21. Travis Randall often boasts of his ability to “size up” candidates interviewing for a new job in the first 30 seconds of the interview. He notes that the rest of the interview is spent collecting information to prove to his boss why his initial assessment is correct. This is an example of ________.

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21. Travis Randall often boasts of his ability to “size up” candidates interviewing for a new

job in the first 30 seconds of the interview. He notes that the rest of the interview is spent

collecting information to prove to his boss why his initial assessment is correct. This is an

example of ________.

a. stereotype

b. bias

c. primacy effect

d. schemaChallenge Examination 11 BAM 515 Organizational Behavior

22. Which of the following is NOT a bias that can have an effect on the attributions people

make to their own behaviors or the behaviors of others?

a. fundamental attribution error

b. systematic observational bias

c. actor-observer effect

d. self-serving attributions

23. The ________ occurs when a manager thinks a subordinate’s behavior is due to some innate

characteristic rather than to the situation.

a. fundamental attribution error

b. attention deficit syndrome

c. actor-observer effect

d. residual attribution error

24. Fundamental attribution errors MOST LIKELY occur when one ________.

a. takes credit for successes and avoids blame for failures

b. focuses on the actor and ignores the context

c. is unaware of all of the individual factors that influence behavior

d. attributes the behavior of others to external causes

25. When Jennifer Olsen started working at the law firm of Gould, Starnt, and Heffernen, she

knew she was one of only a few women at the company who was balancing work and single

motherhood. Determined to make her job a success, she worked long hours and sacrificed

much time with her child for the good of the firm. Despite her efforts, her productivity, and

her high rate of cases won, she knew there were other lawyers at her company who would

always see her as a single mother first and a lawyer second. Which of the following is NOT

TRUE about the perceptions of Jennifer’s co-workers?

a. Jennifer’s coworkers are basing their perceptions on stereotypes of single mothers.

b. Jennifer’s coworkers are calling upon dysfunctional schemas as they perceive her.

c. Jennifer’s coworkers’ perceptions of her are influenced by their knowledge of the fact

that she is a single mother.

d. Jennifer’s coworkers are using impression management in order to make themselves

look better to the firm owners.Challenge Examination 12 BAM 515 Organizational Behavior

26. Despite the fact that she walked into the interview chewing gum, which Dan found very

unprofessional, he hired Margaret, in part, because, like him, she was born and raised in Ohio.

On her first two or three job performance evaluations, Dan gave her high ratings, even though

she was often late and missed many deadlines, because she made a good overall impression,

especially compared to her very inadequate co-workers.

Which of the following biases has Dan NOT allowed to cloud his judgement when it comes to

Margaret?

a. primacy effect

b. contrast effect

c. halo effect

d. similar-to-me effect

27. The intended result of ________ is that once an undesired behavior ceases to be reinforced,

its frequency will diminish until it no longer occurs.

a. extinction

b. behavior modification

c. operational intervention

d. shaping

28. According to operant conditioning theory, punishment ________ the probability of an

undesired behavior.

a. increases

b. reduces

c. negates

d. eliminates

29. Negative reinforcement ________ the probability of a desired behavior.

a. increases

b. decreases

c. eliminates

d. has no effect on

30. Which of the following is LEAST LIKELY to contribute to an employee’s level of creativity?

a. internal locus of control

b. intelligence

c. self-esteem

d. structureChallenge Examination 13 BAM 515 Organizational Behavior

31. ________ is all of the information, skills, and expertise that an individual or a group has about

the kind of work being performed.

a. Autonomy

b. Situational synergy

c. Task-relevant knowledge

d. Operational awareness

32. According to Peter Senge, which of the following is NOT a key activity central to a learning

organization?

a. encouraging low self-efficacy

b. encouraging learning in groups and teams

c. developing complex schemas

d. communicating a shared vision for the organization

33. According to expectancy theory, valence, instrumentality, and expectancy must be ________ in

order for an employee to be motivated to perform desired behaviors and to perform them at

a high level.

a. zero

b. one

c. high

d. low

34. A factory worker really wants to move up in the corporation. He does his work, stays late, and

is always looking for extra ways to help. He gets passed up for promotion after promotion.

