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Standard deviation measures _____ risk while beta measures _____ risk. A. systematic; unsystematic B. unsystematic; systematic C. total; unsystematic D. total; systematic E. asset-specific; market Answer: If shareholders are granted a preemptive right they will: A. be given the choice […]

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 […]

Which one of the following portfolios will have a beta of zero? A. A portfolio that is equally as risky as the overall market B. A portfolio that consists of a single stock C. A portfolio comprised solely of U. […]

Madison Corner writes 20 checks a day for an average amount of $630 each. These checks generally clear the bank 2.5 days after they are written. In addition, the firm generally receives an average of $18,400 a day in checks. […]

You are analyzing a project and have developed the following estimates: unit sales = 1,320, price per unit = $79, variable cost per unit = $43, fixed costs = $24,900. The depreciation is $11,300 a year and the tax rate […]

Sugar and Spice stock is expected to produce the following returns given the various states of the economy. What is the expected return on this stock? A. 7.89 percent B. 8.56 percent C. 9.43 percent D. 10.05 percent E. 10.50 […]

Which of the following will tend to increase the credit period? I. Increase in the buyer’s inventory period II. Decrease in the buyer’s inventory period III. Increase in the buyer’s operating cycle IV. Decrease in the buyer’s operating cycle A. […]

The Shoe Box is considering adding a new line of winter footwear to its product lineup. Which of the following are relevant cash flows for this project? I. Decreased revenue from products currently being offered if this new footwear is […]

Gee Whiz Underwriters retains the difference between its buying price and its offering price on new securities. What is this amount called? A. Markup B. Commission C. Rights price D. Spread E. Offer Answer: An American Depositary Receipt is defined […]

The addition of a risky security to a fully diversified portfolio: A. must decrease the portfolio’s expected return. B. must increase the portfolio beta. C. may or may not affect the portfolio beta. D. will increase the unsystematic risk of […]

Kelsey International declared a dividend on Friday, November 13, that is payable on Friday, December 4, to holders of record on Monday, November 30. What is the latest date that you can purchase this stock if you wish to receive […]

Given the current tax laws, which one of the following statements is correct? A. Both stock repurchases and cash dividends are treated equally for tax purposes for individual shareholders. B. Stock repurchases give individual shareholders more control over their personal […]

You are comparing two possible capital structures for a firm. The first option is an all-equity firm. The second option involves the use of $3.8 million of debt. The break-even point between these two financing options occurs when the earnings […]

Which one of the following terms applies to the costs incurred by a firm that is trying to avoid filing for bankruptcy? A. Indirect bankruptcy costs B. Direct bankruptcy costs C. Static theory cost D. Optimal capital structure cost E. […]

Over the past year, a firm decreased its current assets and increased its current liabilities. As a result, the firm’s net working capital: A. had to increase. B. had to decrease. C. could have remained constant if the amount of […]

A firm is considering two different capital structures. The first option is an all-equity firm with 32,000 shares of stock. The second option is 20,000 shares of stock plus some debt. Ignoring taxes, the break-even level of earnings before interest […]

Which one of the following will increase cash flow from assets but not affect the operating cash flow? A. Increase in depreciation B. Increase in accounts receivable C. Sale of a fixed asset D. Decrease in cost of goods sold […]

Richardson Marina has 18,000 shares of stock outstanding that were sold to the general public last year. The firm has just decided to issue an additional 6,000 shares of common stock and has also decided to make the shares available […]

You’ve just found a 7 percent coupon bond on the market that sells for par value. What is the maturity on this bond? A. The bond must mature in 1 year. B. The bond could have any maturity date. C. […]

Which one of the following is the primary determinant of an investment’s cost of capital? A. Life of investment B. Initial cash outlay C. Level of risk D. Source of funds used for the investment E. Investment’s net present value […]

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: A project has annual depreciation of $16,200, costs of […]

Which one of the following terms applies to a junk bond that was originally issued with a bond rating of AA? A. Debenture B. Covenant C. Fallen angel D. Sinking E. Triple B Answer: Which one of the following is […]

