Archives

A U.S. Treasury bond pays 9.5 percent interest. You are in the 25 percent tax bracket. What is your after-tax yield on this bond? A. 1.28 percent B. 2.23 percent C. 7.13 percent D. 8.35 percent E. 9.50 percent A […]

Limited liability companies are primarily designed to: A. allow a portion of their owners to enjoy limited liability while granting the other portion of their owners control over the entity. B. provide the benefits of the corporate structure to foreign-based […]

The transaction motive for holding cash refers to the need to have cash for which one of the following purposes? A. Safety margin B. Investment opportunities C. Daily operations D. Financial reserve E. Bargain opportunities Windsor stock has produced returns […]

Tennessee Valley Antiques would like to issue new equity shares if its cost of equity declines to 10.5 percent. The company pays a constant annual dividend of $1.80 per share. What does the market price of the stock need to […]

The Priceville Bull Dogs offers credit terms of 2/15, net 40 to all of its customers. Historically, 80 percent of its customers take advantage of the discount. What is the firms average collection period? A. 17.60 days B. 17.87 days […]

Lewis Materials recently offered 15,000 shares of stock but received payment for only 12,500 shares since that was all the shares the underwriters could sell. What type of underwriting was this? A. Syndicated B. Firm commitment C. Private placement D. […]

Portfolio diversification eliminates which one of the following? A. Total investment risk B. Portfolio risk premium C. Market risk D. Unsystematic risk E. Reward for bearing risk You are comparing two annuities. Annuity A pays $100 at the end of […]

You are given the following information concerning Around Town Tours:Debt: 8,500, 7.1 percent coupon bonds outstanding, with 14 years to maturity and a quoted price of 102.6. These bonds pay interest semiannually.Common stock: 265,000 shares of common stock selling for […]

Computing the present value of a future cash flow to determine what that cash flow is worth today is called: A. compounding. B. factoring. C. time valuation. D. simple cash flow valuation. E. discounted cash flow valuation. Which one of […]

A U.S. firm has total assets valued at 687,000 located in Germany. This valuation did not change from last year. Last year, the exchange rate was 0.94 = $1. Today, the exchange rate is .0.75 = $1. By what amount […]

Skyline Industries will need $1.8 million 5 years from now to replace some equipment. Currently, the firm has some extra cash and would like to establish a savings account for this purpose. The account pays 5.25 percent interest, compounded annually. […]

Weston Steel purchased a new coal furnace six years ago at a cost of $2.2 million. Last year, the government changed the emission requirements and this furnace cannot meet those standards. Thus, Weston can no longer use the furnace, nor […]

The Blue Lagoon is considering a project with a five-year life. The project requires $110,000 of fixed assets that are classified as five-year property for MACRS. Variable costs equal 71 percent of sales, fixed costs are $9,600, and the tax […]

USA Manufacturing issued 30-year, 8.5 percent semiannual bonds 6 years ago. The bonds currently sell at 101 percent of face value. What is the firms aftertax cost of debt if the tax rate is 30 percent? A. 5.88 percent B. […]

A 7 percent bond has a yield to maturity of 6.5 percent. The bond matures in seven years, has a face value of $1,000, and pays semiannual interest payments. What is the amount of each coupon payment? A. $30.00 B. […]

Which one of the following statements is correct? A. All secondary markets are dealer markets. B. All secondary markets are broker markets. C. All stock trades between existing shareholders are secondary market transactions. D. All stock transactions are secondary market […]

If a firm has a negative cash flow from assets every year for several years, the firm: A. may be continually increasing in size. B. must also have a negative cash flow from operations each year. C. is operating at […]

Which one of the following is an advantage of being a limited partner? A. Nontaxable share of any profits B. Control over the daily operations of the firm C. Losses limited to capital invested D. Unlimited profits without risk of […]

ADP, Inc. needs to raise $43 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. The SEC filing fee and associated administrative expenses […]

Decatur Marina has a line of credit with a local bank that permits it to borrow up to $1.3 million at any time. The interest rate is 0.60 percent per month. The bank charges compound interest and also requires that […]

