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31 May 2019

A (American) call option gives the owner of the option the __________ to ______________ a specified number of shares of stock _____, at a specified price.

a. obligation; sell; for a particular period of time right;

b. sell; on a specified future date obligation; c.

buy; for a particular period of time right;

d.buy; on a specified future date right;

e. buy; for a particular period of time

QUESTION 10

Which of the following is NOT generally considered an advantage of transitioning a firm from a private business to a public corporation, despite the time and expense required to do so?

a. the original founders of the firm can use some funds raised in the IPO to diversify their own investments
b.

it establishes a firm market value for the firm, since the going price per share is now public information
c.

it reduces the firm's cost of raising additional capital in the future, because the the stock will be more liquid

d. it reduces the firm's cost of raising additional capital in the future because everyone knows how much of their OWN money the founders are investing in the firm (how much "skin in the game" they have)

e. all of the above are advantages of going public

QUESTION 11

An increase in depreciation expense will ______________ a firm's net income and ___________ the firm's (net) cash flow. Assume that both NI and (net) cash flow both start and finish above $0.00.

a. decrease, decrease

b. decrease, increase
c.

increase, decrease
d.

increase, increase

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Sixta Kovacek
Sixta KovacekLv2
3 Jun 2019

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Related questions

Which of the following is NOT generally considered an advantage of transitioning a firm from a private business to a public corporation, despite the time and expense required to do so?

the original founders of the firm can use some funds raised in the IPO to diversify their own investments

it establishes a firm market value for the firm, since the going price per share is now public information

it reduces the firm's cost of raising additional capital in the future, because the the stock will be more liquid

it reduces the firm's cost of raising additional capital in the future because everyone knows how much of their OWN money the founders are investing in the firm (how much "skin in the game" they have)

all of the above are advantages of going public

I. Fill in the blank using a number of terms listed below (@1 point). Annuity due, Asset Mgmt ratio, Call, Comparisons, Comparative ratio analysis, Corporation, Covered, Current Ratio, DSO, Du Pont Equation , Equal, Future performance, Greater, Higher, In-the-money, Less, Liquidity, Lower, Option, Ordinary Annuity, Out-of-the-money, Percentage, Perpetuity, Put, PV, Quick, Reduced, TIE, TATO, Trend Analysis, Writer 11. The payment or receipt of equal amounts, at the end of a series of equal periods, for a specified amount of time is called a(n) _______________. 12. When a loan is amortized over a five year term, the amount of interest paid is ________________ each year. 13. You have just won a $5 million lottery to be received in twenty annual equal payments of $250,000. What will happen to the present value of your winnings if the interest rate increases? It will be worth _________________. 14. The more frequent the compounding the _________________ the effective interest rate. 15. More frequent compounding results in _______________ future values and _______________ present values than less frequent compounding at the same nominal interest rate. 16. A(n) _______________ is a financial instrument that agrees to pay an equal amount of money per period into the indefinite future (i.e. forever). 17. A(n) _________________ is a contract which gives its holder the right to buy(or sell) an asset at some predetermined price within a specified period of time. 18. The seller of an option is called the option __________________. 19. An investor who writes call options against stock held in his or her portfolio is said to be selling _______________ options. 20. When the exercise price exceeds the current stock price, a call option is said to be _____________________; however, when the exercise price is less than the current price of the underlying stock, a call option is _________________. 21. An option which gives you the right to sell a stock at a specified price within some future period is called a(n) ______________ option.

Which of the following is correct?

NPV will be higher if sunk costs are included in a project's cash flows
A good example of a sunk cost is a situation where a company builds a restaurant and that results in lower sales by another of its restaurants.
A good example of a sunk cost is a situation where a company builds a restaurant and closes another of its restaurants.
A good example of a sunk cost is a situation where a company evaluated a site for a new restaurant last year, expensed the cost on its income statement, and now builds the restaurant

none of the above

2.

TUNDRA Corporation's stock sells for $50 per share. A call option on the stock has a strike price of $55. A put option on the stock also has a strike price of $55. Which of the following is correct?

The call option is in-the-money
The put option is in-the-money
Both the call option and the put option are out-of-the money
The call option has a value of $5

none of the above

3.

A firm plans to purchase equipment for $1.5 million. It will cost 200,000 to modify it for use in the firm's facility. The equipment is in the 3-year MACRS class. Calculate depreciation expense for Year 3.

222,150
$251,770
$566,667
$500,000

none of the above

4.

A proposed project is much riskier than average. The best way to account for its added risk is:

Ignoring it because project risk cannot be measured accurately.
Decreasing the discount rate to account for the higher risk
Increasing the discount rate to account for the higher risk
Reducing the NPV by 5% to account for the higher risk

none of the above

5.

A company needs to decide whether to invest in a project now or wait a year until better information is available. The project has a positive expected NPV, but it could be negative if cash flows are less than expected. No competitors are likely to invest in a similar project if the company decides to wait. Which of the following best describes the issues the company is facing in making its decision?

The more uncertainty about the future cash flows, the more reason to go ahead with the project today.
NPV should be even higher by waiting a year, since it is positive today.
The project should be adopted now to lock in the expected positive NPV.
Waiting would probably reduce the project's risk.

none of the above

6.

A stock is currently selling for $25. A 6-month call option on the stock has a strike price of $30 and sells for $0.50. Calculate the exercise value of the option?

$0.00
$4.50
$5.00
$24.50

none of the above

7.

Which of the following is not a real option?

The option to switch the type of vehicle manufactured in a plant
The option to expand into a foreign country
The option to buy shares of stock if its price goes up.
The option to abandon a project.

none of the above

8.

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 binominal model, what is the option's value?

$2.99
$2.70
$2.43
$3.29

$3.62

9.

A company purchases equipment for $5 million, incurs shipping costs of $30,000 and installation costs of $50,000. It also requires additional net working capital of $100,000. What is the depreciable base?

$5,000,000
$5,180,000
$5,080,000
$5,030,000

none of the above

10.

Which of the following is an example of a real option?

An option to buy stock at a specified price for a specified period of time
An option to sell stock at a specified price for a specified period of time
An option to invest in a project today or to wait a year.
An option to buy either an American or European option
none of the above

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