You are planning a trip to the UK and plan on spending 3,800 pounds. How many dollars will this trip cost you if the currency per U.S. dollar is 0.6789 pound? A. $2,579.82 B. $3,892.16 C. $5,597.29 D. $5,890.01 E. […]

The common stock of The Burger Hut is selling for $16.25 a share. The company has earnings per share of $0.42 and a book value per share of $9.28. What is the market-to-book ratio? A. 1.58 B. 1.69 C. 1.75 […]

You are considering the following two mutually exclusive projects. The crossover point is _____ and Project _____ should be accepted if the discount rate is 14 percent. A. 12.79 percent; B B. 13.28 percent; A C. 13.28 percent; B D. […]

New Century Products is a company that was founded last year. While the outlook for the company is positive, it currently has negative earnings. If you wanted to measure the progress of this firm, which one of the following ratios […]

If the market price of existing publicly traded shares declines due to the announcement of a seasoned issue of stock, the decline is referred to as which one of the following? A. Spread B. Direct underwriting cost C. Underpricing D. […]

Kim placed an order with her broker to purchase 400 shares of each of three IPOs that are being released this month. Each IPO has an offer price of $23 a share. The number of shares allocated to Kim, along […]

The preferred stock of Dolphin Pools pays an annual dividend of $6.25 a share and sells for $42 a share. The tax rate is 35 percent. What is the firm’s cost of preferred stock? A. 9.67 percent B. 14.88 percent […]

For the year, Movers United has net income of $31,800, net new equity of $7,500, and an addition to retained earnings of $24,200. What is the amount of the dividends paid? A. $100 B. $7,500 C. $7,600 D. $15,100 E. […]

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 […]

What is the effective annual rate of 10 percent compounded semiannually? A. 10.21 percent B. 10.25 percent C. 10.35 percent D. 10.38 percent E. 10.42 percent Answer: Which one of the following will generally receive the highest priority in a […]

Consider an asset that costs $465,000 and is depreciated straight-line to zero over its six-year tax life. The asset is to be used in a four-year project; at the end of the project, the asset can be sold for $120,000. […]

Which one of the following statements is correct concerning capital structure weights? A. Target rates are less relevant to a project than are historical rates. B. The weights are unaffected when a bond issue matures. C. An increase in the […]

Which one of the following statements is correct? A. The financial market generally reacts the same to a new issue of equity as it does to a new issue of debt as long as the issuer is the same. B. […]

A firm that uses its weighted average cost of capital as the required return for all of its investments will: A. maintain a constant value for its shareholders. B. increase the risk level of the firm over time. C. make […]

Given the following information, what is the standard deviation of the returns on a portfolio that is invested 35 percent in both Stocks A and C, and 30 percent in Stock B? A. 2.77 percent B. 4.13 percent C. 6.67 […]

On which one of the following dates do dividends become a liability of the issuer for accounting purposes? A. First day of the fiscal year in which the dividend is expected to be paid B. Twelve months prior to the […]

Assume that clienteles exist. Given this assumption, which one of the following statements is correct? A. A firm can increase its share price by increasing its dividend payout. B. Dividend policy is irrelevant as long as each clientele group is […]

Which one of the following represents the amount of compensation an investor should expect to receive for accepting the unsystematic risk associated with an individual security? A. Security beta multiplied by the market rate of return B. Market risk premium […]

Steve owns a store that caters primarily to men and their hobbies. He is contemplating greatly expanding the hunting and fishing section of the store. If he does this, he expects his fishing and hunting sales will increase, his camping […]

The value of a bond is dependent on the: A. coupon rate and the current yield. B. coupon rate and the yield to maturity. C. current yield and the yield to maturity. D. coupon rate but neither the current yield […]

A firm has a return on equity of 16 percent, a return on assets of 11 percent, and a 30 percent dividend payout ratio. What is the sustainable growth rate? A. 5.72 percent B. 6.84 percent C. 7.12 percent D. […]

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: The Bird Cage has the following estimated sales. Purchases […]

The Plaza Cafe has an operating cash flow of $78,460, depreciation expense of $8,960, and taxes paid of $21,590. A partial listing of its balance sheet accounts is as follows: What is the amount of the cash flow from assets? […]

