31 Dec The Besnier Company

Question 1

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 2

2 out of 2 points

Which of the following statements is CORRECT?

Question 3

2 out of 2 points

Other things held constant, the value of an option depends on the stock’s price, the risk-free rate, and the

Question 4

2 out of 2 points

The current price of a stock is $50, the annual risk-free rate is 6%, and a 1-year call option with a strike price of $55 sells for $7.20. What is the value of a put option, assuming the same strike price and expiration date as for the call option?

Question 5

2 out of 2 points

Which of the following statements is CORRECT?

Question 6

2 out of 2 points

The current price of a stock is $22, and at the end of one year its price will be either $27 or $17. The annual risk-free rate is 6.0%, based on daily compounding. A 1-year call option on the stock, with an exercise price of $22, is available. Based on the binomial model, what is the option’s value? (Hint: Use daily compounding.)

Question 7

2 out of 2 points

Which of the following statements is CORRECT?

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Question 8

2 out of 2 points

Which of the following statements is CORRECT?

Question 9

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 10

2 out of 2 points

Which of the following statements is CORRECT?

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Question 11

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 12

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 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? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.

Question 15

2 out of 2 points

Which of the following statements is CORRECT?

Question 16

2 out of 2 points

Which of the following statements is CORRECT?

Question 17

0 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 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 20

2 out of 2 points

Which of the following statements is CORRECT?

Question 21

2 out of 2 points

Which of the following is NOT a relevant cash flow and thus should not be reflected in the analysis of a capital budgeting project?

Question 22

2 out of 2 points

Puckett Inc. risk-adjusts its WACC to account for project risk. It uses a WACC of 8% for below-average risk projects, 10% for average-risk projects, and 12% for above-average risk projects. Which of the following independent projects should Puckett accept, assuming that the company uses the NPV method when choosing projects?

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

When evaluating a new project, firms should include in the projected cash flows all of the following EXCEPT:

Question 25

2 out of 2 points

The capital intensity ratio is generally defined as follows:

Question 26

2 out of 2 points

Which of the following statements is CORRECT?

Question 27

2 out of 2 points

Spontaneous funds are generally defined as follows:

Question 28

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 29

2 out of 2 points

Which of the following statements is CORRECT?

Question 30

2 out of 2 points

North Construction had $850 million of sales last year, and it had $425 million of fixed assets that were used at only 60% of capacity. What is the maximum sales growth rate North could achieve before it had to increase its fixed assets?