FENG2016CMEEXAMOLDTUD2013till2016

Internal rate of return (IRR) method is also called:

The following table gives the available projects for a firm.Numbers in million dollars.

The firm has only twenty million to invest. What is the maximum NPV that the company can obtain?

A.3.5

B.4.0

C.4.5

D.5,0

The value of a previously purchased machine to be used by a proposed project is an example of:

The real rate of interest is 3% and the inflation is 4%. What is the nominal rate of interest?

A.3%

B.4%

C.7.12%

D.1%

If the average annual rate of return for common stocks is 11.7%, and for treasury bills it is 4.0%, what is the

market risk premium?

A.15.8%

B.4.1%

C.7.7%

D.None of the above

Sun Corporation has had returns of -6%, 16%, 18%, and 28% for the past four years. Calculate the standard deviation of the returns.

A.11.6%

B.14.3%

C.13.4 %

D.14%

Florida Company (FC) and Minnesota Company (MC) are both service companies. Their historical return for the past three years are: FC :-5%, 15%, 20%; MC: 8%, 8%, 20%. What is the standard deviation of the portfolio with 50% of the funds invested in FC and 50% in MC?

A.10.6%

B.14.4%

C.9.3%

D.None of the above

The historical returns data for the past three years for Company A's stock is -6.0%, 15%, 15% and that of the market portfolio is 10%, 10% and 16%. If the risk-free rate of return is 4%, what is the cost of equity capital (required rate of return of company A's common stock) using CAPM?

A.18%

B.14%

C.12%

D.None of the above

Generally, postaudits for projects are conducted:

I) to identify problems that need fixing

II) to check the accuracy of forecasts

III) to come up with questions that should have been asked before the project was undertaken

You are given the following data for year-1. Revenue = $43; Total costs = $30; Depreciation = $3; Tax rate = 30%. Calculate the operating cash flow for the project for year-1.

A.$7

B.$10

C.$13

D.None of the above

TIMBER Company proposes to invest $6 million in a new type of hammer-making equipment. The fixed costs are $1.0 million per year. The equipment is expected to last for five years. The manufacturing cost per hammer is $1 and the selling price per hammer is $6. Calculate the break-even (i.e. NPV = 0) volume per year, if the cost of capital is 20%. (Ignore taxes.)

A.500,000 units

B.600,000 units

C.100,000 units

D.None of the above

Greenmail refers to the practice of a company purchasing its stock, usually at a high price, from:

One possible reason that share holders often insist on higher dividends is:

According to middle-of-the-roaders, a firm's value is not affected by its dividend policy becaus:

The law of conservation of value implies that:

For an all equity firm,

Pineapple Company is financed entirely by common stock that is priced to offer a 20% expected rate of return. The stock price is $60 and the earnings per share are $12. If the company repurchases 50% of the stock and substitutes an equal value of debt yielding 8%, what is the expected earnings per share value after refinancing?

A.$12.00

B.$19.20

C.$24.00

D.None of the above

In order to calculate the tax shields provided by debt, the tax rate used is the:

Bombay Company's balance sheet is as follows:

(NWC = net working capital; LTA = long term assets; D = debt; E = equity; V = firm value):

According to MM's Proposition I corrected for taxes, what will be the change in company value if Bombay issues $200 of equity and uses it to make a permanent reduction in the company's debt? Assume a 35% tax rate.

A.+$140

B.+$70

C.$0

D.-$70

For every dollar of operating income paid out as interest, the bondholder realizes:

In Miller's model, when the quantity (1 - TC)(1 - TpE) = (1 - Tp), then:

When faced with financial distress, managers of firms acting on behalf of their shareholders' interests will tend to:

I) favor high-risk, high-return projects even if they have negative NPV;

II) refuse to invest in low-risk, low-return projects with positive NPVs;

III) delay the onset of bankruptcy as long as they can

One should determine the after-tax weighted average cost of capital by:

Given are the following data: Cost of debt = rD = 6.0%; Cost of equity = rE = 12.1%;

Marginal tax rate = 35%; and the firm has 50% debt and 50% equity. Calculate the after-tax weighted average cost of capital (WACC):

A.8.0%.

B.7.1%.

C.9.0%.

D.5.9%

The flow-to-equity method uses:

I) cash flows to equity, after interest and after taxes;

II) the cost of equity capital as the discount rate;

III) the weighted average cost of capital for discount rate;

IV) after-tax cash flows without considering interest and dividend payments

Lowering the debt-equity ratio of the firm can change the firm's:

I) financial leverage; II) cost of equity; III) cost of debt; IV) effective tax rate

The writer (seller) of a regular exchange-listed call-option on a stock:

The value of a put option at expiration equals the:

Relative to the underlying stock, a call option always has:

A put option on ABC stock currently sells for $4.00. The exercise price and the stock price is $60. The put option has a delta of 0.5. If within a short period of time the stock price increases to $60.10, what would be the change in the price of the put option?

A.increases by $0.05

B.decreases by $0.05

C.increases by $0.10

D.decreases by $0.10

If the delta of a call option is 0.6, calculate the delta of an equivalent put option.

A.0.6

B.0.4

C.-0.4

D.-0.6

Suppose Carol's stock price is currently $20. In each six-month period it will either fall by 50% or rise by 100%. What is the current value of a one-year call option with an exercise price of $15? The six-month risk-free interest rate is 5% per six-month period. [Use the two-stage binomial method.]

A.$8.73

B.$10.03

C.$16.88

D.$13.33

A firm has a two-year real option to invest in a project that has a present value of $400 million with an exercise price (in year 2) of $600 million. Calculate the value of the option given that N(d1) = 0.6 and N(d2) = 0.4. Assume that the risk-free interest rate is 6% per year.

A.$26.4 million

B.zero

C.$239.59 million

D.$13.58 million

Generally, you can insure corporate bonds through a(an):

Generally, a corporation is owned by the:

Finance deals with

Purchase of real assets is also reffered to as the

Present Value is defined at

The following statements regarding the NPV rule and the rate of return rule are
true except:

Generally, a bond can be valued as a package of:
I) Annuity, II) Perpetuity, III) Single payment