A 5.5 percent $1,000 bond matures in seven years, pays interest semiannually, and has a yield to maturity of 6.23 percent. What is the current market price of the bond? A. $945.08 B. $947.21 C. $959.09 D. $959.60 E. $962.40 […]

Which one of the following is an intangible fixed asset? A. Inventory B. Machinery C. Copyright D. Account receivable E. Building Graphic Designs has 120,000 shares of cumulative preferred stock outstanding. Preferred shareholders are supposed to be paid $1.50 per […]

Which of the following should be included in the analysis of a proposed investment?I. Erosion effectsII. Opportunity costsIII. Sunk costsIV. Side effects A. I only B. II only C. I and IV only D. I, II, and IV only E. […]

Which one of the following statements is correct? A. The APR is equal to the EAR for a loan that charges interest monthly. B. The EAR is always greater than the APR. C. The APR on a monthly loan is […]

Which one of the following is a correct statement, all else held constant? A. The present value is inversely related to the future value. B. The future value is inversely related to the period of time. C. The period of […]

You own a portfolio that is invested as follows: $11,400 of Stock A, $8,800 of Stock B, $14,900 of Stock C, and $3,200 of Stock D. What is the portfolio weight of Stock C? A. 38.47 percent B. 38.90 percent […]

Manning, Inc. originally issued bonds that were rated investment grade. These bonds have now been downgraded to junk status. Which one of the following terms applies to this situation? A. Called bond B. Converted bond C. Protected covenant D. Fallen […]

Redneck Farm Equipment owes $48,329 in tax on a taxable income of $549,600. The company has determined that it will owe $56,211 in tax if its taxable income rises to $565,000. What is the marginal tax rate at this level […]

You are analyzing a project and have developed the following estimates. The depreciation is $14,800 a year and the tax rate is 35 percent. What is the base case operating cash flow? A. $18,770 B. $18,972 C. $21,433 D. $21,690 […]

Which one of the following is the name given to a registration of securities under SEC 415 which permits a firm to issue the securities over a two-year period? A. Seasoned registration B. Negotiated registration C. Shelf registration D. Extended […]

Which one of the following is a general characteristic of a securities broker? A. Trades from his or her own inventory B. Trades only foreign securities C. Trades listed securities in an auction market D. Trades electronically from any geographic […]

Scenario analysis asks questions such as: A. How will changing the number of units sold affect the outcome of this project? B. What is the best outcome that should reasonably be expected? C. How much will a $1 increase in […]

Pluto United has 18,000 shares of stock outstanding at a price per share of $38. How many shares will be outstanding if the firm does a 5-for-4 stock split? A. 13,600 shares B. 15,800 shares C. 18,000 shares D. 19,600 […]

Which one of the following increases the number of shares outstanding but does not increase the value of owners equity? A. Stock repurchase B. Reverse stock split C. Stock split D. Cash distribution E. Liquidating dividend A firm grants credit […]

Which one of the following statements is correct? A. Firms should generally finance all of their assets with long-term debt. B. Firms that follow restrictive financial policies can generally avoid short-term debt financing. C. Short-term borrowing is generally more expensive […]

Lisa is interested in purchasing 1,000 shares of TJH, Inc. when the shares are issued. Her broker just gave Lisa a preliminary prospectus on these shares for her to review as she waits for the shares to be cleared for […]

Gulf Shores Inn is comparing two separate capital structures. The first structure consists of 260,000 shares of stock and no debt. The second structure consists of 200,000 shares of stock and $1.5 million of debt. What is the price per […]

Which one of the following occurs when interest rate parity exists between Countries A and B? A. Country A investors are indifferent between risk-free investments in Countries A and B. B. Forward exchange rates for Countries A and B must […]

Which one of the following is the abbreviation for the U.S. government coding system that classifies a firm by its specific type of business operations? A. BEC B. SED C. BID D. SIC E. SBC You are analyzing a project […]

