Finance and risk management - international business - exams
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The annual salary of Sam fifteen years ago was €52,500. Today he earns an annual salary of €94,552.50. What is the average annual rate of growth of John's salary?
For this question use the dividend growth model. Suppose a firm has just paid a dividend of €1.50 per share and that the recent price is €31.82 per share. The growth rate in dividends is 4% per year for the future. What is the required rate of return for equity?
Which of the following statements is FALSE?
Suppose that the EBIT before depreciation is €50,000, depreciation is €10,000 and the tax rat is 15%. What is the operating cash flow?
In which market does the sale of new securities, where the financial asset is being traded for the very first time, take place?
Which of the following helps us analyze whether a company is moving toward financial stress or is using debt to benefit the company and ultimately the owners of the company?
Assume that you just bought a home for €250,000 ad that you make payments of €11,162.71 per two months at 12% annual percentage rate. How long will it take you to pay of your loan of €250,000?
Gazelle has an adjusted WACC of 8.56%. Its capital structure consists of 60% equity and 40% debt. The cost of equity is 11%, before-tax cost of debt is7% and the tax rate is 30%. Gazelle is considering expanding by building a new shop and considers the project to be riskier than the current operation. Gazelle has an existing beta of 1, the required return on the market portfolio is 11%, the risk-free rate is 3% and the beta for the new project is 1.3. What adjusted WACC should be used in making a decision whether to undertake the new project?
A company pays a €1.37 dividend every quarter and says it will keep this policy forever. If you want an annual return of 12.5% on your investment, what price should you pay for one share of common stock?
Fully depreciated assets __________, and thus any proceeds from sale at disposal are taxable gains.
Which of the following means that managers or owners of a company know more about the future performance of the company than potential outside lenders?
Toyota has €1,000 par value bonds with a coupon rate of 9% per year with monthly coupon payments. Assume that there are 12 years remaining prior to maturity and that these bonds are selling for €1,000. What would be the annual yield to maturity of these bonds?
Which of the following is NOT a definition of beta?
At the end of a project's life, any initial increases in ________ from the beginning of the project will be recovered.
The contribution of M&M comes from the constant trade-off ratio. Which statement describes this constant trade-off ratio?
Daniel just finished university and is now new CFO of a company and wants to shake things up. Currently the firm s an all equity firm. Due to pressure of stockholders Daniel is considering acquiring some debt to boost earnings per share. The company currently has 600 shares and Daniel is thinking about borrowing €6,000 at 10% per year and buying back 200 of those shares. What level of EBIT would make this strategy attractive?
Which of the following addresses where we raise money to finance our business activities?
In what kind of markets do current prices already reflect the price history and volume of the stock as well as all available public information?
Which of the following is the return an individual would earn if he purchased a bond today and held the bond to the end of his life?
Which of the following statements concerning the relationship between the yield-to-maturity and bond prices is FALSE?
Which of the following statements regarding the fact that the pricing of stocks is more difficult than the pricing of bonds is FALSE?
For a ten year project the initial outlay costs are €1,000,000. The respective annual future cash inflows are €170,000. If the discount rate is 10%, what is the discounted payback period?
Suppose you made an investment of €80,000 at the beginning of the project and it generates a positive cash flow of €30,000 for 4 years. The cost of capital is 12%, the IRR of the project is 18.45% and the NPV is €11,120. According to the IRR model, at the end of the first year you can invest the €30,000 at:
The optimal debt-to-equity ratio shows the point that reflects the maximum benefit of leverage. At this point the WACC is:
Assume you have signed a put option contract for an asset. The premium of this option is €1.10 and expires in 2 months. The asset is currently sold on the market at €26 (current spot price). The strike price of the option is €25. What are the intrinsic and time value components of the premium for this call option?
What is the name given to the processes surrounding recognition of the principal-agent problem and ways to align agents with the interests of the principles?
Which of the following securities cannot have any benefits for diversification with your investment portfolio?
A residual dividend policy is one in which:
A firm is forecasting sales and uses the percentage of sales method to forecast additional capital needed for the operations next year. Which of the following factors are likely to decrease the additional outside funding needed?
A company with unlimited funds has to evaluate six projects. Project 1, 2 and 3 are independent and projects 4,5 and 6 are mutually exclusive. The WACC of the firm is 12%.
Project Status Return(%)
Which projects should the firm choose?
What is a good description of the IRR decision criterion?
Consider the Big Max index and the concept of purchasing power parity. If the price of a Big Mac burger in the US is 4.26andthecurrentexchangerateis
1.3322/€, what is the implied price of a Big Mac in the Netherlands?
Jamie currently owns 600 shares of Bol.com. Bol.com has a high-dividend-payout policy and will this year pay €2.50 cash dividend on its shares that are currently selling at €23. Jamie wants a low dividend-payout policy of 3.5% of the stock price. What needs Jamie to do to convert this high policy to a low payout policy for himself?
