rate of the investor assuming the tax system for corporations is based on double taxation? A. 40% B. 20% C. 45% D. 52% 8. Acquiring Corp. is considering a takeover of Takeover Target Inc. Acquiring has 15 million shares outstanding, which sell for $10 each. Takeover Target has 10 million shares outstanding and sells for $20. If the merger gains are estimated at $30 million, what is the highest price per share that Acquiring should be willing to pay to Takeover Target shareholders? 9. A company has three options on what to do with earnings. Which of the following is NOT an option? 10. Which of the following is NOT a reason to merge? Use the following information for questions 11-14. Suppose number of units sold (Q) = 500,000 Price per unit (P) = $10 Variable cost (V) = $3 Fixed operating costs =590,000 Fixed financing cost = 270,000
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