1.On March 1, you contract to take delivery of 1 ounce of gold for $495. The agreement is good for any day up to April 1. Throughout March, the price of gold hit a low of $425 and hit a high of $535. The price settled on March 31 at $505, and on April 1st you settle your futures agreement at that price. Your net cash flow is:
2. An IPO of a firm formerly financed by venture capital is carried out for what primary purposes?
Insiders can sell their shares or cash out
Generate cash to pay down bank indebtedness
To establish a market value for the equity and provide funds for operations
All of the above.
None of the above.
3. The six components that make up the total costs of new issues are:
the spread; other direct expenses such as filing fees; indirect expenses such as management time; economies of scale; abnormal returns and the Green Shoe option.
the discount; other direct expenses such as filing fees; indirect expenses such as management time; due diligence costs; abnormal returns and the Green Shoe option.
the spread; other direct expenses such as filing fees; indirect expenses such as management time; abnormal returns; underpricing and the Green Shoe option.
the spread; other direct expenses such as filing fees; economies of scale; due diligence costs; abnormal returns and underpricing.
None of the above.
4.The Tip-Top Paving Co. wants to be levered at a debt to value ratio of .6. The cost of debt is 11%, the tax rate is 34%, and the cost of equity for an all equity firm is 14%. What will be Tip-Top’s cost of equity?
None of the above.
5. The common stock of Winsson, Inc. is currently priced at $52.50 a share. One year from now, the stock price is expected to be either $54 or $60 a share. The risk-free rate of return is 4%. What is the value of one call option on Winsson stock with an exercise price of $55?
6. You purchased 200 shares of ABC stock on July 15th. On July 20th, you purchased another 100 shares and then on July 22st you purchased your final 200 shares of ABC stock. The company declared a dividend of $1.10 a share on July 5th to holders of record on Friday, July 23rd. The dividend is payable on July 31st. How much dividend income will you receive on July 31st from ABC?
7. The value of a corporation in a levered buyout is composed of which following four parts:
unlevered cash flows and interest tax shields during the debt paydown period, unlevered terminal value, and asset sales.
unlevered cash flows and interest tax shields during the debt paydown period, unlevered terminal value and interest tax shields after the paydown period.
levered cash flows and interest tax shields during the debt paydown period, levered terminal value and interest tax shields after the paydown period.
levered cash flows and interest tax shields during the debt paydown period, unlevered terminal value and interest tax shields after the paydown period.
asset sales, unlevered cash flows during the paydown period, interest tax shields and unlevered terminal value.
8. You have taken a short position in a futures contract on corn at $2.60 per bushel. Over the next 5 days the contract settled at 2.52, 2.57, 2.62, 2.68, 2.70. You then decide to reverse your position in the futures market on the fifth day at close. What is the net amount you receive at the end of 5 days?
Must know the number of contracts
9. The basic lesson of MM theory is that the value of a firm is dependent upon the:
capital structure of the firm.
total cash flows of the firm.
percentage of a firm to which the bondholders have a claim.
tax claim placed on the firm by the government.
size of the stockholders claims on the firm.
10.A manager should attempt to maximize the value of the firm by:
changing the capital structure if and only if the value of the firm increases.
changing the capital structure if and only if the value of the firm increases to the benefit of inside management.
changing the capital structure if and only if the value of the firm increases only to the benefits of the debtholders.
changing the capital structure if and only if the value of the firm increases although it decreases the stockholders’ value.
changing the capital structure if and only if the value of the firm increases and stockholder wealth is constant.
11. When evaluating an acquisition, you should:
concentrate on book values and ignore market values.
focus on the total cash flows of the merged firm.
apply the rate of return that is relevant to the incremental cash flows.
ignore any one-time acquisition fees or transaction costs.
ignore any potential changes in management.
12.Edie’s Health and Beauty Supply has 125,000 shares of stock outstanding with a par value of $1 per share and a market value of $5 a share. The company has retained earnings of $76,500 and capital in excess of par of $340,000. The company just announced a 1-for-5 reverse stock split. What will the par value per share be after the split?
13.Alto and Solo are all-equity firms. Alto has 2,400 shares outstanding at a market price of $24 a share. Solo has 4,000 shares outstanding at a price of $17 a share. Solo is acquiring Alto for $63,000 in cash. The incremental value of the acquisition is $5,500. What is the net present value of acquiring Alto to Solo?
14.You own 300 shares of Abco, Inc. stock. The company has stated that it plans on issuing a dividend of $.60 a share one year from today and then issuing a final liquidating dividend of $2.20 a share two years from today. Your required rate of return is 9%. Ignoring taxes, what is the value of one share of this stock today?
15.Which one of the following stocks is correctly priced if the risk-free rate of return is 3.6% and the market rate of return is 10.5%?
16.The market portfolio of common stocks earned 14.7% in one year. Treasury bills earned 5.7%. What was the real risk premium on equities?
17. Three months ago, you purchased a put option on WXX stock with a strike price of $60 and an option price of $.60. The option expires today when the value of WXX stock is $62.50. Ignoring trading costs and taxes, what is your total profit or loss on your investment?
18. Tru-U stock is selling for $36 a share. A 3-month call on Tru-U stock with a strike price of $40 is priced at $1. Risk-free assets are currently returning 0.25% per month. What is the price of a 3-month put on Tru-U stock with a strike price of $40?
Nelson Company had equity accounts in 2008 as follows:
Projected income is $150,000 and 40% of this amount will be paid out immediately as dividends. What will the ending retained earnings account be?
20.A financial institution has equity equal to one-tenth of its assets. If its asset duration is currently equal to its liability duration, then to immunize, the firm needs to:
decrease the duration of its assets.
increase the duration of its assets.
decrease the duration of its liabilities.
do nothing, i.e., keep the duration of its liabilities equal to the duration of its assets.
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