Western Steer purchased some three-year MACRS property three years ago. What is the
current book value of this equipment if the original cost was $94,250? The MACRS
allowance percentages are as follows, commencing with Year 1: 33.33, 44.45, 14.81,
and 7.41 percent.
A. $0
B. $11,506.15
C. $6,983.93
D. $20,842.35
E. $8,868.20
If the financial markets are efficient then:
A. stock prices should remain constant.
B. stock prices should increase or decrease slowly as new events are analyzed and the
information is absorbed by the markets.
C. an increase in the value of one security should be offset by a decrease in the value of
another security.
D. stock prices will change only when an event actually occurs, not at the time the
event is anticipated.
E. stock prices should respond only to unexpected news and events.
Donner United has total owners’ equity of $18,800. The firm has current assets of
$23,100, current liabilities of $12,200, and total assets of $36,400. What is the value of
the long-term debt?
A. $5,400
B. $12,500
C. $13,700
D. $29,800
E. $43,000
The slope of the security market line represents the:
A. risk-free rate.
B. market risk premium.
C. beta coefficient.
D. risk premium on an individual asset.
E. market rate of return.
Kar’s currently has a 208-day operating cycle. The company is concentrating on
increasing its inventory turnover rate from 7.9 to 8.2 times. What will the firm’s new
operating cycle be if it can effectively make this change?
A. 206.31 days
B. 209.69 days
C. 207.14 days
D. 208.86 days
E. 207.64 days
What is the principal amount of a bond that is repaid at the end of the loan term called?
A. Coupon
B. Market price
C. Accrued price
D. Dirty price
E. Face value
Steep Mountain Oil has a cash balance of $15and a short-term loan balance of $53 at
the beginning of Q1. The net cash outflow for Q1of $39and for Q2 there is a net cash
inflow of $23. All cash shortfalls are funded with short-term debt. The firm pays 1.1
percent of its prior quarter’s ending loan balance as interest each quarter. The minimum
cash balance is $15. What is the short-term loan balance at the end of the Q2?
A. $70.6
B. $81.3
C. $65.9
D. $67.7
E. $76.8
Assume there are no taxes or imperfections. Given this assumption, which one of the
following statements is correct?
A. A cash dividend has no effect on the market price of the payer’s stock.
B. A cash dividend decreases shareholder wealth.
C. Stock repurchases decrease the market value per share.
D. Both a cash dividend and a share repurchase increase a firm’s PE ratio.
E. A stock repurchase has the same effect on a firm’s market value balance sheet as does
a cash dividend.
A project has the following cash flows. What is the payback period?
A. 3.04 years
B. 2.59 years
C. 2.96 years
D. 3.13 years
E. 3.24 years
Assume that in New York, you can exchange $1 for €.8026 or £.6400 In Berlin, £1
costs €1.2539. How much profit can you earn on $1,000 using triangle arbitrage?
A. $.59
B. $1.17
C. $.13
D. $1.08
E. $.42
Neiger Flours owes $16,929 in taxes on taxable income of $61,509. If the firm earns
$100 more in income, it will owe an additional $48 in taxes. What is the average tax
rate on income of $61,609?
A. 28.00 percent
B. 30.33 percent
C. 33.33 percent
D. 35.00 percent
E. 27.56 percent
Assume that over the past 88 years, U.S. Treasury bills had an average return of 3.5
percent as compared to 6.1 percent on long-term government bonds. During this same
time period, assume inflation averaged 3.0 percent. What was the average nominal risk
premium on the long-term government bonds?
A. 3.1 percent
B. .1 percent
C. 2.9 percent
D. 1.8 percent
E. 2.6 percent
Which one of the following indicates that an independent project is definitely
acceptable?
A. Profitability index greater than 1.0
B. Negative net present value
C. Modified internal rate return that is lower than the requirement
D. Zero internal rate of return
E. Positive average accounting return
Which one of the following principles refers to the assumption that a project will be
evaluated based on its incremental cash flows?
A. Forecast assumption principle
B. Base assumption principle
C. Fallacy principle
D. Erosion principle
E. Stand-alone principle
The inflation premium:
A. increases the real return.
B. is inversely related to the time to maturity.
C. remains constant over time.
D. rewards investors for accepting interest rate risk.
E. compensates investors for expected price increases.
The $1,000 face value bonds of Galaxies International have coupon of 6.45 percent and
pay interest semiannually. Currently, the bonds are quoted at 103.4 and mature in 4
years. What is the yield to maturity?
A. 4.88 percent
B. 6.02 percent
C. 7.18 percent
D. 6.79 percent
E. 5.49 percent
Mercier United has net income of $128,470. There are currently 32.67 days’ sales in
receivables. Total assets are $1,419,415, total receivables are $122,306, and the
debt-equity ratio is .40. What is the return on equity?