BeverSport store will have cash receipts of €47,000 and cash disbursements of €41,000 in November. If the beginning cash is €7,000 and its minimum required level of cash is €4,000, what will be the excess for Novemer?
Suppose that a Dutch company recently has sold 210,000 worth of computers to a U.S. Supplier with payment to be made in 90 days. The current spot exchange rate at the time of the sale is 1.20/€. The current market developments led to an appreciation of the Euro against the US dollar. If this company wants to minimize foreign exchange risk, which of the followings will the company need to sign?
According to the DuPont analysis the ROE = profitability ratio x asset turnover ratio x total asset to total equity ratio. Mediamarkt has a profitability ratio of 0.14, an asset turnover ratio of 1.7 and a total debt to total equity ratio of 0.6. What s the firm's ROE?
Consider a firm that has issued 10-year semi-annual coupon bonds which have a face value of €1,000. The current yield-to-maturity is 8% and the annual coupon rate is 10%. What is the firm's current price per bond?
Consider the following information of several states in the world:
State of the economy Probability of state Return on state
What is the expected return for a company?
A company is considering a nine year project that has an initial after-tax outlay/cost of €190,000. the future after ax inflow for the years 1-9 are €35,000 each year. The net present value method is used by the company and the discount rate is 12%. Will the company accept the project?
A company has credit terms of 1/10 net 30. Customers should take the discount and pay in 10 days if they cannot earn more than ________ (APR) on their investment.
B
B
A
C
A
C
A
B
A
D
A
C
A
B
C
C
C
C
D
B
D
C
C
B
C
D
D
C
D
B
B
A
C
C
A
C
A
D
B
C
A company has a semi-annual coupon bond outstanding. A decrease in the market required rate of return will have an effect on this bond. Which effect is meant here:
A firm is comparing two different capital structure plans, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the firm would have 178,500 shares outstanding. Under Plan II, there would be 71,400 shares outstanding and €1.79 million in debt outstanding. The interest rate on the debt is 10% and there are no taxes. What is the break-even EBIT?
Consider the the dividend growth model, an increase in which of the following will increase the current value of an equity?
I. Dividend amount
II. Number of future dividends
III. Discount rate
IV. Dividend growth rate
A company is considering a new project. The project will require €500,000 for new non-current assets, €200,000 for additional inventory, and €40,000 for additional trade receivables. Short-term debt is expected to increase by €150,000. What is the project's cash flow at time zero, which is the sum of investments in new non-current assets and net working capital?
A conflict of interest between the shareholders and the management of a firm is called:
Daphne invested €1000 seven years ago at 5 per cent interest. She spends her earnings as soon as she earns any interest so she only receives interest on her initial €1000 investment. Which type of interest is Daphne earning?
Shareholders' equity is best described as:
Consider the following features for a bond:
I. It is a discounted price
II. It is a price at a premium
III. The yield-to-maturity is less than the coupon rate
IV. The yield-to-maturity exceeds the coupon rate
Which of the following features currently apply to a bond that has a market price that is lower than its face value?
M&M Proposition I with taxes is based on.....read more
You are considering two loans and would like to select cheaper alternative. The terms of the two loans are equivalent with the exception of the interest rates. Loan A offers a rate of 8 percent, compounded semi-annually. Loan B offers a rate of 7.75 percent, compounded monthly. Which loan should you select and why?
You just bought a home for €250,000 and are to make payments of 11,162.71 in every two months at 12% annual interest rate. How many years will it take you to pay off your loan of €250,000?
A company has sales of €12,900, costs of €5,800, depreciation expense of €1,100, and no interest expense. What is the operating cash flow if the tax rate is 40%?
You have an annuity of equal end-of-the year cash flows of €500 that begin two years from today (the end of the second year) and last for a total of ten cash flows. Using a discount rate of 4%, what are those cash flows worth in today’s Euros?
EAR of B = {[1+(0.0775/12)]^12}-1 = 0.0803
EAR of A = {[1+(0.08/2)]^2}-1 = 0.0816 B, because the effective annual rate of B is 8.03 percent and cheaper than A.
PV = PMT * (PVIFA %r, n) 250,000 = 11,162.71 * (PVIFA%2, n*6) (PVIFA%2, n*6) = 250,000 / 11,162.71 = 22,396 (10p) for the correct answer for number of months From table with 2% the period is 30, then 30/6= 5 years. (5p)
a) Both are very important. However, a firm's profit is an accounting notion do not reflect real cash flows. Maximizing the stock price is more important because it is this that actually matters to investors. Since the financial goal of managers is shareholder wealth maximization, maximizing stock price will achieve this aim. Wealth is measured by market value and market value is obtained by stock price. Moreover, a firm can maximize value but be making a loss (this happens to many new companies).
b) Secondary market is important to obtain fair market value.....read more
A company has a debt-to-equity ratio of 42%, sales of €749,000, net income of €41,300, and total debt of €198,400. What is the return on equity (ROE=Net Income/Total Equity)?