This will MOST LIKELY affect his ________.

a. instrumentality

b. valence

c. expectancy

d. equity

35. According to Stacy Adams, a ________ is simply another employee or group of employees

perceived to be similar to oneself.

a. substitute

b. peer group

c. referent

d. doppelgangerChallenge Examination 14 BAM 515 Organizational Behavior

36. Barbara Subaru is a secretary with a prestigious law firm who has observed that other

secretaries with the firm receive better pay and have better working conditions than she

does, even though she is more productive than they are. Equity theory would label this

condition as ________.

a. overpayment inequity

b. referent inequity

c. underpayment inequity

d. imbalance inequity

37. According to equity theory, which of the following actions would an employee NOT take to

restore equity?

a. change the inputs for his own work

b. change the inputs or outcomes of the referent

c. change his perceptions of inputs and outcomes

d. change the outputs of his own work

38. Gerald Simmons, a manager for Computers-R-Us, has been studying the equity theory of

motivation. In an effort to be equitable, he plans to give the same percentage pay raise to

each of his employees who work 40 hours a week. His plan ________.

a. will eliminate previous inequities at the store

b. demonstrates an understanding of the unique inputs of each employee

c. considers that effort and behavior are likely to vary across workers

d. may be a problem for those who feel underpaid

39. After employees are allowed to interact with customers or clients, and made responsible

for managing these relationships and satisfying customers, which of the following core job

dimensions would NOT increase?

a. task identity

b. skill variety

c. autonomy

d. feedback

40. The three individual differences identified by the job characteristics model that affect the

relationships between the core dimensions and the psychological states and the relationships

between the psychological states and the outcomes include ________.

a. skill variety, task identify, and task significance

b. growth-need strength, level of knowledge and skills, and satisfaction with the work

context

c. core dimensions, critical psychological states, and growth-need strengths

d. experienced meaningfulness of work, experienced responsibility for work outcomes, and

knowledge of resultsChallenge Examination 15 BAM 515 Organizational Behavior

1. Which of the following would NOT contribute to organizational effectiveness?

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1. Which of the following would NOT contribute to organizational effectiveness?

a. excellent quality assurance procedures

b. quality employee retention programs

c. superior customer relations processes

d. high prices for all goods and services

2. Considerable risks are involved when managers make decisions MOST LIKELY because the

decisions ________.

a. are made under uncertain conditions

b. affect many people

c. produce significant revenue

d. are plagued with faulty judgements

3. In the managerial function of ________, managers encourage and motivate workers to work

toward organizational goals.

a. leading

b. organizing

c. planning

d. controlling

4. Which of the following is the BEST description of diversity?

a. different socio-economic backgrounds

b. distinct ethical perspectives shared by many

c. unified business objectives shared across multiple organizations

d. highly skilled workers within a specific discipline

5. David Berry is the manager of a racially diverse department; however, no minorities are in

supervisory positions. Therefore, he plans to actively recruit a minority supervisor. Because he is

concerned that nonminority employees may oppose his decision, he is MOST LIKELY dealing

with a ________.

a. cultural challenge

b. flexibility challenge

c. fairness and justice challenge

d. decision-making and performance challengeChallenge Examination 8 BAM 515 Organizational Behavior

6. Rick Ward, human resources manager for May and Simmons Company, is developing a new

benefits package that can be customized to provide care for unmarried life partners and

workers caring for aged parents. Such a program would meet the ________ challenge of

managing a diverse workforce.

a. sensitivity

b. flexibility

c. fairness

d. performance

7. A specific component of personality that describes particular tendencies a person has to feel,

think, and act in a certain way is ________.

a. a mood

b. an ability

c. a trait

d. a behavior

8. Which of the following statements about the Big Five model of personality is TRUE?

a. A person will always have one trait in which they rank highest.

b. A person who ranks high on extraversion is likely to have many social interaction with

others.

c. A person who ranks high on agreeableness will rank low on conscientiousness.

d. A person who ranks high in extraversion can rank high or low on any other trait.

9. Dana is an attorney. She is a gifted legal thinker and writer. When her partners bring her a legal

problem that they will need to address in court she is almost always able to help them.

However, she refuses to go into court herself. She explains that she simply does not feel

comfortable speaking publicly. In which trait does Dana MOST LIKELY rank low?

a. extraversion

b. agreeableness

c. conscientiousness

d. openness to experience

10. High self-monitors would perform especially well in all of the following jobs EXCEPT ________.

a. sales

b. consulting

c. spokesperson for a company

d. devil’s advocate on a team Challenge Examination 9 BAM 515 Organizational Behavior

11. ________ is the extent to which people have pride in themselves and their capabilities.

a. Self-monitoring

b. Self-esteem

c. Agreeableness

d. Conscientiousness

12. Individuals with Type B personalities are MOST LIKELY to be ________.

a. impatient

b. driven

c. competitive

d. relaxed

13. ________ pertain to fairness, equity, and impartiality in decision-making.

a. Utilitarian values

b. Moral rights values

c. Justice values

d. Equal rights values

14. Laura is a manager at a retail store. She recently found out that the company is facing

budget cuts. She was given the option to give all of her employees a 3% pay cut or lay off

one employee. If she were using utilitarian values as her guide, which decision would

she MOST LIKELY make?