A. 11.42 percent
B. 12.67 percent
C. 13.09 percent
D. 13.48 percent
E. 15.03 percent
The Gift Shoppe has total assets of $487,920 and an equity multiplier of 1.47. What is
the debt-equity ratio?
A. .68
B. .33
C. .52
D. .47
E. .67
Short-run exposure to exchange rate risk is best illustrated by which one of the
following?
A. Change in book value when the market value of an asset remains constant
B. Daily fluctuations in the spot rate
C. Increases in the forward rate as the time to settlement increases
D. Changes in relative economic conditions between two countries
E. Unrealized foreign exchange gains
A project costs $2.43 million and has no salvage value. Depreciation is straight-line to
zero over the five-year life of the project. Sales are projected at 64,000 units per year,
price per unit is $73.29, variable cost per unit is $42.93, and fixed costs are $623,000
per year. The tax rate is 35 percent, and the required rate of return is 11percent. What is
the sensitivity of NPV to a 100-unit increase in the sales figure?
A. $9,198.40
B. $8,609.18
C. $8,097.40
D. $7,293.48
E. $7,557.12
B&K Lumber has 50,600 shares of stock outstanding at a price per share of $68. How
many shares will be outstanding if the firm does a 5-for-2stock split?
A. 20,240 shares
B. 22,300 shares
C. 55,667 shares
D. 126,500 shares
E. 121,120 shares
Kallie placed an order with her broker to purchase 500 shares of each of three IPOs that
are being released this month. Each IPO has an offer price of $19 a share. The number
of shares allocated to Kallie, along with the closing stock price at the end of the first
day of trading for each stock, are as follows:
What is her total profit or loss on these three stocks as of the end of the first day of
trading for each stock?
A. -$412
B. -$540
C. -$236
D. $133
E. $1,370
Stock J has a beta of 1.52 and an expected return of 15.76percent. Stock K has a beta of
.98 and an expected return of 11.44 percent. What is the risk-free rate if these securities
both plot on the security market line?
A. 3.60 percent
B. 3.34 percent
C. 3.57 percent
D. 3.52 percent
E. 3.64 percent
Musical Charts just paid an annual dividend of $1.84 per share. This dividend is
expected to increase by 2.1 percent annually. Currently, the firm has a beta of 1.12 and a
stock price of $31 a share. The risk-free rate is 4.3 percent and the market rate of return
is 13.2 percent. What is the cost of equity capital for this firm?
A. 13.28 percent
B. 11.21 percent
C. 12.29 percent
D. 11.95 percent
E. 13.42 percent
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 each month for 10 years. The rate of
return on both annuities is 8 percent. Which one of the following statements is correct
given this information?
A. The present value of Annuity A is equal to the present value of Annuity B.
B. Annuity B will pay one more payment than Annuity A will.
C. The future value of Annuity A is greater than the future value of Annuity B.
D. Annuity B has both a higher present value and a higher future value than Annuity A.
E. Annuity A has a higher future value but a lower present value than Annuity B.
Jenna has been promoted and is now in charge of all external financing. In other words,
she is in charge of:
A. capital structure management.
B. asset allocation.
C. risk management.
D. capital budgeting.
E. working capital management.
Great Lakes Shipping is an all-equity firm with anticipated earnings before interest and
taxes of $386,000 annually forever. The present cost of equity is 17.1 percent.
Currently, the firm has no debt but is considering borrowing $1.48 million at 8.5
percent interest. The tax rate is 35 percent. What is the value of the levered firm?
A. $1,985,251
B. $2,006,519
C. $1,888,47
D. $1,666,667
E. $2,018,181
You would like to invest $24,000 and have a portfolio expected return of 11.5 percent.
You are considering two securities, A and B. Stock A has an expected return of 18.6
percent and B has an expected return of 7.4 percent. Approximately how much should
you invest in Stock A if you invest the balance in Stock B?
A. $7,807
B. $8,786
C. $7,411
D. $7,137
E. $8,626
Braxton’s Cleaning Company stock is selling for $32.60 a share based on a rate of
return of 13.8 percent. What is the amount of the next annual dividend if the dividends
are increasing by 2.4 percent annually?
A. $2.71
B. $3.84
C. $2.78
D. $2.86
E. $3.72
A particular stock sells for $43.20 share and provides a total return of 11.6 percent. The
total return is evenly divided between the capital gains yield and the dividend yield.
Assuming a constant dividend growth rate, what is the current dividend per share?
A. $2.24
B. $2.37
C. $2.34
D. $2.51
E. $2.47