Augustinos has the following estimated sales. Purchases are equal to 64 percent of the following quarters sales. The accounts receivable period is 45 days and the accounts payable period is 60 days. Assume there are 30 days in each month. […]

Dover Wholesalers sells products exclusively to Benn Retailer. Benn Retailer buys exclusively from Dover Wholesalers. Dover Wholesalers has a receivables period of 44 days, an inventory period of 8 days, and a payables period of 63 days. Benn Retailer has […]

You want to save $200 a month for the next 24 years and hope to earn an average rate of return of 11 percent. How much more will you have at the end of the 24 years if you invest […]

You would like to invest $19,000 and have a portfolio expected return of 12.3 percent. You are considering two securities, A and B. Stock A has an expected return of 15.6 percent and B has an expected return of 10.3 […]

Kessler, Inc. has accounts receivable of $31,600, total assets of $311,500, cost of goods sold of $208,400, and a capital intensity ratio of 1.08. What is the accounts receivable turnover rate? A. 8.99 B. 9.13 C. 9.42 D. 9.61 E. […]

You are considering an investment for which you require a 14 percent rate of return. The investment costs $61,900 and will produce cash inflows of $26,000 for three years. Should you accept this project based on its internal rate of […]

Over the last four years, the common stock of Plymouth Shippers has had an arithmetic average return of 9.3 percent. Three of those four years produced returns of 14.1 percent, 15.6 percent, and 3.4 percent, respectively. What is the geometric […]

Which one of the following statements is correct, all else held constant? A. Beta is used to compute the return on equity and the standard deviation is used to compute the return on preferred. B. A decrease in a firms […]

A stock has returns for five years of 23 percent, -17 percent, 8 percent, 22 percent, and 3 percent, respectively. The stock has an average return of ______ percent and a standard deviation of _____ percent. A. 7.80; 13.54 B. […]

A negative cash flow to stockholders indicates a firm: A. had a negative cash flow from assets. B. had a positive cash flow to creditors. C. paid dividends that exceeded the amount of the net new equity. D. repurchased more […]

Which one of the following is the rate of return an investor earns on a bond before adjusting for inflation? A. Nominal rate B. Real rate C. Dirty rate D. Coupon rate E. Clean rate Trendsetters has a cost of […]

The expected return on a security depends on which of the following?I. Risk-free rate of returnII. Amount of the securitys unique riskIII Market rate of returnIV. Standard deviation of returns A. I and III only B. II and IV only […]

Smelly Perfumes sells 3,500 units of its perfume collection each year at a price per unit of $275. All sales are on credit with terms of 1/7, net 30. The discount is taken by 40 percent of the customers. What […]

The average net income of a project divided by the projects average book value is referred to as the projects: A. required return. B. market rate of return. C. internal rate of return. D. average accounting return. E. discounted rate […]

The current spot rate between the UK and the U.S. is 0.6220 per $1. The expected inflation rate in the U.S. is 2.1 percent. The expected inflation rate in the UK is 2.6 percent. If relative purchasing power parity exists, […]

The NYSE: A. presently conducts all of its trading through SuperDOT. B. is a dealer market. C. is in the business of attracting order flow. D. is solely a primary market. E. is based on a multiple market maker system. […]

Travis borrowed $10,000 four years ago at an annual interest rate of 7 percent. The loan term is six years. Since he borrowed the money, Travis has been making annual payments of $700 to the bank. Which type of loan […]

Which one of the following types of securities has no priority in a bankruptcy proceeding? A. Convertible bond B. Senior debt C. Common stock D. Preferred stock E. Straight bond The DuPont identity can be totally defined by which one […]

Which one of the following statements related to the income statement is correct? A. Depreciation has no effect on taxes. B. Interest paid is a noncash item. C. Taxable income must be a positive value. D. Net income is distributed […]

Which one of the following statements is correct? A. The internal rate of return is the most reliable method of analysis for any type of investment decision. B. The payback method is biased toward short-term projects. C. The modified internal […]