All else constant, the weighted average cost of capital for a risky, levered firm will decrease if: A. the firm’s bonds start selling at a premium rather than at a discount. B. the market risk premium increases. C. the firm […]

Consider a portfolio comprised of four risky securities. Assume the economy has three states with varying probabilities of occurrence. Which one of the following will guarantee that the portfolio variance will equal zero? A. The portfolio beta must be 1.0. […]

Todd and Cathy created a firm that is a separate legal entity and will share ownership of that firm on a 50-50 basis. Which type of entity did they create if they have no personal liability for the firm’s debts? […]

The daily financial operations of a firm are primarily controlled by managing the: A. total debt level. B. working capital. C. capital structure. D. capital budget. E. long-term liabilities. Answer: Which one of the following is the most ethical practice […]

Baxter & Baxter has total assets of $710,000. There are 45,000 shares of stock outstanding with a market value of $28 a share. The firm has a profit margin of 7.1 percent and a total asset turnover of 1.29. What […]

Granger Corp. stock currently sells for $48.29 per share. The market requires a 13 percent return on the firm’s stock. If the company maintains a constant 5.5 percent growth rate in dividends, what was the most recent annual dividend per […]

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 […]

Today, you are borrowing $13,800 to purchase a car. What will be your monthly payment amount if the loan is for four years at 7.5 percent interest? A. $298.40 B. $321.150 C. $333.67 D. $380.24 E. $400.10 Answer: The standard […]

The Nifty Fifty is considering opening a new store at a start-up cost of $720,000. The initial investment will be depreciated straight-line to zero over the 15-year life of the project. What is the average accounting rate of return? A. […]

Which one of the following represents additional compensation provided to bondholders to offset the possibility that the bond issuer might not pay the interest and/or principal payments as expected? A. Interest rate risk premium B. Inflation premium C. Liquidity premium […]

Which of the following characteristics apply to a perpetuity? I. Constant cash flow dollar amount II. Unequal cash flow dollar amount III. Limited time period IV. Infinite time period A. I and III only B. I and IV only C. […]

Tri-City Grocers is a chain of grocery stores that just hired a new CFO. Which of the following actions would you expect this CFO to adopt given her statement that she wants to implement a more flexible financing policy for […]

Over the last four years, a stock has had an arithmetic average return of 8.8 percent. Three of those four years produced returns of 16.3 percent, 10.2 percent, and -14.1 percent, respectively. What is the geometric average return for this […]

You want to create a $65,000 portfolio comprised of two stocks plus a risk-free security. Stock A has an expected return of 14.2 percent and Stock B has an expected return of 17.8 percent. You want to own $20,000 of […]

It takes The Crossroads Boutique an average of 61 days to sell its inventory and 30 days to collect its accounts receivable. The firm has sales of $568,700 and costs of goods sold of $398,800. What is the accounts receivable […]

Your parents spent $6,200 to buy 500 shares of stock in a new company 13 years ago. The stock has appreciated 9 percent per year on average. What is the current value of those 500 shares? A. $18,824.17 B. $19,007.99 […]

The Undergrounds Coffee Shop has total assets of $85,300 and an equity multiplier of 1.53. What is the debt-equity ratio? A. 0.28 B. 0.35 C. 0.50 D. 0.53 E. 0.67 Answer: Which one of the following is basically equivalent to […]

Turntable Industrial, Inc. owes your firm $138,600. This amount is seriously delinquent so your firm has offered to arrange a payment plan in the hopes that it might at least collect a portion of this receivable. Your firm’s offer consists […]

The price at which a dealer will purchase a bond is called the _____ price. A. asked B. face C. call D. put E. bid Answer: The net present value of a project’s cash inflows is $8,216 at a 14 […]

Martha’s Fabric House has sales of $137,200, total equity of $74,400, and a debt-equity ratio of 0.45. What is the capital intensity ratio? A. 0.79 B. 0.83 C. 1.06 D. 1.20 E. 1.27 Answer: The payback period is the length […]

Dexter Companies has a conventional factoring arrangement with its local bank. Which one of the following would be a common characteristic of that type of financing arrangement? A. Dexter Companies will receive the full amount of the accounts receivable included […]

