• Question 1 2 out of 2 points Which of the following statements is CORRECT? • Question 2 2 out of 2 points Suppose you believe that Basso Inc.’s stock price is going to increase from its current level of $22.50 sometime during the next 5 months. For $3.10 you can buy a 5-month call option giving you the right to buy 1 share at a price of $25 per share. If you buy this option for $3.10 and Basso’s stock price actually rises to $45 what would your pre-tax net profit be? • Question 3 2 out of 2 points BLW Corporation is considering the terms to be set on the options it plans to issue to its executives. Which of the following actions would decrease the value of the options other things held constant? • Question 4 2 out of 2 points Braddock Construction Co.’s stock is trading at $20 a share. Call options that expire in three months with a strike price of $20 sell for $1.50. Which of the following will occur if the stock price increases 10% to $22 a share? • Question 5 2 out of 2 points An option that gives the holder the right to sell a stock at a specified price at some future time is • Question 6 2 out of 2 points Suppose you believe that Florio Company’s stock price is going to decline from its current level of $82.50 sometime during the next 5 months. For $5.10 you could buy a 5-month put option giving you the right to sell 1 share at a price of $85 per share. If you bought this option for $5.10 and Florio’s stock price actually dropped to $60 what would your pre-tax net profit be? • Question 7 2 out of 2 points Which of the following statements is CORRECT? Assume a company’s target capital structure is 50% debt and 50% common equity. • Question 8 2 out of 2 points Suppose Acme Industries correctly estimates its WACC at a given point in time and then uses that same cost of capital to evaluate all projects for the next 10 years then the firm will most likely • Question 9 2 out of 2 points • Question 10 2 out of 2 points Burnham Brothers Inc. has no retained earnings since it has always paid out all of its earnings as dividends. This same situation is expected to persist in the future. The company uses the CAPM to calculate its cost of equity and its target capital structure consists of common stock preferred stock and debt. Which of the following events would REDUCE its WACC? • Question 11 2 out of 2 points • Question 12 2 out of 2 points To help them estimate the company’s cost of capital Smithco has hired you as a consultant. You have been provided with the following data: D1 = $1.45; P0 = $22.50; and g = 6.50% (constant). Based on the DCF approach what is the cost of common from reinvested earnings? • Question 13 2 out of 2 points Which of the following statements is CORRECT? • Question 14 2 out of 2 points Which of the following statements is CORRECT? • Question 15 2 out of 2 points Which of the following statements is CORRECT? • Question 16 2 out of 2 points Assume a project has normal cash flows. All else equal which of the following statements is CORRECT? • Question 17 2 out of 2 points Which of the following statements is CORRECT? • Question 18 2 out of 2 points Which of the following statements is CORRECT? • Question 19 2 out of 2 points Which of the following statements is CORRECT? • Question 20 2 out of 2 points While developing a new product line Cook Company spent $3 million two years ago to build a plant for a new product. It then decided not to go forward with the project so the building is available for sale or for a new product. Cook owns the building free and clear?there is no mortgage on it. Which of the following statements is CORRECT? • Question 21 0 out of 2 points Which of the following rules is CORRECT for capital budgeting analysis? • Question 22 2 out of 2 points When evaluating a new project firms should include in the projected cash flows all of the following EXCEPT: • Question 23 2 out of 2 points Which one of the following would NOT result in incremental cash flows and thus should NOT be included in the capital budgeting analysis for a new product? • Question 24 2 out of 2 points Which of the following statements is CORRECT? • Question 25 2 out of 2 points Spontaneous funds are generally defined as follows: • Question 26 2 out of 2 points The Besnier Company had $250 million of sales last year and it had $75 million of fixed assets that were being operated at 80% of capacity. In millions how large could sales have been if the company had operated at full capacity? • Question 27 2 out of 2 points Last year National Aeronautics had a FA/Sales ratio of 40% comprised of $250 million of sales and $100 million of fixed assets. However its fixed assets were used at only 75% of capacity. Now the company is developing its financial forecast for the coming year. As part of that process the company wants to set its target Fixed Assets/Sales ratio at the level it would have had had it been operating at full capacity. What target FA/Sales ratio should the company set? • Question 28 2 out of 2 points Last year Baron Enterprises had $350 million of sales and it had $270 million of fixed assets that were used at 65% of capacity last year. In millions by how much could Baron’s sales increase before it is required to increase its fixed assets? • Question 29 2 out of 2 points Which of the following statements is CORRECT? • Question 30 2 out of 2 points Which of the following statements is CORRECT?
