Loose Leaf For Essentials Of Corporate Finance 8th Edition

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 Answer: C.After-tax yield = 0.095 x (1 - 0.25) = 7.13 percent Answer: C.After-tax yield = 0.095 x

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 entities. C. spin off a wholly owned subsidiary. D. allow companies to reorganize themselves

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 Answer: C. Answer: C. Answer: C. Windsor stock has produced returns of 22.6 percent, 18.7 percent, 11.3 percent, -19.8 percent, and 2.4 percent over the

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 be for the firm to issue the new shares? A. $14.48 B.

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 C. 18.20 days D. 20.33 days E. 21.08 days Answer: AAverage collection period = (0.80 x

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. Best efforts E. Dutch auction Answer: D. Answer: D. Answer: D. The Good Life Store has sales of $79,600.

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 Answer: D. Answer: D. Answer: D. You are comparing two annuities. Annuity A pays $100 at the end of each month for 10 years. Annuity B pays $100 at the beginning 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 $76 per share. The stock has a beta of 0.92

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. Answer: E. Answer: E. Answer: E. Which one of the following is the best example of a raw material? A. Set of tires

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 did these assets change in value on the firms U.S.

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. How much money must the company deposit today to fully

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 has it been able to locate anyone willing to purchase

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 rate is 35 percent. What is the operating cash flow

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. 5.62 percent C. 5.76 percent D. 6.59 percent E. 8.40 percent Answer: A.Aftertax cost of debt

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. $35.00 C. $60.00 D. $65.00 E. $70.00 Answer: B.Coupon payment = ($1,000 x 0.07)/2 = $35 Answer:

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 transactions. E. All Dutch auction sales are secondary market transactions. Answer: C. Answer: C. Answer: C. Sunshine Rentals has

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 a high level of efficiency. D. is repaying debt every year. E. has annual net

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 incurring a loss E. Active market for ownership interest Answer: C. Answer: C. Answer: C. The rate of return

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 of the offering are $389,000. If the offer price is

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 5 percent of the amount borrowed be deposited into a non-interest-bearing account.

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 Answer: C. Answer: C. Answer: C. Which one of the following has nearly the same meaning as free cash flow? A.

Which one of the following is an intangible fixed asset? A. Inventory B. Machinery C. Copyright D. Account receivable E. Building Answer: C. Answer: C. Answer: C. Graphic Designs has 120,000 shares of cumulative preferred stock outstanding. Preferred shareholders are supposed to be paid $1.50 per quarter per share in dividends. However, the firm has encountered financial problems and has

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. I, II, III, and IV Answer: D. Answer: D. Answer: D. You just received a loan offer from Friendly

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 equal to (1 + monthly interest rate)12 - 1. D. The APR is the

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 time is directly related to the interest rate. D. The present value is directly

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 C. 39.80 percent D. 41.94 percent E. 43.08 percent Answer: B.WeightC = $14,900/($11,400 + $8,800 +

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 angel E. Floating bond Answer: D.. Answer: D.. Answer: D. . Debbies Cookies has a return on assets of 15.3

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 of income? A. 9.95 percent B. 30.00 percent C. 30.67 percent D. 51.03 percent E.

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 E. $22,410 Answer: D.Base case operating cash flow = [2,300 x ($53 - $35) - $16,000]

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 registration E. Delayed registration Answer: C. Answer: C. Answer: C. You own a $222,000,000 portfolio that is invested in

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 location E. Is the principal trader of debt securities Answer: C. Answer: C. Answer: C. In a typical month,

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 the variable cost per unit change the net present value? D. Will the net

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 shares E. 22,500 shares Answer: E.Number of shares after the split = 18,000 x (5/4) =

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 Answer: C. Answer: C. Answer: C. A firm grants credit with terms of 2/5, net 20. The firms customers have ___ days to

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 than long-term borrowing. D. Long-term interest rates tend to be more volatile than short-term

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 sale. What is the name of this prospectus? A. Green Shoe B.

