1. A contract negotiated directly with a bank in which the borrower agrees to make a series of
interest and principal payments on specific dates to the bank is called
1. Which of the following factors distinguish the banking system in the United States from banking structures in other
a. Financial institutions in the United States are less regulated than their foreign counterparts.
1. Firm A purchases $10 million of B Corporation bonds which paid a 16 percent interest rate, or $1.6
million in interest. If firm As marginal tax rate is 34 percent, what is the after-tax yield of the bond issue
to firm A
LEASE VS BUY ANALYSIS
a. Richards Electronics needs to acquire a computer analyzer for four years at a cost of $10,000
b. Richards can either purchase the equipment using a four year, 10% loan or lease the item at an annual
cost of $3,000 payable a
PUTS & CALLS
PUTS - are options to sell; therefore
They go UP in value when market goes down
They go DOWN in value when market goes up
CALLS - are options to buy; therefore
.EXAMPLE: $1,000, 10%, 10 year bond with a 40 share conversion ratio
1. 40 share conversion ratio means that bond can be converted into 40 shares of stock
2. Conversion Price = $25 per share $1,000 face value of bond / 40 shares
3. Bond effec
Provide opportunity to leverage your return because fundamental value of warrant changes on a $ for $ basis with change in
market price of stock.
Market price of stock
Exercise Price of Warrant
Assume $100,000 of taxable income with filing status of
Married, Filing Jointly
0 -18,000 = 18,000 @ 10%
Second Bracket 18,001 -66,000 = 48,000 @ 15%
66,001 -100,000 = 34,000 @ 25%
MECHANICS OF PUTS & CALLS
Assume: ABC stock is selling for $50 per share
Creates option requiring the sale of 100
shares at $50 each
Buys the call for $500
Option is a CALL b/c in the hands
of the buyer the option represent
1. Situation: Currency futures contract = 100,000 Euros, price = $1.50 per Euro
1 Euro = $1.50
Issue: What will be the
exchange rate on 1Aug ?
2. Two Investors
Investor A - believes that the Euro will go UP to $1.60
CURRENCY FUTURES HEDGE (Short Position)
(use when receiving foreign currency)
U.S. Company selling computers to German Company
U.S. Company was receiving E100K in 30 days wanted to be able to convert their E receipt into $10 0K
Chapters 11&12 - Capital Budgeting
Capital budgeting techniques
Cash flow estimation
Risk analysis in capital budgeting
Optimal capital budget
Strategic business plan: a long-run plan that outlin
1. The average length of time between the purchase inventory the payment of cash for them is
called the _.
a. cash conversion cycle
b. inventory conversion period
c. receivables collection period
d. payables deferral period
e. days sa
1. Ron leases a car from Uptown Motors and pays $225 a month as a lease payment. Which one of the
following terms applies to Ron?
2. The relevant discount rate for evaluating a
1. Why is the ex-dividend date important to someone who is considering purchasing a firm's stock?
a. If the stock is purchased on this date or later the buyer will not receive the next dividend
paid by the firm.
b. This is the date th
1. Seagar Corporation provides monofilament fishing line to its customers. Seagar gives its
customers a three percent discount if the invoice payment is paid within 10 days of the billing
date. If the discount is not taken then the ba
REVU QUIZ - CHAP 15
1. Which of the following is generally not regarded as being a credit policy variable?
a. credit period
b. credit standards
c. cash discounts
d. all of the above are credit policy variables
2. A minimum checking account balance that a
1. Earnings before interest and taxes (EBIT) is a descriptive label for
A) operating profits.
B) net profits before taxes.
C) earnings per share.
D) gross profits.
2. _ analysis is a technique used to assess the returns associated wit
1. The theoretical basis from which the concept of risk-adjusted discount rates is derived is
a. the Gordon model.
b. the capital asset pricing model.
c. simulation theory.
d. the basic cost of money.
2. Depreciation associated with a
1. Which of the following capital budgeting methods might not consider the salvage value of a
machine being considered for purchase?
Internal rate of return.
Net present value.
None of the above
. Which two methods
1. Key differences between common stock and bonds include all of the following EXCEPTa
a. common stockholders have a voice in management; bondholders do not.
b. common stockholders have a senior claim on assets and income relative to b
1. Nico is the new assistant branch manager of a larger Florida-based bank and the branch manager has asked
him a question to test his knowledge. The question he asked is which rate should the bank advertise on monthlycompoun
1. Standard deviation measures which type of risk?
Which one of the following is an example of systematic risk?
investors panic causing security price
Assume that a 3-year Treasury note has no maturity premium, and that the real, risk-free rate of interest is 3 percent.
If the T-note carries a yield to maturity of 13 percent, and if the expected average inflation rate
Problem # 1: Statement of Cash Flows
FACTS: The consolidated Balance Sheets for the beginning and end of Year 20YY are shown in the following
Sources and Uses schedule During the company bought $50m of Property, Plant & Equipment. Th
1. Compared to corporations, what is the primary disadvantage of partnerships as forms of business organizations?
a. The tax rates applied to partnership are higher than the tax rates applied to corporations.
once at the personal, o