1) Tressler Dry Cleaners has inventory of $1,700, accounts payable of $4,200, cash of
$1,950, and accounts receivable of $3,680. What is the cash ratio?
A.0.24
B.0.46
C.0.53
D.0.98
E.1.34
2) The excess return earned by a risky asset, for example with a beta of 1.4, over that
earned by a risk-free asset is referred to as a:
A.market risk premium
B.risk premium
C.systematic return
D.total return
E.real rate of return
3) If the appropriate discount rate for the following cash flows is 11.7 percent per year,
what is the present value of the cash flows?
A.$71,407.19
B.$74,221.80
C.$78,270.77
D.$80,407.16
E.$81,121.03
4) Rock Haven has a proposed project that will generate sales of 1,680 units annually at
a selling price of $22 each. The fixed costs are $12,700 and the variable costs per unit
are $5.95. The project requires $28,000 of fixed assets that will be depreciated on a
straight-line basis to a zero book value over the 4-year life of the project. The salvage
value of the fixed assets is $6,900 and the tax rate is 34 percent. What is the operating
cash flow for year four?
A.$11,794
B.$12,417
C.$14,258
D.$16,348
E.$16,971
5) A loan has an APR of 8.5 percent and an EAR of 8.5 percent. Given this, the loan
must:
A.have a one-year term
B.have a zero percent interest rate
C.charge interest annually
D.must be an interest-only loan
E.require the accrued interest be paid in full with each monthly payment
6) Builder’s Outlet just hired a new chief financial officer. To get a feel for the company,
she wants to compare the firm’s sales and costs over the past 3 years determine if any
trends are present and also determine where the firm might need to make changes.
Which one of the following statements will best suit her purposes?
A.Income statement
B.Balance sheet
C.Common-size income statement
D.Common-size balance sheet
E.Statement of cash flows
7) Webster Bank is offering 2.8 percent compounded daily on its savings accounts. If
you deposit $2,500 today, how much will you have in the account in 15 years?
A.$3,465.24
B.$3,611.09
C.$3,727.48
D.$3,804.84
E.$3,890.62
8) Jersey T’s is preparing to sell new shares of stock to the general public. As part of
this process, the firm just filed the required paperwork with the SEC that contains the
material information related to this issue of stock. What is the name associated with this
paperwork?
A.Prospectus
B.Red herring
C.Security agreement
D.Comment letter
E.Registration statement
9) Assume you can exchange $1 for either 1.0 or 0.50 in the U.S. In the London market,
you can exchange 1 for 0.52. This situation creates an opportunity to profit immediately
from which one of the following?
A.Futures arbitrage
B.Currency hedge
C.Interest rate swap
D.Absolute purchasing power parity
E.Triangle arbitrage
10) The following table presents a four-year forecast for Kenmore Air, Inc.:
Estimate the fair market value of Kenmore Air’s equity per share at the end of 2012
under the following assumptions:
a. EBIT in year 2016 will be $200 million.
b. At year-end 2016, Kenmore Air has reached maturity, and analysts expect its equity
will sell for 12 times year 2016 net income.
c. At year-end 2016, Kenmore Air has $250 million of interest-bearing liabilities
outstanding at an average interest rate of 10 percent.
11) Rembrandt, Samurai, Yankee, and Bulldog are all names associated with which one
of the following?
A.Eurobonds
B.Currencies
C.Cross rate
D.Foreign bonds
E.Foreign interest rates
12) Ignoring the option to wait:
A.may overestimate the internal rate of return on a project
B.may underestimate the net present value of a project
C.ignores the ability of a manager to increase output after a project has been
implemented
D.is the same as ignoring all strategic options
E.ignores the value of discontinuing a project early
13) Which one of the following will increase the operating cash flow as computed using
the tax shield approach?
A.Decrease in depreciation
B.Decrease in sales
C.Increase in variable costs
D.Decrease in fixed costs
E.Increase in the tax rate
14) Delphin’s Marina is expected to pay an annual dividend of $0.58 next year. The
stock is selling for $8.53 a share and has a total return of 12 percent. What is the
dividend growth rate?
A.3.82 percent
B.4.03 percent
C.4.28 percent
D.5.20 percent
E.5.49 percent
15) Consider the following premerger information about a bidding firm (Buyitall Inc.)
and a target firm (Tarjay Corp.). Assume that neither firm has any debt outstanding.
Buyitall has estimated that the present value of any enhancements that Buyitall expects
from acquiring Tarjay is $2,600. What is the NPV of the merger assuming that Tarjay is
willing to be acquired for $28 per share in cash?
A.$400
B.$600
C.$1,800
D.$2,200
E.$2,600
16) Companies can list their stock on which one of the following without having to
meet listing requirements or filing financial statements with the SEC?