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 share of equity? A. $18 B. $21 C. $25 D. $30 E. $33 Answer: C.260,000x = 200,000x

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 be equal for all time periods. C. Risk-free interest rates in Countries A and

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 Answer: D. Answer: D. Answer: D. You are analyzing a project and have developed the following estimates. The depreciation is $19,800 a year and

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. How much will the firm pay its suppliers in the third

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 an inventory period of 15 days, a receivables period of 22

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 your money at the beginning of each month rather than

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 percent. How much should you invest in Stock A if

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. 9.72 Answer: B.Accounts receivable turnover = ($311,500/1.08)/$31,600 = 9.13 Answer: B.Accounts receivable turnover = ($311,500/1.08)/$31,600 = 9.13 Answer:

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 return? Why or why not? A. Yes, because the IRR is

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 average return for this four-year period? A. 7.72 percent B. 8.41 percent C.

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 WACC will increase the attractiveness of the firms investment options. C. The aftertax

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. 7.80; 14.63 C. 7.80; 16.36 D. 14.60; 14.63 E. 14.60; 16.36 Answer: C.Average return = (0.23

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 shares than it sold. E. received more from selling stock than it paid out to

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 Answer: A.. Answer: A.. Answer: A. . Trendsetters has a cost of equity of 18.1 percent. The market risk premium is 10.2 percent and the

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 C. II, III, and IV only D. I, III, and IV only E. I, II,

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 is the amount of the companys accounts receivable? A. $54,849 B. $58,246 C.

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 of return. Answer: D. Answer: D. Answer: D. The spot rate between Canada and the U.S. is Can$1.2381 =

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, what will the exchange rate be next year? A. 0.6189/$1 B. 0.6251/$1 C.

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. Answer: C. Answer: C. Answer: C. An all-equity firm has net income of $28,300, depreciation of $7,500, and taxes

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 does he have? A. Interest-only B. Pure discount C. Compound D. Amortized E. Complex Answer: A. Answer: A. Answer:

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 Answer: C. Answer: C. Answer: C. The DuPont identity can be totally defined by which one of the following? A. Return on equity, total asset turnover, and equity multiplier B. Equity

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 either to dividends or retained earnings. E. Taxable income plus interest and depreciation equals earnings

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 rate of return is most useful when projects are mutually exclusive. D. The average

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. $43,380 D. $45,671 E. $45,886 Answer: B.Net income = ($581,600 - $479,700 - $32,100 - $8,400)(1 -

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 of projected sales for the next quarter. How much will the

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 B. I and III only C. II, III, and IV only D. I, II, and

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 a firm is generating more or less sales per dollar of assets than in

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 to accepting a single new project each. B. Division managers are being

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 10.21 percent B. Yes, because the projects rate of return is 11.47

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 project. D. is based on the fact that depreciation does not affect the operating

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. C. The payback period ignores the time value of money. D. The payback rule

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 E. 7.32 percent Answer: B.RP = $4.80/$80 = 6.00 percent Answer: B.RP = $4.80/$80 = 6.00 percent Answer:

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 borrower. D. debt that is secured by a borrowers accounts receivable. E. written agreement that

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 last year. B. stock increased in value over the past year. C.

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 last year. C. Mitchells Grocer increased its sales by $52,000 last year and

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 Answer: C.Interest = $2,400 x 0.04 x 5 = $480 Answer: C.Interest = $2,400 x 0.04 x 5 = $480 Answer: C. Interest =

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 and Project B? A. Mutually exclusive B. Conventional C. Multiple choice D. Dual return E. Crosswise Answer: A. Answer:

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 Answer: D. Answer: D. Answer: D. Grannys Home Remedy has a $30 million bond issue outstanding with a coupon rate of 7.75 percent and a current yield

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 E. $1,693,134 Answer: DAverage accounts receivable = $16m/365 x 35 = $1,534,247 Answer: DAverage accounts receivable =

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 Answer: D.Can$114.50/$91 = Can$1.2582/$1 Answer: D.Can$114.50/$91 = Can$1.2582/$1 Answer: D. Can$114.50/$91 = Can$1.2582/$1 You have agreed to pay a 5 percent commission

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 $22 per share. How many shares of stock must be

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 the first annual payment will be used to reduce the principal

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 and other imperfections. The PE ratio will be ____ if

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 bonds is 8.8 percent. How many bonds must The App Store

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 C. $2.46 D. $2.53 E. $2.58 Answer: D.D5 = $2.20 x (1.028)5 = $2.53 Answer: D.D5 =

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 Answer: C.. Answer: C.. Answer: C. . Which one of the following has the narrowest distribution of returns for the period 1926-2011? A. Long-term corporate bonds B. Long-term government

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 minus depreciation. D. ending total assets minus beginning total assets plus depreciation. E. ending total

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 Answer: C. Answer: C. Answer: C. Tanner Tavern writes four checks a day for an average amount of $5,400 each.