Holly Farms has sales of $581,600, costs of $479,700, depreciation expense of $32,100, and interest paid of $8,400. The tax rate is 42 percent. How much net income did the firm earn for the period? A. $25,788 B. 35,612 C. […]

Pannick Motors has projected the following sales for the coming year. Sales in the year following this one are projected to be 12 percent greater in each quarter. Assume the company places orders during each quarter equal to 45 percent […]

The T-shirt Hut successfully managed to reduce its general and administrative costs this year. This cost improvement will increase which of the following ratios?I. Profit marginII. Return on assetsIII. Total asset turnoverIV. Return on equity A. I and II only […]

A common-size balance sheet helps financial managers determine: A. which customers are paying on a timely basis. B. if costs are increasing faster or slower than sales. C. if changes are occurring in a firms mix of assets. D. if […]

Nu Tek is comprised of four separate operating divisions. For this year, the firm has decided to allocate capital funds using a soft rationing approach. Which one of the following applies to this situation? A. Division managers will be limited […]

Soft and Cuddly is considering a new toy that will produce the following cash flows. Should the company produce this toy if the firm requires a 15 percent rate of return? A. Yes, because the projects rate of return is […]

The tax shield approach to computing the operating cash flow, given a tax-paying firm: A. ignores both interest expense and taxes. B. separates cash inflows from cash outflows. C. considers the changes in net working capital resulting from a new […]

Which one of the following statements is correct? A. A longer payback period is preferred over a shorter payback period. B. The payback rule states that you should accept a project if the payback period is less than one year. […]

Traditional Bank has an issue of preferred stock with a $4.80 stated dividend that just sold for $80 a share. What is the banks cost of preferred stock? A. 5.91 percent B. 6.00 percent C. 6.23 percent D. 6.47 percent […]

A note is a(n): A. unsecured debt that is generally payable within the next 10 years. B. formal type of loan that is secured by real estate. C. long-term debt secured by part, or all, of the assets of the […]

One year ago, you purchased 100 shares of a stock. This morning you sold those shares and realized a total return of 8.2 percent. Given this information, you know for sure the: A. stock price increased by 8.2 percent over […]

The concept of marginal taxation is best exemplified by which one of the following? A. Kirbys paid $120,000 in taxes while its primary competitor paid only $80,000 in taxes. B. Johnsons Retreat paid only $45,000 on total revenue of $570,000 […]

Today, you deposit $2,400 in a bank account that pays 4 percent simple interest. How much interest will you earn over the next 5 years? A. $96.00 B. $101.15 C. $480.00 D. $492.16 E. $519.97 A proposed project requires an […]

Both Projects A and B are acceptable as independent projects. However, the selection of either one of these projects eliminates the option of selecting the other project. Which one of the following terms best describes the relationship between Project A […]

Who determines the offer price in a Dutch auction? A. Lead underwriter B. Chief financial officer of the issuing firm C. SEC D. Bidders E. Board of directors of the issuing firm Grannys Home Remedy has a $30 million bond […]

Rocket City Space Camp has annual credit sales of $16 million. The average collection period is 35 days. What is the average investment in accounts receivable as shown on the balance sheet? A. $646,000 B. $824,000 C. $1,408,888 D. $1,534,247 […]

Your favorite running shoes cost $91 in the U.S. while the identical shoes cost Can$114.50 in Canada. According to purchasing power parity, what is the Can$/$ exchange rate? A. Can$0.7948/$1 B. Can$0.8426/$1 C. Can$0.9108/$1 D. Can$1.2582/$1 E. Can$1.3305/$1 You have […]

Quali Tech wants to raise $21 million to purchase equipment by issuing new securities. Management estimates the issue will cost the firm $320,000 for accounting, legal, and other costs. The underwriting spread is 7.5 percent and the issue price is […]

The Egg House just borrowed $260,000 to build a new restaurant. The loan terms call for equal annual payments at the end of each year. The loan is for 15 years at an APR of 8 percent. How much of […]