a. give all her employees a 3% pay-cut

b. organize a protest

c. quit the job so she does not have to make a decision

d. lay off one employee

15. Passage of the Sarbanes-Oxley Act ________.

a. overrides the need for an organization to have a code of ethics

b. diminishes protections for whistleblowers

c. increases the reporting obligations of public companies

d. instates regular auditing of public companies

16. How a worker feels about his or her job or organization represents the ________ of the worker’s

attitude.

a. behavioral component

b. affective component

c. cognitive component

d. temperamental componentChallenge Examination 10 BAM 515 Organizational Behavior

17. What statement BEST describes how situational factors may affect work mood?

a. Only major events and conditions in one’s life affects work mood.

b. Major and minor events and conditions affect one’s work mood.

c. Situational factors do not affect work mood.

d. Workplace incivility is the most important factor of work mood.

18. A manager notices a high amount of workplace incivility in the office. What strategy should

the manager employ to BEST combat this?

a. push up work deadlines

b. reprimand rude employees

c. encourage face-to-face conversations

d. beautify the office

19. Individuals who are salient are often perceived in ________ inconspicuous members of a

group.

a. more neutral terms than

b. more extreme terms than

c. less extreme terms than

d. the same terms as

20. A ________ is a systematic tendency to use, ignore, or interpret information about a target in a

particular way that results in inaccurate perceptions.

a. stereotype

b. bias

c. paradigm

d. schema

l. (Break-even point and selling price) Parks Castings Inc. will manufacture and sell 180,000 units next year. Fixed costs will total $350,000, and variable costs will be 40 percent of sales. a. The firm wants to achieve a level of earnings before interest and taxes of $260,000. What selling price per unit is necessary to achieve this result?

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l. (Break-even point and selling price) Parks Castings Inc. will manufacture and sell 180,000 units next year. Fixed costs will total $350,000, and variable costs will be 40 percent of sales.

a. The firm wants to achieve a level of earnings before interest and taxes of $260,000. What selling price per unit is necessary to achieve this result?

b. Set up an analytical income statement to veriff your solution to part (a)’

a. What selling price per unit is necessary to achieve a level of earnings before interest and taxes

of $260,000?

$[ 6o””d to three decimal Places.)

b. Set up the following analytical income statement to veriff your solution to part (a). (Round up all items to the nearest dollar.)

Sales

Less: Variable costs (40% of sales)

Revenues before fixed costs

Less: Fixed costs

2. (Break-even point and operating leverage) Footwear Inc. manufactures a complete line of men’s and women’s dress shoes for independent merchants. The average selling price of its finished product is $85 per pair. The variable cost for this same pair of shoes is $50. Footwear Inc. incurs fixed costs of $160,000 per year.

a. What is the break-even point in pairs of shoes for the company? b. What is the dollar sales volume the firm must achieve to reach the break-even point? c. What would be the firm’s profit or loss at the following units of production sold: 7,000 pairs of shoes? 11,000 pairs of shoes? 15,000 pairs of shoes?

a. What is the break-even point in pairs of shoes for the company?

I units (Round to the nearest whole number.)

b. What is the dollar sales volume the firm must achieve to reach the break-even point?

$[ 6o””d to the nearest cent.)

c. What would be the firm’s profit or loss before interest and taxes (EBIT) at 7,000 pairs of shoes sold? Enter a positive number for a profit and a negative number for a loss.

$[ 1no””d to the nearest dollar.)

What would be the firrn’s profit or loss before interest and taxes (EBIT) at 11,000 pairs of shoes sold? Enter a positive number for a profit and a negative number for a loss.

$[ 6ound to the nearest dollar.)

What would be the firm’s profit or loss before interest and taxes (EBIT) at 15,000 pairs of shoes sold? Enter a positive number for a profit and a negative number for a loss.

$[ lnound to the nearest dollar.)

3. (Operating leverage) Rocky Mount Metals Company manufactures an assorfinent of wood burning stoves. The average selling price for the various units is $600. The associated variable cost is $350 per unit. Fixed costs for the firm average $ 170,000 annually.

a. What is the break-even point in units for the company? b. What is the dollar sales volume the firm must achieve to reach the break-even point? c. What is the degree of operating leverage for a production and sales level of 6,000 units for the firm? (Calculate to three decimal places.) d. What will be the projected effect on earnings before interest and taxes if the firm’s sales level should increase by 45 percent from the volume noted in part (c)?

a. What is the break-even point in units for the company?

I units (Round to the nearest whole number.)

b. What is the dollar sales volume the firm must achieve to reach the break-even point?

$[ lnound to the nearest cent.)

c. What is the degree of operating leverage for a production and sales level of 6,000 units for the firm? Note that you can compare sales at a IDYI higher level (6,600 units) in detemining the degree of operating leverage.

I lnounA to three decimal places.)

d. What will be the projected percentage change in earnings before interest and taxes if the firm’s sales level should increase by 45 percent from the volume noted in part (c)?

