( 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 .