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: Which one of the following statements is correct? A. A prepack is a […]

Use the following tax table to answer this question: Bait and Tackle has taxable income of $411,562. How much does it owe in taxes? A. $128,603.33 B. $134,611.27 C. $138,542.79 D. $139,931.08 E. $141,354.82 Answer: The primary purpose of protective […]

Assume the securities markets are strong form efficient. Given this assumption, you should expect which one of the following to occur? A. The risk premium on any security in that market will be zero. B. The price of any one […]

Last year, Isaac earned 10.6 percent on her investments while U.S. Treasury bills yielded 3.8 percent and the inflation rate was 3.1 percent. What real rate of return did she earn on her investments last year? A. 6.63 percent B. […]

Lay’s Meat Market has 8,000 shares of stock outstanding at a price per share of $13. What will the price per share be if the firm declares a 3-for-5 reverse stock split? A. $7.80 B. $8.50 C. $13.00 D. $15.00 […]

Stock J has a beta of 1.17 and an expected return of 14.4 percent, while Stock K has a beta of 0.68 and an expected return of 7.6 percent. You want a portfolio with the same risk as the market. […]

LOG, Inc. currently has 300,000 shares of stock outstanding that sell for $73 per share. Assuming no market imperfections or tax effects exist, what will the share price be after LOG has a 5-for-3 stock split? A. $43.80 B. $45.60 […]

Sly’s just arranged a three-year direct business loan. Which one of the following terms matches this loan arrangement? A. Term loan B. Private placement C. Rights offer D. Seasoned offer E. Shelf offer Answer: You are making a $120,000 investment […]

Which one of the following terms is most commonly used to describe the cash flows of a new project that are simply an offset of reduced cash flows for a current project? A. Opportunity cost B. Sunk cost C. Erosion […]

Franklin Oil issued 150,000 shares of stock last week. The underwriters charged a 7.5 percent spread in exchange for agreeing to a firm commitment. The legal and accounting fees amounted to $310,000 and the company incurred $65,000 in indirect costs. […]

Andre’s Dog House had current assets of $67,200 and current liabilities of $71,100 last year. This year, the current assets are $82,600 and the current liabilities are $85,100. The depreciation expense for the past year is $9,600 and the interest […]

You are analyzing a project and have developed the following estimates: unit sales = 3,100, price per unit = $215, variable cost per unit = $115, fixed costs = $164,000. The depreciation is $59,000 a year and the tax rate […]

Which one of the following will decrease the liquidity level of a firm? A. Cash purchase of inventory B. Credit sale of inventory C. Cash sale of inventory D. Collection of an account receivable E. Proceeds from a long-term loan […]

The amount of time that a firm holds inventory in stock is referred to as which one of the following? A. Inventory period B. Accounts receivable period C. Accounts payable period D. Operating cycle E. Cash cycle Answer: A trader […]

Which one of the following statements is correct? A. The net present value is a measure of profits expressed in today’s dollars. B. The net present value is positive when the required return exceeds the internal rate of return. C. […]

Which one of the following statements related to stock buybacks is correct? A. Stock buybacks are a means of obtaining shares for employee stock option grants. B. Stock buybacks are becoming rare and may soon disappear totally. C. In 2007 […]

Currently, you can purchase either 128 Canadian dollars or 10,050 Japanese yen for $100. What is the /Can$ cross-rate? A. 78.52/Can$1 B. 79.94/Can$1 C. 81.23/Can$1 D. 86.27/Can$1 E. 87.08/Can$1 Answer: The net present value profile illustrates how the net present […]

Based on the most recent survey information presented in your textbook, CFOs tend to use which two methods of investment analysis the most frequently? A. Payback and net present value B. Payback and internal rate of return C. Internal rate […]

Which one of the following features distinguishes an ordinary annuity from an annuity due? A. Number of equal payments B. Amount of each payment C. Frequency of the payments D. Annuity interest rate E. Timing of the annuity payments Answer: […]

Which one of the following decreases net income but does not affect the operating cash flow of a firm that owes no taxes for the current year? A. Indirect cost B. Direct cost C. Noncash item D. Period cost E. […]