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SELECT THE SINGLE BEST ANSWER. USE A CIRCLE TO INDICATE YOUR CHOICE.
Questions in the quiz are based on Krispy Kreme Doughnuts (KKD), Inc. case study and assigned reading, “Z- Factor –
Rescue by the Numbers”.
6. Which of the following statements is not correct? The statements refer to Z-Factor Rescue by the
Numbers article:
a. Z-score is an overall index of corporate financial health.
b. According to the model, financially strong companies have Z-score between 1.81 and 2.99
c. Of the five financial ratios in the Z-score model, four had total assets in the denominator.
d. Z-score model’s prediction accuracy improves closer to the event
e. more than one statement is not correct
7. Which one of the following ratios is not part of the Z-score model?
a. EBIT/total assets
b. total debt/total assets
c. net working capital/total assets
d. retained earnings/book value of total debt
e. accumulated retained earnings/total assets
10. What was the ROE of KKD based on the following ratio data?
Current Ratio 3.25
Debt to Equity 11.26%
Asset to Equity 1.46
Total Asset Turnover 1.01
Operating Profit Margin 15.34%
Net Profit Margin 8.58%
a. 8.66%
b. 12.65%
c. 22.62%
d. none of the above is correct
Applied Corporate Finance – FINN 400 (01) Name: _______________________
Quiz # 1 - Spring 2017 ID #: ________________
Total Points: 10
SELECT THE SINGLE BEST ANSWER. USE A CIRCLE TO INDICATE YOUR CHOICE.
Questions in the quiz are based on Krispy Kreme Doughnuts (KKD), Inc. case study and assigned reading, “Z- Factor –
Rescue by the Numbers”.
4. Which of the following statements is not correct? The statements refer to Z-Factor Rescue by the
Numbers article:
a. Z-score is an overall index of corporate financial health.
b. According to the model, financially strong companies have Z-score greater than 2.99
c. Of the five financial ratios in the Z-score model, four had total assets in the denominator.
d. Z-score model’s prediction accuracy deteriorates closer to the event
e. more than one statement is not correct
5. Which one of the following was the primary reason for KKD stock price to plummet more than 80%
from its peak price in August 2003?
a. excessive borrowing, high leverage
b. inefficient utilization of firm’s assets.
c. declining profit margins over the years
d. revelation of aggressive accounting treatment for franchise rights reacquisitions made by KKD
and reduction in earnings guidance
e. none of the above
6. Which one of the following ratios is not part of the Z-score model?
a. fixed assets/total assets
b. EBIT/total assets
c. net working capital/total assets
d. retained earnings/book value of total debt
e. accumulated retained earnings/total assets
9. What was the ROE of KKD based on the following ratio data?
Current Ratio 1.39
Debt to Equity 47.96%
Asset to Equity 2.20
Total Asset Turnover 2.10
Operating Profit Margin 4.92%
Net Profit Margin 2.70%
a. 8.66%
b. 12.65%
c. 12.47%
d. none of the above is correct
SELECT THE SINGLE BEST ANSWER. USE A CIRCLE TO INDICATE YOUR CHOICE.
2. Which of the following statements is true? (Source: The Body Shop International case study)
I. Anita Roddick, the founder of The Body Shop, was finance savvy and focused on financial
results of the company.
II. The Body Shop once the fastest growing manufacturer-retailer ran aground in the late 1990s
because of stiff competition from new entrants of the naturally based skin and hair-care products.
a. I is true b. II is true
c. both are true d. both are false
3. Which of the following would reduce the external funds needed for financing the firm’s operations
(other things held constant)?
a. an increase in the dividend payout ratio
b. an increase in the expected growth rate in sales
c. an increase in the net profit margin
d. an increase in the capital intensity ratio (A/S)
e. only b and c above
4. Which of the following statements is true? (Source: The Body Shop International case study)
I. Two classic financial forecasting methods are: T-account forecasting and percentage-of-sale forecasting.
II. One of the circularity problem in preparing pro forma statements arises from the income statement and
balance sheet dependence on each other.
a. I is true b. II is true
c. Both are true d Both are false
5. All of the following current liabilities normally vary with sales (i.e., spontaneous liabilities), EXCEPT
a. accounts payable
b. accrued wages
c. notes payable
d. accrued taxes
Jimmy’s Pizza, Inc., had the following balance sheet last year: (in thousands)
8. What will be Jimmy’s additional funds requirement (AFN) if his expectations are realized?
EFN = 30 -10 – 12 = $8
9-10. Prepare the pro forma balance sheet for Jimmy’s Pizza. Assume that all external capital requirements are
met by bank loans and are reflected in notes payable.
Applied Corporate Finance – FINN 400 (01)* Name: _______________________
Quiz # 2 - Spring 2017 ID #: ________________
Total Points: 10
SELECT THE SINGLE BEST ANSWER. USE A CIRCLE TO INDICATE YOUR CHOICE.
2. Which of the following statements is true? (Source: The Body Shop International case study)
I. Anita Roddick, the founder of The Body Shop, was not finance savvy and did not care much
about financial results of the company.
II. The Body Shop once the fastest growing manufacturer-retailer ran aground in the late 1990s
because of stiff competition from new entrants of the naturally based skin and hair-care products.
a. I is true b. II is true
c. both are true d. both are false
3. Which of the following would reduce the external funds needed for financing the firm’s operations
(other things held constant)?
a. an increase in the dividend payout ratio
b. an increase in the expected growth rate in sales
c. an increase in the net profit margin
d. an increase in the capital intensity ratio (A/S)
e. only b and c above
4. Which of the following statements is true? (Source: The Body Shop International case study)
I. Two classic financial forecasting methods are: T-account forecasting and percentage-of-sale forecasting.
II. One of the circularity problem in preparing pro forma statements arises from the income statement and
balance sheet dependence on each other.
a. I is true b. II is true
c. Both are true d Both are false
5. All of the following current liabilities normally vary with sales (i.e., spontaneous liabilities), EXCEPT
a. accounts payable
b. notes payable
c. accrued wages
d. accrued taxes
Jimmy’s Pizza, Inc., had the following balance sheet last year: (in thousands)
8. What will be Jimmy’s additional funds requirement (AFN) if his expectations are realized?
EFN = 30 -10 – 12 = $8
9-10. Prepare the pro forma balance sheet for Jimmy’s Pizza. Assume that all external capital requirements are
met by bank loans and are reflected in notes payable.
Applied Corporate Finance – FINN 400 (01) Name: _______________________
Quiz # 3 - Spring 2017 ID #: ________________
Total Points: 10 (Financial Calculator Quiz)
3. The CEO wants to use the IRR criterion, while the CFO favors the NPV method, and you were hired to advise the
firm on the best procedure. If the CEO's preferred criterion is used, how much value will the firm lose as a result
of this decision?
a. 81.21 million
b. 6.47 million
c. 75.12 million
d. cannot be determined from the information provided
Given the four years return data for the market and Biotech Company, answer the next two questions.
Return Return
Year Biotech Market
% %
2012 20 10
2013 30 20
2014 20 15
2015 10 7
Avg 20 13
5. What is the stock’s beta as a measure of its systematic risk?
a. 0.98
b. 1.33
c. 1.43
d. 1.04
e. none of the above is correct
6. Which of the following statements is true?
I. The standard deviation of the sample data of market returns is about 32.67.
II. Given a risk-free rate of 5 percent and market risk-premium is 8 percent, the required return on Jerry’s
sock will be higher than 13 percent.
a. I only b. II only
c. Both are true d. Both are false
7. A corporate bond matures in 14 years. The bond has an 8 percent semiannual coupon and a par value of $1,000.
The bond is callable in five years at a call price of $1,050. The price of the bond today is $1,075. What is the
bond’s yield to maturity?
a. YTM = 6.88%
b. YTM = 5.88%
c. YTM = 5.43%
d. YTM = 7.14%
e. none of the above is correct
The regression results of Walt Disney Company and the S&P 500 monthly returns are shown below. Use these results to
answer next three questions:
10. The regression statistics indicate that at the 5 percent level, the slope coefficient
a. and the intercept are both statistically significant
b. and the intercept both lack statistical significance
c. is statistically significant, but the intercept is not statistically significant
d. is not statistically significant, but the intercept is statistically significant.
Applied Corporate Finance – FINN 400 (01)** Name: _______________________
Quiz # 3 - Spring 2017 ID #: ________________
Total Points: 10 (Financial Calculator Quiz)
3. The CEO wants to use the IRR criterion, while the CFO favors the NPV method, and you were hired to advise the
firm on the best procedure. If the CEO's preferred criterion is used, how much value will the firm lose as a result
of this decision?
a. 81.21 million
b. 6.47 million
c. 75.12 million
d. cannot be determined from the information provided
Given the four years return data for the market and Biotech Company, answer the next two questions.
Return Return
Year Biotech Market
% %
2012 20 10
2013 30 20
2014 20 15
2015 10 7
Avg 20 13
5. What is the stock’s beta as a measure of its systematic risk?
a. 0.98
b. 1.43
c. 1.33
d. 1.04
e. none of the above is correct
6. Which of the following statements is true?
I. The standard deviation of the sample data of market returns is about 5.72.
II. Given a risk-free rate of 5 percent and market risk-premium is 8 percent, the required return on Jerry’s
sock will be less than 13 percent.
a. I only b. II only
c. Both are true d. Both are false
7. A corporate bond matures in 14 years. The bond has an 8 percent semiannual coupon and a par value of $1,000.
The bond is callable in five years at a call price of $1,050. The price of the bond today is $1,175. What is the
bond’s yield to maturity?
a. YTM = 6.12%
b. YTM = 5.88%
c. YTM = 7.42%
d. YTM = 7.14%
e. none of the above is correct
The regression results of Walt Disney Company and the S&P 500 monthly returns are shown below. Use these results to
answer next three questions:
10. The regression statistics indicate that at the 5 percent level, the slope coefficient
a. and the intercept are both statistically significant
b. and the intercept both lack statistical significance
c. is statistically significant, but the intercept is not statistically significant
d. is not statistically significant, but the intercept is statistically significant.
Applied Corporate Finance – FINN 400 (Sec 1) Name: _______________________
Quiz # 4 – Spring 2017 ID #: ________________
Total Points: 10
SELECT THE SINGLE BEST ANSWER. USE A CIRCLE TO INDICATE YOUR CHOICE.
2. Which of the following statements is false? (Source: Deluxe Corporation case study)
a. The primary determinants of a bond rating are the coverage ratio and debt usage.
b. In 2002, Deluxe Corporation’s challenge was to select a mix of debt and equity that allows financial
flexibility to access capital markets in the future while maintaining investment grade bond rating.
c. Deluxe Corporation’s compound annual growth in sales (1998-2001) of around 12% reflected the
growing potential of the market.
d. When firms issue more debt, the tax shield on debt increases, the agency costs on debt (in the form of
financial distress costs) increases, and the agency costs for equity holders decreases because of
disciplining effect.
e. more than one of the above statements are false
3. Which of the following statements is false? (Source: Deluxe Corporation case study)
a. Deluxe Corporation had been aggressively pursuing program of share repurchase which had been well
received by the investors.
b. By 2002, Deluxe Corporation had retired all its outstanding short-term debt in the form of commercial
paper and credit lines, both committed and uncommitted.
c. Deluxe Corporation had leadership position with nearly 50% of the market share in a rapidly maturing
industry.
d. Consolidation in the banking sector and growth in the electronic payments presented tough challenges for
Deluxe to navigate.
e. more than one of the above statements are false
9. The pecking order states how financing should be raised. In order to avoid asymmetric information problems and
misinterpretation of whether management is sending a signal on security overvaluation the firm's first rule is to:
a. finance with internally generated funds.
b. always issue debt then the market won't know when management thinks the security is overvalued.
c. issue new equity first.
d. issue debt first.
e. None of the above.
10. HBS is an unleveraged firm with a current beta of 1.0. It is currently considering changing its capital structure to
25% debt to total capital. The firm’s corporate tax rate is 40 percent. The current risk-free rate is 6% and the
market risk premium (Rm – Rf) is 7%. The firm's after-tax cost of debt is estimated to be 4% which is expected to
remain at the same level up to 30% of debt ratio. Should HBS change its current capital structure?
a. yes, cost of capital (WACC) decreases by about 1.6%
b. no, stock price will decrease due to increased risk
c. yes, cost of capital (WACC) decreases by 1.2%
d. no, risk of the firm would increase and decrease the value of the firm
Applied Corporate Finance – FINN 400 (Sec 1)*** Name: _______________________
Quiz # 4 – Spring 2017 ID #: ________________
Total Points: 10
SELECT THE SINGLE BEST ANSWER. USE A CIRCLE TO INDICATE YOUR CHOICE.
2. Which of the following statements is false? (Source: Deluxe Corporation case study)
a. The primary determinants of a bond rating are the coverage ratio and debt usage.
b. In 2002, Deluxe Corporation was a dominant player in a highly concentrated and competitive online
payment system.
c. In 2002, Deluxe Corporation’s challenge was to select a mix of debt and equity that allows financial
flexibility to access capital markets in the future while maintaining investment grade bond rating.
d. When firms issue more debt, the tax shield on debt increases, the agency costs on debt (in the form of
financial distress costs) increases, and the agency costs for equity holders decreases because of
disciplining effect of debt.
e. more than one of the above statements are false
3. Which of the following statements is false? (Source: Deluxe Corporation case study)
a. Deluxe Corporation had been aggressively pursuing program of share repurchase which had been well
received by the investors.
b. By 2002, Deluxe Corporation had retired all its outstanding short-term debt in the form of commercial
paper and credit lines, both committed and uncommitted.
c. Deluxe Corporation had leadership position with nearly 50% of the market share in a rapidly maturing
industry.
d. Consolidation in the banking sector and growth in the electronic payments presented tough challenges for
Deluxe to navigate.
e. more than one of the above statements are false
10. HBS is an unleveraged firm with a current beta of 1.0. It is currently considering changing its capital structure to
25% debt to total capital. The firm’s corporate tax rate is 40 percent. The current risk-free rate is 6% and the
market risk premium (Rm – Rf) is 7%. The firm's after-tax cost of debt is estimated to be 4% which is expected to
remain at the same level up to 30% of debt ratio. Should HBS change its current capital structure?
a. yes, cost of capital (WACC) decreases by about 1.2%
b. no, stock price will decrease due to increased risk
c. yes, cost of capital (WACC) decreases by 1.6%
d. no, risk of the firm would increase and decrease the value of the firm
Applied Corporate Finance – FINN 400 (Sec 1) Name: _______________________
Quiz # 5 – Spring 2017 ID #: ________________
Total Points: 10
SELECT THE SINGLE BEST ANSWER. USE A CIRCLE TO INDICATE YOUR CHOICE.
7. What is the relevant amount net salvage value at the end of year-3?
a. -$60,000
b. -$70,000
c. -$87,000
d. -$12,000
e. none of the above is correct
10. If the borrowing cost of the lessee increased from 13.81 to 15%, the NAL will:
a. increase
b. decrease
c. remain unchanged because of the offsetting effects
d. cannot be determined based on the information provided
Applied Corporate Finance – FINN 400 (Sec 1)** Name: _______________________
Quiz # 5 – Spring 2017 ID #: ________________
Total Points: 10
SELECT THE SINGLE BEST ANSWER. USE A CIRCLE TO INDICATE YOUR CHOICE.