A project that provides annual cash flows of €9,377.18 for 12 years costs €67,150 today. At what rate would you be indifferent between accepting the project and rejecting it?
Yesterday, the president of HB Enterprises received a phone call from a competitor. The competitor is a sole proprietorship. An unexpected family situation has caused the owner to suddenly want to retire and relocate closer to his family. Thus, the assets of the competitor are being offered to HB Enterprises at a bargain basement price. While HB Enterprises had not anticipated purchasing these assets, it was decided that the opportunity was too good to pass up. This illustrates which of the following needs to hold cash?
If a firm effectively manages its financial risks, what can this firm do?
Which one of the following statements concerning interest rates is the most correct?
This question is based on the dividend growth model. If you expect the market required rate of return to increase across all equity securities, then you should also expect:
You are considering two mutually exclusive projects with the following cash flows.
Year Project A Project B
0 - € 80,000 - € 80,000
1 0 €32,000
2 0 €32,000
3 € 105,000 € 32,000
Which project(s) should you accept if the discount rate is 8 per cent? What if the discount rate is 12 per cent?
The National Bank has an agreement with The Foreign Bank to exchange £500,000 for.....read more
Which one of the following actions will provide you with the right, but not the obligation, to buy the underlying asset at a specified price during a specified period of time?
Agency costs refer to:
Shareholders' equity:
Which one of the following statements is the most correct?
Interest rates that include an inflation premium are referred to as:
The optimal capital structure is the one that balances
Which one of following is the rate indicating that a stock's price is expected to appreciate?
Which one of the following is a net working capital management decision?
When the Net Present Value (NPV) is negative, the Internal Rate of Return (IRR) is __________ the required rate of return (or the weighted average cost of capital).
Which of the following measures the systematic risk for an asset held in a diversified portfolio?
Currently, the bond market requires a return of 12 percent on the 10-year semi-annual with 10 percent coupon.....read more
The four stocks A, B, C, and D have standard deviations, respectively, of 5%, 10%, 15% and 20%. Which one is the riskiest?
According to the Pecking Order Hypothesis: less probable companies in an asymmetric world will need more ________; they will first seek ________ and will avoid ________.
Consider the following sales:
For any month the following percentages are received over time in cash: 40% in cash from that same month of sales, 50% in cash from the previous month's sales and 10% in cash from the sales from two months ago. What amount of cash will be received during July?
Which model shows how soon one will recover from an initial investment?
Consider the following information from a balance sheet: the value of common stock is €60,000, preferred stock has a value of €10,000, retained earnings are €40,000, long-term debt is €120,000. For the purpose of estimating the WACC of the firm,what are the weights of long-term debt, preferred stock and equity? (Note: D = debt, PS= preferred stock, E = equity and V = total value).
Which of the following types of securities cannot be issued by a large public firm?
A company that offers a credit discount to its customers is trying to ________, and a company that pays a credit in time rather than take a discount and paying it early is attempting to ________.
Assume you have signed a call option contract for an asset. The premium of this option is €0.90 and expires in 2 months. The asset is currently sold on the market at €25 (current spot price). The strike price of the option is €26. What are the intrinsic and time value components of the premium for this call option?
The annual salary of Sam fifteen years ago was €52,500. Today he earns an annual salary of €94,552.50. What is the average annual rate of growth of John's salary?
For this question use the dividend growth model. Suppose a firm has just paid a dividend of €1.50 per share and that the recent price is €31.82 per share. The growth rate in dividends is 4% per year for the future. What is the required rate of return for equity?
Which of the following statements is FALSE?
Suppose that the EBIT before depreciation is €50,000, depreciation is €10,000 and the tax rat is 15%. What is the operating cash flow?
In which market does the sale of new securities, where the financial asset is being traded for the very first time, take place?
Which of the following helps us analyze whether a company is moving toward financial stress or is using debt to benefit the company and ultimately the owners of the company?
Assume that you just bought a home for €250,000 ad that you make payments of €11,162.71 per two months at 12% annual percentage rate. How long will it take you to pay of your loan of €250,000?
Gazelle has an adjusted WACC of 8.56%. Its capital structure consists of 60% equity and 40% debt. The cost of equity is 11%, before-tax cost of debt is7% and the tax rate is 30%. Gazelle is considering expanding by building a new shop and considers the project to be riskier than the current operation. Gazelle has an existing beta of 1, the required return on the market portfolio is 11%, the risk-free rate is 3% and the beta for the new project is 1.3. What adjusted WACC should be used in making a decision whether to undertake the new project?
In this bundle summaries, exam questions and lecture notes will be shared for the course Global Supply Chain management, International Business, Year 2 University Groningen.
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