A.NASDAQ Capital Market
B.Over-the-Counter Bulletin Board
C.Pink sheets
D.NASDAQ Global Market
E.NYSE
17) The cost of equity for a firm:
A.tends to remain static for firms with increasing levels of risk
B.increases as the unsystematic risk of the firm increases
C.ignores the firm’s risks when that cost is based on the dividend growth model
D.equals the risk-free rate plus the market risk premium
E.equals the firm’s pretax weighted average cost of capital
18) 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?
A.$58,913
B.$61,246
C.$61,487
D.$63,909
E.$64,128
19) Which one of the following statements concerning financial leverage is correct?
A.The benefits of leverage are unaffected by the amount of a firm’s earnings
B.The use of leverage will always increase a firm’s earnings per share
C.The shareholders of a firm are exposed to less risk anytime a firm uses financial
leverage
D.Changes in the capital structure of a firm will generally change the firm’s earnings
per share
E.Financial leverage is beneficial to a firm only when the firm has negative earnings
20) Charleston Mills is an all-equity firm with a total market value of $221,000. The
firm has 8,000 shares of stock outstanding. Management is considering issuing $50,000
of debt at an interest rate of 7 percent and using the proceeds on a stock repurchase.
Ignore taxes. How many shares can the firm repurchase if it issues the debt securities?
A.1,810 shares
B.1,818 shares
C.1,847 shares
D.1,856 shares
E.1,899 shares
21) In 2009, the Obama administration established a maximum limit on executive
salaries for firms that received bailout funds. What was the amount of that salary limit?
A.$250,000
B.$500,000
C.$750,000
D.$1,000,000
E.$1,500,000
22) For the period 1926-2008, which one of the following had the smallest risk
premium?
A.Large-company stocks
B.Small-company stocks
C.Long-term corporate bonds
D.U.S. Treasury bills
E.Long-term government bonds
23) Textile Mills has sales of $923,000, cost of goods sold of $748,000, and accounts
receivable of $106,700. How long on average does it take the firm’s customers to pay
for their purchases?
A.8.65 days
B.11.28 days
C.25.01 days
D.42.19 days
E.45.33 days
24) Charlies’ writes 135 checks a day for an average amount of $480 each. These
checks generally clear the bank in 3 days. In addition, the firm generally receives an
average of $159,000 a day in checks that are deposited immediately. Deposited funds
are available in 1.5 days. What is the firm’s net float?
A.Net disbursement float of $94,200
B.Net disbursement float of $44,100
C.Net disbursement float of $34,750
D.Net collection float of $44,100
E.Net collection float of $94,200
25) A 12-year, semiannual coupon bond is priced at $1,102.60. The bond has a $1,000
face value and a yield to maturity of 5.33 percent. What is the coupon rate?
A.5.00 percent
B.5.25 percent
C.5.50 percent
D.6.00 percent
E.6.50 percent
26) Zero-coupon bonds:
A.are valued using simple interest
B.are only issued by the U.S. Treasury
C.create a tax deduction for the issuer only at maturity
D.are issued at a premium
E.create annual taxable income to individual bondholders
27) Generally speaking, bonds issued in the U.S. pay interest on a(n) _____ basis.
A.annual
B.semi-annual
C.quarterly
D.monthly
E.daily
28) Which one of the following statements is correct?
A.Exchange rates are adjusted each morning and held constant until the next morning
B.The four most common currencies traded in the foreign exchange market are the U.S.
dollar, franc, euro, and peso
C.All of South America uses the peso as their currency
D.New Zealand uses the same currency as Australia and that is the A$
E.The foreign exchange market is the largest financial market in the world
29) Which one of the following applies to a general partnership?
A.The firm’s operations must be controlled by a single partner
B.Any one of the partners can be held solely liable for all of the partnership’s debt
C.The profits of the firm are taxed as a separate entity
D.Each partner’s liability for the firm’s debts is limited to each partner’s investment in
the firm
E.The profits of a general partnership are taxed the same as those of a corporation
30) Assume that long-term corporate bonds had an average return of 6.3 percent and a
standard deviation of 8.3 percent for a 30-year period. What range of returns would you
expect to see on these bonds 68 percent of the time?
A.-2.0 percent to 14.6 percent
B.-2.0 percent to 22.9 percent
C.-10.3 percent to 14.6 percent
D.-10.3 percent to 17.4 percent
E.-10.3 percent to 22.9 percent
31) Cindy is taking out a loan today. The cash amount that she will receive today is
equal to the present value of the lump sum payment which she will be required to pay 2
years from today. Which type of loan is this?
A.Principal-only
B.Amortized
C.Interest-only
D.Compound
E.Pure discount
32) Downtown Merchants has paid a quarterly dividend of $0.60 per share for the past
two years. This quarter, the firm plans to pay $0.60 plus an additional $0.05. The firm
has stated that it uncertain whether it will pay $0.60 or $0.65 per share next quarter.
Which one of the following is the best description of the additional $0.05 that is being
paid this quarter?
A.Liquidating dividend
B.Special dividend
C.Extra dividend
D.Stock dividend
E.Normal dividend