Questions 1 to 20: Select the best answer to each question. Note that a question and its answers may be split across a page break, so be sure that you have seen the entire question and all the answers before choosing an answer.
1. Acme Builders is considering merging with Joe's Construction to achieve economies of scope sufficient to drive the combined firms' costs down by at least $500,000. Acme Builders has costs of $5,000,000 on sales of $8,000,000, and Joe's Construction has costs of $3,000,000 and sales of $5,000,000. What would be the minimum combined average cost of sales expressed as a percentage necessary to achieve the cost reduction goal?
A. 57.69 percent
B. 59 percent
C. 59.43 percent
D. 55.82 percent
2. What's the main motivation for a merger or acquisition?
A. Revenue enhancement
B. Cost reduction
C. Economies of scale
D. Synergy
3. Which one of the following types of international expansion involves the highest level of participation in the form of capital at risk and potential for profit?
A. Sales subsidiary
B. Direct ownership
C. Joint venture
D. Licensing agreement
4. What's the subarea of finance that involves methods and techniques for marking decisions about what types of securities to own?
A. Investments
B. Financial management
C. Financial institutions
D. International finance
5. What's the most common type of business organization in the United States? A. Corporation
B. Partnership
C. Sole proprietorship
D. Limited liability corporation (LLC)
6. The uncertainty that relates to future cash flows is referred to as
A. the agency problem.
B. risk.
C. liability.
D. friction.
7. Using a linear probability model that uses the following formula: PD1 = 0.6 (Debt/Equity) – 0.12 (Sales/Total Assets), calculate the percentage chance of bankruptcy/default of a firm you're thinking of investing in that has a debt-to-equity ratio of 25 percent and a sales-to-assets ratio of 1.1.
A. 1.2 percent
B. 3.0 percent
C. 1.8 percent
D. 4.3 percent
8. _______ monitor(s) a firm from the inside.
A. A board of directors
B. Investment analysts
C. Auditors
D. Investment banks
9. What type of strategies do financial managers implement to reduce exchange rate risks?
A. Discounting
B. Currency conversion
C. Hedging
D. Arbitrage
10. Which one of the following is a political risk to the assets and cash flows of MNCs? A. A downturn in the economy
B. Enactment of new taxation
C. A change in the MNC's capital structure
D. Exchange rate fluctuation
11. A prepackaged bankruptcy combines the informal workout process with
A. liquidation.
B. Chapter 7 bankruptcy.
C. Chapter 11 bankruptcy.
D. assignment.
12. The study of applying specific value to things we own, services we use, and decisions we make is called
A. finance.
B. investments.
C. financial management.
13. Tax _______ is commonly a tax consideration motivating a merger.
A. gains from paying down debt
B. gains from unused debt capacity
C. losses from surplus funds
D. gains from increased operating income
14. Sally's Diamonds, with total costs of $3,000,000 and sales of $4,000,000, is merging with Juan's Diamonds, which has total costs of $2,000,000 and sales of $3,000,000. What percent would the average costs be for the combined entity?
A. 68.41 percent
B. 76.25 percent
C. 71.43 percent
D. 73 percent
15. Firm A from the table below is considering a merger with a competitor in its industry. However, the firm wishes to avoid proposing a merger with the competitor if it's likely to be challenged by the Department of Justice (DOJ) on the grounds that it exceeds guidelines for acceptable changes.
Given this, which of firm A's competitors has the largest percentage market share it could merge with while staying within DOJ guidelines?
A. G B. C C. D D. F
16. Determine the cross rate between Australian and Canadian dollars if $1.0344 Australian will buy $1 U.S. and $0.9788 Canadian will buy $1 U.S.
A. $0.9921
B. $1.0568
C. $0.9854
D. $1.0424
17. What would the HHI index value be in a market where there are four firms with the following market shares:
A. 2,946 B. 1,955 C. 2,288 D. 2,716
18. Helping money flow from individuals who want to improve their financial future to businesses that want to expand the scale or scope of their operations relies on the successful application of
A. economies of scale.
B. the time value of money (TVM).
C. financial theories.
D. financial management.
19. Multinational corporations primarily invest their capital in
A. franchising ventures in countries where they have business operations.
B. joint ventures with firms that have operations in countries where they want to do business.
C. licensing agreements with firms that have products they want to offer.
D. direct ownership of assets to produce products and services in multiple countries.
20. What are two sources of friction that reduce the amount of capital a firm returns to investors?
A. The agency problem and retained earnings
B. Retained earnings and taxes
C. Risk and the agency problem
D. Taxes and risk