[X 6o”nd to fwo decimal places.)

4. (Residual dividend policy) FarmCo, Inc. follows a policy of paying out cash dividends equal to the residual amount that remains after funding 70 percent of its planned capital expenditures. The firm tries to maintain a 30 percent debt and 70 percent equity capital structure and does not plan on

issuing more stock in the coming year. FarmCo’s CFO has estimated that the firm will earn $14 million in the current year.

a. If the frm maintains its target financing mix and does not issue any equity next year, what is the most it could spend on capital expenditures next year given its earnings estimate? b. If FarmCo’s capital budget for next year is $10 million, how much will the frm pay in dividends and what is the resulting dividend payout percentage?

a. If the firm maintains its target financing mix and does not issue any equity next year, what is the most it could spend on capital expenditures next year given its earnings estimate?

$! milion (Round to two decimal places.)

b. If FarmCo’s capital budget for next year is $ l0 million, how much will the firm pay in dividends?

$[ miilion (Round to one decimal place.)

What is the resulting dividend payout percentage?

[Z 6o”nd to two decimal places.)

5. (Constant dollar dividend payout policy) Parker Prints is in negotiation with two of its largest customers to increase the firm’s sales dramatically. The increase will require that Parker expand its production facilities at a cost of $35 million. Parker expects to pay out $7 million in dividends to its shareholders next year. Parker maintains a 30 percent debt ratio in its capital structure.

a. If Parker earns $20 million next year, how much common stock will the firm need to sell in order to maintain its target capital structure? b. If Parker wants to avoid selling any new stock, how much can the firm spend on new capital expenditures?

a. If Parker earns S20 million next year, how much common stock will the firm need to sell in order to maintain its target capital structure?

$[ miilion (Round to two decimal places.)

b. If Parker wants to avoid selling any new stock, how much can the firm spend on new capital expenditures?

$[ million (Round to two decimal places.)

6. (Stock dividends) In the spring of 2014 the CFO of Placebo Pharmaceuticals, Inc. took a proposal to the firm’s board of directors to distribute a noncash dividend to the firm’s shareholders in the form of new shares of common stock. Specifically, the CFO proposed that the company pay 0.03 shares of stock to the holders of each share of common stock such that the holder of 1,000 shares of stock would receive an additional 30 shares of common stock.

a. IfPlacebohadtotalnetincomefortheyearof $11,000,000 and22,000,000 sharesof common stock outstanding before the stock dividend, what are the firm’s earnings per share? b. After paying the stock dividend, what are the firm’s earnings per share? c. If you owned 1,000 shares of stock before the stock dividend, how many dollars of earnings did the firm e€un on your 1,000 share inveshnent? After the stock dividend is paid, how many dollars of earnings did the firm earn on your larger share holdings? What effect would you expect from the payment of the stock dividend on your total inveshnent in the firm?

a. Before the stock dividend, what are the firm’s earnings per share?

$[ 1no.t”d to four decimal places.)

b. After paying the stock dividend, what are the firm’s earnings per share?

$[ ino,rnd to four decimal places.)

c. Which of the following statements regarding the effect of stock dividend on your $1,000 investment in the firm is true? (Select the best choice below.)

r -:A. The dollars of earnings the firm eilrns on your 1,000 share investment are $500 before the stock dividend and are $485 after, indicating that you will be worse off from a stock dividend.

r-rB. The dollars of earnings the firm earns on your 1,000 share investment are $485 before the stock dividend and are $485 after, indicating that the gain from a stock dividend is truly an illusion.

r -. C. The dollars of earnings the firm earns on your 1,000 share invesknent are $485 before the

stock dividend and are $500 after, indicating that you will be better off from a stock dividend.

i –

i D. The dollars of earnings the firm earns on your 1,000 share investment are $500 before the stock dividend and are $500 after, indicating that the gain from a stock dividend is truly an illusion.

7. (Repurchase of stock) The Dunn Corporation is planning to pay dividends of $500,000. There are 250,000 shares outstanding, and earnings per share are 54. The stock should sell for $51 after the ex-dividend date. If, instead of paying a dividend, the firm decides to repurchase stock,

a. What should be the repurchase price? b. How many shares should be repurchased? c. What if the repurchase price is set below or above your suggested price in part (a)? d. If you own 100 shares, would you prefer that the company pay the dividend or repurchase stock?

a. What should be the repurchase price?

$[ 6ound to the nearest dollar.)

b. How many shares should be repurchased?

I shares (Round to the nearest whole number.)

c. What if the repurchase price is set below or above your suggested price in part a?

“The capital gains to be received by the stockholders would not be equal to the intended dividend, ttrus resulting in a dollar benefit or loss to the stockholders.”

