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 of receiving dividends either in cash or in additional shares of
stock.
B. be paid dividends prior to the preferred shareholders during the preemptive period.
C. be entitled to two votes per share of stock.
D. be able to choose the timing and amount of any future dividends.
E. have priority in the purchase of any newly issued shares.
Answer:
You purchased a zero coupon bond one year ago for $291.22. The market interest rate is
now 8.75 percent. If the bond had 16 years to maturity when you originally purchased
it, what was your total return for the past year if the face value of the bond is $1,000?
A. -4.97 percent
B. -2.18 percent
C. 1.34 percent
D. 2.65 percent
E. 2.90 percent
Answer:
Swan Lake Marina is expected to pay an annual dividend of $1.58 next year. The stock
is selling for $18.53 a share and has a total return of 12 percent. What is the dividend
growth rate?
A. 2.82 percent
B. 3.03 percent
C. 3.28 percent
D. 3.47 percent
E. 3.66 percent
Answer:
What is the market called that allows shareholders to resell their shares to other
investors?
A. Primary
B. Proxy
C. Secondary
D. Inside
E. Initial
Answer:
What is the beta of the following portfolio?
A. 0.98
B. 1.02
C. 1.11
D. 1.14
E. 1.20
Answer:
Electronic Products has 35,000 bonds outstanding that are currently quoted at 102.3.
The bonds mature in 11 years and carry a 9 percent annual coupon. What is the firm’s
aftertax cost of debt if the applicable tax rate is 30 percent?
A. 4.47 percent
B. 4.79 percent
C. 6.07 percent
D. 6.98 percent
E. 8.67 percent
Answer:
A pro forma financial statement is a financial statement that:
A. expresses all values as a percentage of either total assets or total sales.
B. compares actual results to the budgeted amounts.
C. compares the performance of a firm to its industry.
D. projects future years’ operations.
E. values all assets based on their current market values.
Answer:
Boyertown Industrial Tools is considering a three-year project to improve its production
efficiency. Buying a new machine press for $611,000 is estimated to result in $193,000
in annual pretax cost savings. The press falls in the MACRS five-year class, and it will
have a salvage value at the end of the project of $162,000. The press also requires an
initial investment in spare parts inventory of $19,000, along with an additional $2,000
in inventory for each succeeding year of the project. If the tax rate is 35 percent and the
discount rate is 12 percent, should the company buy and install the machine press? Why
or why not?
Table 9.7 Modified ACRS depreciation allowances
A. Yes; the NPV is $51,613
B. Yes; the NPV is $45,607
C. No; the NPV is -$22,311
D. No; the NPV is -$52,918
E. No; the NPV is -$74,945
Answer:
Working capital management includes which one of the following?
A. Deciding which new projects to accept
B. Deciding whether to purchase a new machine or fix a current machine
C. Determining which customers will be granted credit
D. Determining how many new shares of stock should be issued
E. Establishing the target debt-equity ratio
Answer:
Fried Foods has sales of $238,900, total assets of $217,000, total equity of $121,300,
net income of $18,700, and dividends paid of $7,000. What is the internal growth rate?
A. 5.48 percent
B. 5.70 percent
C. 5.98 percent
D. 7.34 percent
E. 7.92 percent
Answer:
You need to use the pure play approach to assign a cost of capital to a proposed
investment. Which one of the following characteristics should you most concentrate on
as you search for an appropriate pure play firm?
A. Firm size
B. Firm location
C. Firm experience
D. Firm operations
E. Firm management
Answer:
Currently, you owe the bank $9,800 for a car loan. The loan has an interest rate of 7.75
percent and monthly payments of $310. Your financial situation recently changed such
that you can no longer afford these payments. After talking with your banker and
explaining the situation, he has agreed to lower the monthly payments to $225 while
keeping the interest rate at 7.75 percent. How much longer will it take you to repay this
loan than you had originally planned?
A. 12.29 months
B. 14.47 months
C. 15.84 months
D. 17.19 months
E. 19.90 months
Answer:
A registered form bond is defined as a bond that:
A. is a bearer bond.
B. is held in street name.
C. pays coupon payments directly to the owner of record.
D. is listed with the Securities and Exchange Commission (SEC).
E. is unsecured.
Answer:
The Road Kill Restaurant has the following current account values for the year. These
accounts represent a net _____ of cash for the year in the amount of ____.
A. Source; $3,100
B. Source; $4,700
C. Use; $3,100
D. Use; $3,800
E. Use; $4,700
Answer:
The Park Place has a return on assets of 13.7 percent, a cost of equity of 20 percent, and
a pretax cost of debt of 7.1 percent. What is the debt-equity ratio? Ignore taxes.
A. 0.44
B. 0.47
C. 0.61
D. 0.88
E. 0.95
Answer:
Kate’s Korner Market monitors 3 percent of its inventory on a daily basis, another 20
percent on a weekly basis, and the remaining inventory on a quarterly basis. What
inventory management approach is being used?
A. ABC
B. EOQ
C. MRP
D. Q*
E. JIT
Answer:
Atlas Home Supply has paid a constant annual dividend of $2.40 a share for the past 15
years. Yesterday, the firm announced the dividend will increase next year by 10 percent
and will stay at the level through year 3, after which time the dividends will increase by
2 percent annually. The required return on this stock is 12 percent. What is the current
value per share?
A. $25.51
B. $26.08
C. $24.57
D. $26.02
E. $26.84
Answer:
A firm’s float management policy is most apt to include which one of the following
statements?
A. All invoices are to be paid the same day they are received.
B. All outgoing checks are to be delivered by the fastest means possible.
C. The depository bank needs to process all deposits in accordance with the Check
Clearing Act for the 21st Century.
D. Any check received is to be held until the customer’s account has been updated to
record the payment.
E. Accounts payable processing should be given priority over accounts receivable
processing.
Answer:
Piedmont Hotels is an all-equity firm with 60,000 shares of stock outstanding. The
stock has a beta of 1.27 and a standard deviation of 13.8 percent. The market risk
premium is 9.1 percent and the risk-free rate of return is 4.5 percent. The company is
considering a project that it considers riskier than its current operations so it wants to
apply an adjustment of 1 percent to the project’s discount rate. What should the firm set
as the required rate of return for the project?
A. 12.54 percent
B. 13.92 percent
C. 15.39 percent
D. 17.06 percent
E. 17.33 percent
Answer:
Which one of the following statements concerning sinking funds is correct?
A. Bond issuers must fund a sinking fund at the time the bonds are issued.
B. Sinking funds must include at least one “balloon payment.”
C. Sinking funds must be funded annually, starting on the issue date.
D. Sinking funds may be used to purchase bonds in the open market.
E. Sinking funds can be used only to call bonds.
Answer:
Which of the following are inversely related to increases in a firm’s current assets?
I. Reorder costs
II. Shortage costs
III. Restocking costs
IV. Carrying costs
A. I and III only
B. II and IV only
C. I, II, and III only
D. II, III, and IV only
E. I, III, and IV only
Answer: