( d) Chapters 11 and 7 are the most important bankruptcy chapters for financial management purposes. If a reorganization plan cannot be worked out under Chapter 11, then the company will be liquidated as prescribed in Chapter 7 of the Act.( e) Restructuring a firm’ s debt can involve forgiving a certain portion of the debt, but it cannot call for changing the debt’ s maturity or its contractual interest rate.( Points: 20)
Page 3 Question 1.1.( TCO I) In 1985, a given Japanese imported automobile sold for 1,476,000 yen, or $ 8,200. If the car still sold for the same amount of yen today but the current exchange rate is 144 yen per dollar, what would the car be selling for today in U. S. dollars?( a) $ 5.964( b) $ 8,200( c) $ 10,250( d) $ 12,628( e) $ 13,525( Points: 20)
Question 2.2.( TCO H) Which of the following statements is most correct?( a) The acquiring firm’ s required rate of return in most horizontal mergers will not be affected, because the two firms will have similar betas.( b) Financial theory says that the choice of how to pay for a merger is really irrelevant because although it may affect the firm’ s capital structure, it will not affect its overall required rate of return.( c) The basic rationale for any financial merger is synergy, and thus, the estimation of pro-forma cash flows is the single most important part of the analysis.( d) In most mergers, the benefits of synergy and the premium the acquirer pays over the market price are summed and then divided equally between the shareholders of the acquiring and target firms.( e) The primary rationale for most operating mergers is synergy.( Points: 20)
Question 3.3.( TCO A) An investor who writes standard call options against stock held in his or her portfolio is said to be selling what type of options?( a) In-the-money( b) Put( c) Naked( d) Covered( e) Out-of-the-money( Points: 20)
Question 4.4.( TCO F) A swap is a method used to reduce financial risk. Which of the following statements about swaps, if any, is not correct?( a) A swap involves the exchange of cash payment obligations.( b) The earliest swaps were currency swaps in which companies traded debt denominated in different currencies, say dollars and pounds.( c) Swaps are very often arranged by a financial intermediary, who may or may not take the position of one of the counterparties.