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 Answer: D. Answer: D. Answer: D. Delivery trucks are classified as: A. noncash expenses. B. current liabilities. C. current assets. D. tangible fixed assets. E. intangible fixed assets. Answer: D. Answer: D. Answer: D. An increase in which

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? A. -4.0 percent to 14.6 percent B. -4.0 percent to 22.9 percent C. -11.3

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 B. I and III only C. II and III only D. II and IV

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 C. $22.06 D. $23.45 E. $23.78 Answer: B.P5 = [$1.40 x (1 + 0.01)6]/(0.08 - 0.01) =

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 over its wholesale cost. What is the length of the

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 dividend growth rate of 2 percent per year. What is

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. The firm is most likely steadily losing value. C. The price of the

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 also estimates the project will require an additional $7,000 a

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 Answer: C. Answer: C. Answer: C. Charliess writes 135 checks a day for an average amount of $480 each. These

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 and the companys underwriters charge an 8.25 percent spread, how

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 analysis because the cash flows are unconventional. D. is generally conducted prior to 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 continually rises in direct proportion to the increased use of debt. C. The

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 shares of stock at that time. The offer price was $14

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 Answer: C. Answer: C. Answer: C. Which one of the following is a disbursement account into which funds are transferred only as needed to cover the demands for payment? A. Master account B. Controlled disbursement

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. $32,824.50 D. $39,957.25 E. $47,090.00 Answer: C.Tax = ($138,500)(0.237) = $32,824.50 Answer: C.Tax = ($138,500)(0.237) = $32,824.50 Answer:

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 Answer: A.Change in net working capital = ($16,800 + $52,300 + $77,400 - $56,900) - ($21,400 + $47,400 + $83,800 - $54,900) = -$8,100 Answer: A.Change in

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 oversubscribed. C. They often encounter the "winners curse." D. They are protected from losses

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 shares of Shoe Box Stores stock that is priced at $17

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 in exchange for one U.S. dollar next year? A. More than 100 B. Either

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 current shareholders. Answer: C. Answer: C. Answer: C. Youve observed the following returns on Blast It Corporations stock over

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 turnover be? A. 0.98 B. 1.06 C. 1.21 D. 1.44 E. 1.59 Answer: D.Internal growth rate

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 percent E. 6.50 percent Answer: E. Answer: E. Answer: E. Amish Bakery needs $210,000 today to fund a new

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 currently selling for $39 a share and has a dividend

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. 10.12 percent Answer: A.Geometric average return = (1.166 1.034 1.117 0.908)1/4 - 1 = 5.16 percent Answer: A.Geometric

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. II only B. III only C. I and II only D. II and III

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. 5.93 Answer: E.Current ratio = ($229,800 - $71,500)/($78,700 - $52,000) = 5.93 Answer: E.Current ratio = ($229,800

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 percent D. 7.49 percent E. 7.97 percent Answer: A.$11,200 = $10 x (1 + r)(2010 -

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 Answer: D. Answer: D. Answer: D. The stock price of Russell, Inc. is $81. Investors require a 14 percent

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 Answer: E.Expected return = (0.04 x 0.26) + (0.74 x 0.17) + (0.22 x -0.44) = 0.0394Variance = 0.04(0.26 - 0.0394)2 + 0.74(0.17 - 0.0394)2 +

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. Answer: C.. Answer: C.. Answer: C. . The balance sheet for Oasis, Inc. is shown here in market value terms. There

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. Dividends are felt to be directly related to agency costs. E. Dividend-paying firms tend to

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 dividend? A. 360; $15.45 B. 360; $18.70 C. 440; $15.45 D. 440; $17.00 E. 440;

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 semiannual payments.Common stock: 195,000 shares outstanding, selling for $78 per