Flemington Farms is evaluating an extra dividend versus a share repurchase. In either case, $15,000 would be spent. Current earnings are $2.80 per share, and the stock currently sells for $75 per share. There are 2,800 shares outstanding. Ignore taxes […]

The App Store needs to raise $2.2 million for an expansion project. The firm wants to raise this money by selling zero coupon bonds with a par value of $1,000 that mature in 20 years. The market yield on similar […]

The Glass Ceiling paid an annual dividend of $2.20 per share last year. Management just announced that future dividends will increase by 2.8 percent annually. What is the amount of the expected dividend in year 5? A. $2.39 B. $2.41 […]

Which one of the following types of bonds permits its issuer to forego paying interest payments if certain natural events cause significant losses? A. PETS B. PUT C. CAT D. PINES E. LIBOR Which one of the following has the […]

Net capital spending is equal to: A. ending net fixed assets minus beginning net fixed assets plus depreciation. B. beginning net fixed assets minus ending net fixed assets plus depreciation. C. ending net fixed assets minus beginning net fixed assets […]

Beginning in 2011, the Dodd-Frank Wall Street Reform and Consumer Protection Act requires corporations with a market value over ________ to allow a nonbinding shareholder vote on executive pay. A. $25,000,000 B. $50,000,000 C. $75,000,000 D. $100,000 E. $750,000 Tanner […]

On which one of the following dates is the principal amount of a bond repaid? A. Coupon date B. Issue date C. Discount date D. Maturity date E. Face date Delivery trucks are classified as: A. noncash expenses. B. current […]

Assume that long-term corporate bonds had an average return of 5.3 percent and a standard deviation of 9.3 percent for a 30-year period. What range of returns would you expect to see on these bonds 68 percent of the time? […]

Which two of the following tend to limit the amount of dividends that can be paid by a leveraged corporation?I. Current tax lawsII. Corporate tax exclusionIII. Bond indenture covenantIV. State laws pertaining to retained earnings A. I and II only […]

Santa Klaus Toys just paid its annual dividend of $1.40. The required return is 8 percent and the dividend growth rate is 1 percent. What is the expected value of this stock five years from now? A. $20.82 B. $21.23 […]

Browns Ferry Furniture Outlet has an accounts receivable period of 45 days and an accounts payable period of 96 days. The company turns over its inventory 2.8 times per year and marks up the inventory an average of 45 percent […]

The Three Amigos Restaurant just paid an annual dividend of $4.20 per share and is expected to pay annual dividends of $4.40 and $4.50 per share the next two years, respectively. After that, the firm expects to maintain a constant […]

Which one of the following is true if the managers of a firm accept only projects that have a profitability index greater than 1.5? A. The firm should increase in value each time the firm accepts a new project. B. […]

British Motor Works is reviewing its current accounts to determine how a proposed project might affect the account balances. The firm estimates the project will initially require $67,000 in additional current assets and $32,000 in additional current liabilities. The firm […]

Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners? A. Sole proprietorship B. General partnership C. Limited partnership D. Limited liability company E. Corporation Charliess […]

ADP, Inc. needs to raise $32 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. If the offer price is $45 per share […]

Sensitivity analysis: A. looks at the most reasonably optimistic and pessimistic results for a project. B. helps identify the variable within a project that presents the greatest forecasting risk. C. is used for projects that cannot be analyzed by scenario […]

Which one of the following statements related to the static theory of capital structure is correct? A. A firm begins to lose value as soon as the first dollar of debt is incurred. B. The actual value of a firm […]

Phil and Terry started a new business three years ago. Two years ago, they incorporated the business and issued themselves each 20,000 shares of stock. Last year, they took the company public in an IPO and issued an additional 100,000 […]

Which one of the following is evidence of indebtedness? A. Terms of sale B. Credit cost curve C. Credit instrument D. Concentration policy E. Credit policy Which one of the following is a disbursement account into which funds are transferred […]

Paddle Fans & More has a marginal tax rate of 34 percent and an average tax rate of 23.7 percent. If the firm earns $138,500 in taxable income, how much will it owe in taxes? A. $31,366.67 B. $31,500.00 C. […]

