Reference no: EM132780946

Questions -

Q1. The writer of a call option has the obligation:

A. but not the right to buy an asset at a predetermined price.

B. and the right to sell an asset at a predetermined price.

C. but not the right to sell an asset at a predetermined price.

D. and the right to buy an asset at a predetermined price.

Q2. A company has a project with an initial after-tax cash savings of $40,000 at the end of the first year. These savings will increase by 2% annually, indfefinitely into the future. The firm has a debt-equity ratio of 1/3, a cost of equity of 16%, a cost of debt of 10%, and a 35% tax rate. The project is equal in risk to the current overall risk of the company. What is the present value of the project?

A. $361,016

B. $321,906

C. $369,231

D. $357,021

E. $355,800

Q3. Which of the following is not a potential benefit of a merger?

A. Increased standard deviation of earnings per share.

B. Tax loss carry-forward might be available in a merger if one of the firms has previously sustained a tax loss.

C. Achieving risk reduction while perhaps maintaining the firm's rate of return.

D. Greater access to financial markets, and thus, be in a better position to raise debt and equity capital.