Is the above statement true or false? False (Select from the drop-down menu) True

d. If you own 100 shares, would you prefer that the company pay the dividend or repurchase stock?

“IJnless you have a need for current income, you would probably prefer the stock repurchase plan.”

Is the above statement true or false? True (Select from the drop-down menu) False

Problem 1: Interpreting Bond Yields. Is the yield to maturity on a bond the same thing as the required return? Is the YTM the same thing as the coupon rate? Suppose today a 10 percent coupon bond sells at par. Two years from now, the required return on the same bond is 8 percent. What is the coupon rate of the bond then? The YTM?

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Problem 1:

Interpreting Bond Yields. Is the yield to maturity on a bond the same thing as the required return? Is the YTM the same thing as the coupon rate? Suppose today a 10 percent coupon bond sells at par. Two years from now, the required return on the same bond is 8 percent. What is the coupon rate of the bond then? The YTM?

Problem 3:

Valuing Bonds. Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual €1,000, 25 years to maturity, and a coupon rate of 6.4 percent paid annually. If the yield to maturity is 7.5 percent, what is the current price of the bond?

Problem 8:

Coupon Rates. Ponzi Corporation has bonds on the market with 14.5 years to maturity, a YTM of 6.1 percent, and a current price of 1,038. The bonds make semiannual payments. What must the coupon rte be on these bonds?

Problem 10:

Inflation and Nominal Returns. Suppose the real rate is 2.5 percent and the inflation rate is 4.1 percent. What rate would you expect to see on a Treasury bill?

Problem 12:

Nominal versus Real Returns. Say you own an asset that had a total return last year of 10.7 percent. If the inflation rate last year was 3.7 percent, what was the real return?

Problem 14:

Using Treasury Quotes. Is this a premium or discount bond? What is the current yield? What is it’s yielded to maturity? What is the bid-ask spread?

Maturity: August 2029

Coupon: 6.125

Bid: 123:13

Asked: 123:15

Change: -58

Asked Yield: 4.2790

Problem 17:

Interest Rate Risk. Bond J is a 3 percent coupon bond. Bond K is a 9 percent coupon bond. Both bonds have 15 years to maturity, make semiannual payments, and have a YTM of 6 percent. If interest rates suddenly rise by 2 percent, what is the percentage price change of these bonds? What if rates suddenly fall by 2 percent instead? What does this problem tell you about the interest rate risk of lower-coupon bonds?

Problem 18:

Bond Yields. Martin Software has 9.2 percent coupon bonds on the market with 18 years to maturity. The bonds make semiannual payments and currently sell for 106.8 percent of par. What is the current yield on the bonds? They YTM? The effective annual yield?

Problem 26:

Zero Coupon Bonds. Suppose your company needs to raise $45 million and you want to issue 30-year bonds for this purpose. Assume the required return on your bond issue will be 6 percent, and you’re evaluating two issue alternatives: a 6 percent semiannual coupon bond and a zero coupon bond. Your company’s tax rate is 35 percent.

a. How many of the coupon bonds would you need to issue to raise the $45 million? How many of the zeros would you need to issue?

b. In 30 years, will your company’s repayment be if you issue the coupon bonds? What if you issue the zeroes?

c. Based on your answers in (a) and (b), why would you ever want to issue the zeroes? To answer, calculate the firm’s aftertax cash outflows for the first year under the two different scenarios. Assume the IRS amortization rules apply for the zero coupon bonds.

Problem 28:

Real Cash Flows. You want to have $2 million in real dollars in an account when you retire in 40 years. The nominal return on your investment is 10 percent and the inflation rate is 3.8 percent. What real amount must you deposit each year to achieve your goal?

7-16 A candidate for mayor in a small town has allocated $40,000 for last-minute advertising in the days preceding the election. Two types of ads will be used: radio and television. Each radio ad costs $200 and reaches an estimated 3,000 people. Each television ad costs $500 and reaches an estimated 7,000 people. In planning the advertising campaign, the campaign manager would like to reach as many people as possible, but she has stipulated that at least 10 ads of each type must be used. Also, the number of radio ads must be at least as great as the number of television ads. How many ads of each type should be used? How many people will this reach?

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7-16 A candidate for mayor in a small town has allocated $40,000 for last-minute advertising in the days preceding the election. Two types of ads will be used: radio and television. Each radio ad costs $200 and reaches an estimated 3,000 people. Each television ad costs $500 and reaches an estimated 7,000 people. In planning the advertising campaign, the campaign manager would like to reach as many people as possible, but she has stipulated that at least 10 ads of each type must be used. Also, the number of radio ads must be at least as great as the number of television ads. How many ads of each type should be used? How many people will this reach?