The balance sheet of Binger, Inc. has the following balances: What is the amount of the change in net working capital? A. -$8,100 B. -$7,400 C. $7,700 D. $8,000 E. $8,100 LaDoris & Mike, Inc. sells earnings forecasts for Chinese […]

Which one of the following tends to be true for the average investor? A. They frequently earn initially high returns on IPOs when shares are undersubscribed. B. They generally receive their full allocation of shares even when an IPO is […]

Shoe Box Stores is currently an all-equity firm with 28,000 shares of stock outstanding. Management is considering changing the capital structure to 40 percent debt. The interest rate on the debt would be 9 percent. Ignore taxes. Jamie owns 400 […]

Assume you can currently exchange one U.S. dollar for one hundred Japanese yen. Also assume the inflation rate will be 2.5 percent annually in the U.S. and 2 percent in Japan. Given these assumptions, how many yen should you expect […]

Dividends are best defined as: A. cash payments to shareholders. B. cash payments to either bondholders or shareholders. C. cash or stock payments to shareholders. D. cash or stock payments to either bondholders or shareholders. E. distributions of stock to […]

A firm wishes to maintain an internal growth rate of 4.5 percent and a dividend payout ratio of 60 percent. The current profit margin is 7.5 percent and the firm uses no external financing sources. What must the total asset […]

A 12-year, semiannual coupon bond is priced at $1,102.60. The bond has a $1,000 face value and a yield to maturity of 5.33 percent. What is the coupon rate? A. 5.00 percent B. 5.25 percent C. 5.50 percent D. 6.00 […]

The market rate of return is 14.8 percent and the risk-free rate is 4.45 percent. Galaxy Co. has 54 percent more systematic risk than the overall market and has a dividend growth rate of 5.5 percent. The firms stock is […]

A stock has produced returns of 16.6 percent, 3.4 percent, 11.7 percent, and -9.2 percent over the past four years, respectively. What is the geometric average return? A. 5.16 percent B. 5.47 percent C. 6.23 percent D. 6.61 percent E. […]

Which of the following will increase the cost of equity for a firm with a beta of 1.1?I. Decrease in the securitys betaII. Decrease in the market risk premiumIII. Decrease in the risk-free rateIV. Increase in the risk-free rate A. […]

Earth Fare Foods has total assets of $229,800, net fixed assets of $71,500, long-term debt of $52,000, and total debt of $78,700. If inventory is $45,000, what is the current ratio? A. 0.20 B. 0.46 C. 0.84 D. 1.18 E. […]

Suppose that in 2010, a $10 silver certificate from 1898 sold for $11,200. For this to have been true, what would the annual increase in the value of the certificate have been? A. 6.47 percent B. 6.81 percent C. 7.23 […]

Which one of the following best describes a portfolio? A. Risky security B. Security equally as risky as the overall market C. New issue of stock D. Group of assets held by an investor E. Investment in a risk-free security […]

Given the following information, what is the standard deviation of the returns on this stock? A. 19.90 percent B. 20.52 percent C. 22.41 percent D. 23.79 percent E. 25.52 percent Which one of the following will result from a stock […]

Miller Farm Products is issuing a 15-year, unsecured bond. Based on this information, you know that this debt can be described as a: A. note. B. bearer form bond. C. debenture. D. registered form bond. E. call protected bond. The […]

Which one of the following is a drawback of cash dividends? A. Firms may have to forgo positive net present value projects. B. Stock prices tend to increase as annual dividend amounts increase. C. Cash dividends support stock prices. D. […]

Heidi owns 400 shares of Boyd Enterprises stock, which is valued at $17 a share. Boyd Enterprises just declared a 10 percent stock dividend. How many shares will Heidi own and what will the price per share be after the […]

Given the following information for Electric Transport, find the WACC. Assume the company’s tax rate is 34 percent.Debt: 7,500, 8.4 percent coupon bonds outstanding. $1,000 par value, 22 years to maturity, selling for 103 percent of par, the bonds make […]