Posted: September 16th, 2017

Finance Multiple Choice Set

Company A offers $30 per share to acquire Company B. Company’s B estimated value of equity is $50 million, it has debt of 5 million, and outstanding shares of 2 million. This will probably result in:

no change in Company B’s stock price
a decrease in Company B’s stock price
an increase in Company A’s stock price
a decrease in Company A’s stock price
none of the above

In a financial merger:

the merged companies combine operations
Equity is used to finance the merger
Debt is used to finance the merger
the merged companies do not combine operations
none of the above

Delta Airlines and Northwest Airlines merged in 2008. This merger is an example of:

a vertical merger
a horizontal merger
a conglomerate merger
more information is needed to answer this question
none of the above

Delta airlines acquired a refinery in Pennsylvania in 2012. This is an example of:

a vertical merger
a horizontal merger
a conglomerate merger
more information is needed to answer this question
none of the above

Company A is interested in acquiring Company B. Estimated present value of Company B is $1 billion.
Company B has 50 million shares of stock outstanding and no debt. Company B’s book value is $22.50.
Without considering possible synergies, what is the maximum price per share that Company A should offer?

$16.25
$22.50
$20.00
$25.25
none of the above

The December Treasury bond futures contract has a quoted price of 95’18 and the implied interest rate is 3.2% (semiannual). If annual interest rates go up by 1.00 percentage point, what is the value of one contract?

$85,504
$ 69,591
$76,939
$95,523
none of the above

Two companies are evaluating a possible swap. Company A can issue floating ­rate debt at LIBOR + 1%, and it can issue fixed rate debt at 9%. Company B can issue floating­rate debt at LIBOR + 1.5%, and it can issue fixed­rate debt at 9.4%. If A issues floating ­rate debt and B issues fixed ­rate debt, and then they engage in the following swap: A will make a fixed 7.95% payment to B, and B will make a floating­rate payment equal to LIBOR to A. Which of the following statements is correct?

The swap is advantageous to A, but not to B
The swap is advantageous to B, but not to A

The swap is advantageous to both A and B
The swap is not advantageous to either A or B
none of the above

“The June Treasury bond futures contract has a quoted price of 102’12. Are current market interest rates higher or lower than the standardized rate on a futures contract?

higher, because the contract is selling at a discount
higher, because the contract is selling at a premium
lower, because the contract is selling at a premium
more information is required to answer this question
None of the above answers is correct

The June Treasury bond futures contract has a quoted price of 102’12. What is the current value of one contract in dollars?

90,180
90,563
102,120
102,375
none of the above

The June Treasury bond futures contract has a quoted price of 102’12. What is the implied annual interest rate?

5.80%
2.90%
5.85%
3.05%
none of the above

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