7-19 MSA Computer Corporation manufactures two models of smartphones, the Alpha 4 and the Beta 5. The firm employs five technicians, working 160 hours each per month, on its assembly line. Management insists that full employment (i.e., all 160 hours of time) be maintained for each worker during next month’s operations. It requires 20 labor hours to assemble each Alpha 4 computer and 25 labor hours to assemble each Beta 5 model. MSA wants to see at least 10 Alpha 4s and at least 15 Beta 5s produced during the production period. Alpha 4s generate $1,200 profit per unit, and Beta 5s yield $1,800 each. Determine the most profitable number of each model of smartphone to produce during the coming month.

7-25 Woofer Pet Foods produces a low-calorie dog food for overweight dogs. This product is made from beef products and grain. Each pound of beef costs $0.90, and each pound of grain costs $0.60. A pound of the dog food must contain at least 9 units of Vitamin 1 and 10 units of Vitamin 2. A pound of beef contains 10 units of Vitamin 1 and 12 units of Vitamin 2. A pound of grain contains 6 units of Vitamin 1 and 9 units of Vitamin 2. Formulate this as an LP problem to minimize the cost of the dog food. How many pounds of beef and grain should be included in each pound of dog food? What are the cost and vitamin content of the final product?

1. Another company plans to issue 20-year bonds with a face value of $1,000 and an annual coupon rate of 10%. The market price of similar bonds is $1,098. Flotation costs are estimated to be 5% for each bond. If interest payments are made annually, and the company’s marginal tax rate is 34%, what is the after-tax cost of debt?

/0 Comments/in /by

1.

Another company plans to issue 20-year bonds with a face value of $1,000 and an annual coupon rate of 10%. The market price of similar bonds is $1,098. Flotation costs are estimated to be 5% for each bond. If interest payments are made annually, and the company’s marginal tax rate is 34%, what is the after-tax cost of debt?

8.03%

5.89%

6.28%

9.51%

2.

Cost of capital includes

the coupon payments to the bondholders.

the opportunity cost of the equity holders

all of the above

none of the above

3.

(Cost of debt) AlterU has the option to issue 15-year bonds at $1,180 with a flotation cost of 7%, tax rate of 34%, and a coupon rate of 6% (paid annually). What is AlterU firm’s cost of debt prior to tax?

5.06%

5.88%

4.34%

5.24%

4.

Job Cart Inc. has a preferred stock paying a 7% dividend on a $180 par value. The company issues new preferred stock, and flotation cost will be 12% of the current price of $195.74. What is the cost of preferred stock?

7.00%

6.44%

7.31%

7.95%

5.

For risk-specific projects, we typically analyze other firms that are already in the new market where we are moving to infer our WACC. This is called a

pure play.

free style.

comparable.

similitude.

6.

YIPE Inc. is expecting to pay a dividend of $2.98 in the upcoming year and further anticipates growing the dividend at a constant rate of 5% per year, indefinitely. If the current share price is $39.87, then what is the cost of equity according to the Gordon growth model?

12.47%

13.84%

14.10%

14.85%

none of the above

7.

A recent start-up technology company that has a very low market cap is looking to calculate the return required by shareholders using the build-up method. Historically long-term government bonds have been 5.8% and the equity risk premium is approximately 6%. Further, the start-up premium and the micro-cap premium are each 4%. Given this information, what is the return required by shareholders?

11.8%

15.8%

19.8%

24.1%

none of the above

8.

NEXTOLL has a beta of 1.4. The expected return on the market is 15% while the risk free rate is 3.1%. Given this information, what is the return required by the shareholders?

24.10%

19.76%

17.41%

15.21%

none of the above

9.

(Weighted average cost of capital) Great Minds Inc. has a target capital structure of 45% debt, 35% preferred stock, and 20% common stock. The before-tax costs of debt, preferred stock, and common stock are 7%, 9%, and 15%, respectively. What is Great Mind’s after-tax WACC? Assume a 35% tax rate.

6.20%

8.20%

5.71%

5.58%

10.

A company has a beta of 1.5. The expected return on the market is 15% and the risk free rate is 3.5%. Given this information, the company has a cost of equity that is

20.75%.

21.55%.

17.25%.

24.66%.

19.50%.

1.

Suppose you bought a stock for $45 on January 1. Thirty days later, you received a dividend of $2.20 and you sold the stock for $44.30. Given this information, annualized return is ________. (Assume 360 days in a year).

9%

59%

25%

12%

40%

2.

Given the following information, this stock’s expected return is

Economic State

Probability

Return

Recessionary

0.20

4.5%

Normal

0.45

13.4%

Expansionary

0.35

17.5%

13.06%.

9.54%.

14.41%.

16.44%.

12.59%.

3.

(Measuring risk and rate return) Given the following holding-period returns, calculate the average return for the market.

Month

Champ Inc.