7. What is the relevant amount net salvage value at the end of year-3?
a. -$60,000
b. -$70,000
c. -$87,000
d. -$12,000
e. none of the above is correct
10. If the borrowing cost of the lessee increased from 13.81 to 15%, the NAL will:
a. increase
b. decrease
c. remain unchanged because of the offsetting effects
d. cannot be determined based on the information provided
Applied Corporate Finance – FINN 400 (Sec 1) Name: _______________________
Quiz # 6 – Spring 2017 ID #: ________________
Total Points: 10
SELECT THE SINGLE BEST ANSWER. USE A CIRCLE TO INDICATE YOUR CHOICE.
4. One possible reason that shareholders often insist on higher dividends is:
a. They agree with Gordon and Lintner view
b. Tax considerations
c. The stock market is efficient
d. They do not trust managers to spend retained earnings wisely
6. ABC Corporation declares as 10% stock dividend (bonus shares) when the market value of its shares exceed the
par value. The effect of stock dividend on the following balance sheets accounts will be:
7. What is the appropriate discount rate to determine the Enterprise Value (EV)?
a. 20.0%
b. 14,2%
c. 17.0%
d. 12.0%
e. none of the above is correct
9. What is your estimate of the Terminal Value (in ‘000) at the end of year 4?
a. $2,534
b. $2,413
c. $3,330
d. $3,171
e. none of the above is correct
10. What is the firm’s total equity value (in ‘000) based on your FCFF analysis?
a. $2,066
b. $2,721
c. $721
d. $4,066
e. none of the above is correct
Applied Corporate Finance – FINN 400 (Sec 1)** Name: _______________________
Quiz # 6 – Spring 2017 ID #: ________________
Total Points: 10
SELECT THE SINGLE BEST ANSWER. USE A CIRCLE TO INDICATE YOUR CHOICE.
4. Possible reasons why high net worth investors often insist on higher dividends, because:
a. they agree with Gordon and Lintner view
b. they do not trust managers to spend retained earnings prudently
c. of tax reasons
d. stock market is efficient
e. both b and c above
6. ABC Corporation declares as 10% stock dividend (bonus shares) when the market value of its shares exceed the
par value. The effect of stock dividend on the following balance sheets accounts will be:
7. What is the appropriate discount rate to determine the Enterprise Value (EV)?
a. 20.0%
b. 14,2%
c. 17.0%
d. 12.0%
e. none of the above is correct
9. What is your estimate of the Terminal Value (in ‘000) at the end of year 4?
a. $2,534
b. $2,413
c. $3,330
d. $3,171
e. none of the above is correct
10. What is the firm’s total equity value (in ‘000) based on your FCFF analysis?
a. $2,066
b. $2,721
c. $721
d. $4,066
e. none of the above is correct
Applied Corporate Finance – FINN 400 (01) Name: _______________________
Quiz # 7 - Spring 2017 ID #: ________________
Total Points: 10
SELECT THE SINGLE BEST ANSWER. USE A CIRCLE TO INDICATE YOUR CHOICE.
4. Investment banks perform which of the following services for corporate issuers:
a. advising and formulating the method used to issue securities.
b. pricing the new securities.
c. selling the new securities.
d. All of the above.
e. only a and b above
SELECT THE SINGLE BEST ANSWER. USE A CIRCLE TO INDICATE YOUR CHOICE.
SELECT THE SINGLE BEST ANSWER. USE A CIRCLE TO INDICATE YOUR CHOICE.
5. Firm A has a value of $200 million, and T has a value of $120 million. Merging the two would allow a cost
saving synergies with a present value of $30 million. Firm A purchases T for $130 million. How much do firm
A's shareholders gain from this merger?
a. $30 million
b. $20 million
c. $15 million
d. $10 million
9. Firm A has a value of $200 million, and T has a value of $120 million. Merging the two would allow a cost
saving synergies with a present value of $30 million. Firm A purchases T for $130 million. How much do firm
A's shareholders gain from this merger?
a. $30 million
b. $20 million
c. $15 million
d. $10 million