Market

1

2.8%

1.8%

2

3.2%

1.2%

3

9.0%

11.0%

4

-2.6%

-1.0%

5

-2.9%

-4.7%

6

12.0%

8.0%

5.80%

11.01%

3.58%

2.72%

4.

Which type of risk can be diversified away?

systematic risk

the entire standard deviation

firm-specific risk

none of the above

5.

What is beta in financial terms?

the market premium

a firm’s expected return

the amount of systematic risk in an asset

the beginning of time (hint = not this one!)

6.

Which of the following is not an example of factors that affect systematic risk?

a company’s labor force goes on strike

an unexpected change in interest rates

an unexpected change in cash flows due to tax changes

business cycle changes

7.

Suppose that Company XYZ has a beta of 1.4. The expected return on the market is 14% and the risk free rate is 3.5%. According to the CAPM, the expected return for XYZ is

18.2%.

12.7%.

16.5%.

15.2%.

19.6%.

8.

(Built-up method) Assume a required rate of return of 23%, an equity risk premium of 8%, micro-cap premium of 5%, and a start-up risk premium of 6%. Use the build-up method to calculate the bond yield.

13%

42%

4%

12%

9.

If a security’s standard deviation is high this indicates all but the following:

a greater total risk of the security

a greater likelihood of obtaining expected returns

a higher volatility in the security’s expected return

a greater uncertainty of the security’s return

10.

Firm A and Firm B are perfectly negatively correlated. If your portfolio contains an equal dollar amount of stock in firms A and B, what will be the risk of the portfolio?

Firm A’s stock will influence it more because its standard deviation is greater.

It will be riskless.

Firm B’s stock will influence it more because its variance is greater.

Firm A will influence it more because its variance is greater.

1.

Which of the following statements does not correctly define the replacement cost method for valuing a firm?

The replacement cost method attempts to determine the cost of replacing the company’s capital structure

The replacement cost method attempts to determine the cost of replacing the company’s liabilities.

The replacement cost method attempts to determine the cost of replacing inefficient capital budgeting methods with efficient capital budgeting methods.

The replacement cost method attempts to determine the cost of replacing the company’s assets.

2.

Which of the following is not considered a valuation caveat?

control premium

equity risk premium

unpaid salary issue

liquidity discount

3.

The control premium is a premium that is obtained because

public firms have a more difficult time controlling future inflows.

public firms cannot control which investors purchase shares of their ownership.

private firms control more of the market share than public firms.

majority shareholders have more power to control the firm than minority shareholders.

4.

The liquidity discount can best be described as a discount that is taken because

ownership in private companies is less liquid than ownership in public companies.

public companies have an easier ability turning assets into cash.

the share prices of public firms are more volatile than the variability of private firm’s cash flows.

private companies have an easier ability turning assets into cash.

5.

The unpaid salary issue is most likely to be an issue in

public companies.

large companies.

small companies.

a and b

6.

Firm A has a price-to-sales ratio of 3.9 to 1. Firm B has recently reported sales of $56 million. Firm B also has shares outstanding of 2,500,000. (Use this information to answer the following two questions). What is the price per share of firm B according to the comparable multiples approach?

$61.88

$51.79

$91.79

$87.36

$102.54

7.

https://api.agilixbuzz.com/Resz/~Ib0REAAAAAwIdctxVzRNnA.78t76H1LD7WxfV2xFUa7JB/34704006,226,0/Assets/Media/Images/T13Q06.png Given this information, what is the free cash flow to the firm?

$2,132

$1,415

$2,088

$1,233

$2,765

8.

Suppose you have estimated the free cash flows to equity holders over the next five years in the following way: Year 1: $34.5M Year 2: $38.1M Year 3: $41.4M Year 4: $39.5M Year 5: $36.1M You expect FCFE continue remain constant after year 5. If the company’s cost of equity is 14%, then what is the value of the firm’s equity (in millions)?

$251.53M

$244.83M

$270.28M

$263.59M

9.

Assume you’ve forecasted and calculated the following free cash flows to the firm.

Year

FCFF

1

$264.08

2

$271.54

3

$274.85

You have also made the assumption that after year 3, the cash flows will grow at a constant rate of 4% per year indefinitely. The company has a WACC of 9.5%. Given this information, what is the value of this firm?

$2,008.74

$1,587.68

$4,635.42

$1,744.09

$1,684.37

10.

The current share price for Stock A Computers is $100 with earning per share of $5. Stock B recently reported earnings of $4. According to the comparables approach, what should the price per share of Stock B’s be worth?

$78.55

$86.55

$90.66

$83.58

$80.00

1.

Articles of organization are used for which ownership structure?

partnership

limited liability

S-corporation

sole proprietorship

C-corporation

2.

Which of the following is not an example of the “harvest” in entrepreneurial finance?

an initial public offering

the sale of the company to a private equity firm

the purchase of the company by a strategic buyer

issuing stock options to current employees

3.

What is “bootstrapping” a business?

focusing on attaining short-term assets for accelerated growth

paying off interest and principal payments each month

self-funding a venture

layering on extra levels of debt

4.

What is phantom income?

income not paid out to the partners

income that was never actually earned, but was received

income used in tax laundering

income that is invested in the stock market

5.

What is the main difference between corporate and entrepreneurial finance?

the goals of each of these companies

the industries these companies work in

the size of the companies you are working with

the margins these companies can attain

6.

Angel investors are typically

early-stage investors.

late-stage investors.

bankruptcy-stage investors.

salvage investors.

7.

Which three of the five key ownership structures require the owners to register before they can begin the business? (Check all that apply.)

sole proprietorship

S-corporation

C-corporation

partnership

limited liability

8.

Maximizing shareholder wealth and returns is the goal of what type of entrepreneurial-focused firm?

revenue focused

asset light

new venture

fast growth

9.

Which of the five key ownership structures has the lightest filing requirements and is the cheapest and easiest to start?

sole proprietorship

C-corporation

limited liability

S-corporation

partnership

10.

Sole proprietorships and partnerships offer liability protection.

true

false

1.

When considering life insurance, it is discussed that you buy which type of insurance virtually all of the time?

time life insurance

term life insurance

cash-value life insurance

long-term value life insurance

2.

Which of following strategies for buying a car is not recommended in the chapter?

Look at cars at different geographical locations.

If possible, buy a used car rather than a new car.

Use a financial calculator in your negotiations.

If you have a trade-in, let them know before you start negotiations.

Have a copy of the dealer’s invoice with you.

3.

When typically is the best time to shop for a car?

on the first day of the year

on the first day of the month

on the last day of the quarter

4.

What is the most important step to buying a house recommended in the chapter?

Drive through various neighborhoods and see which one seems the best fit.

Have a realtor show you various homes/properties that are for sale.

Buy a first-time homebuyers’ guide.

Discuss with your loan officer what size of a mortgage you can afford.

5.

Which of the following in not a reason to buy a 15-year mortgage as opposed to a 30-year mortgage?

It will offer you more flexibility.

You will be more likely to buy a house you can actually afford.

You will most likely get a lower interest rate on the mortgage.

The discipline of paying a 15-year mortgage will force you to invest in your future.

6.

If you sell or buy via FSBO, you typically save how much in realtor fees?

4.5%–6.0%

6.0%–7.5%

1.5%–3.0%

3.0%–4.5%

7.

On average, actively managed funds earn higher returns than index funds?

true

false

8.

What is dollar-cost averaging?

The investor spreads their money throughout several companies or indices.

The investor invests a set dollar amount into some type of investment on a set schedule.

The investor invests in foreign currencies, thus eliminating their exposure to the dollar.

The investor changes the dollar amount invested dependent on the direction the market is moving.

9.

What does FSBO stand for?

for sale before operation

foreclosure sale by owner

for sale by owner

foreclosure sale before operation

10.

According to the chapter, what is the most risk-free investment you can make?

buying short-term treasury securities

setting up a college-savings account for your children

buying private corporate bonds

paying off personal debt

1.

A great place to start microfinance is by visiting www.kiva.org?

true

false

2.

Most MFIs are structured as

nongovernment operations.

nonprofit organizations.

noncapital operations.

nongovernment organizations.

3.

Which of the following is not one of the six main topics covered under the best practices of MFI management?

credit scoring

lending relationships

loan debentures

loan size and growth

MFI commercialization

optimal interest rates for microcredit

4.

What does MFI stand for?

monetary fund institution

microfinance inventory

monetary fund inventory

microfinance institution

5.

Some attribute the development of microfinance to Muhammad Yunus, who was awarded a Nobel Peace Prize.

true

false

6.

Which of the following is not one of the six key areas of microfinance identified in the book?

microfinance beginnings and evolution

assessing the impact of microfinance

MFI products and services

self-sufficiency and sustainability of MFIs

borrow targeting

microfinance policy and regulation

7.

Most MFIs have targeted which groups for their loans? (Check all that apply.)

not-so-poor

women

poorest of the poor

men

8.

What is social capital collateral?

relying on a religious group to help obtain a loan

relying on a political group to help obtain a loan

using one’s influence or position in the community to secure a loan

relying on lending groups that cosign each other’s loans; relies on keeping one’s good name

9.

What is the main purpose of microfinance?

to help those who are poor to leave their countries and move to another

to help those who suffer from hunger to obtain food

to help the financially underprivileged pull themselves out of poverty

to help those with no education to become educated

10.

The majority of microfinance aid comes in which form?

microcredit

business education

insurance

saving services