1) Martin & Martin, Inc. stock is currently selling for $19 per share. The firm just made
an offer to one of its major shareholders to repurchase all the shares owned by that
shareholder for $25 per share. What type of offer is being made?
A.Rights offer
B.Secondary issue
C.Targeted repurchase
D.Tender offer
E.Private issue
2) The Rent-to-Own Store has a six-year, interest-only loan at 12 percent interest. The
firm originally borrowed $125,000. How much will the firm pay in total interest over
the life of the loan?
A.$15,000.00
B.$53,666.67
C.$67,500.00
D.$69,000.00
E.$90,000.00
3) Will and Bill both enjoy sunshine, water, and surfboards. Thus, the two friends
decided to create a business together renting surfboards, paddle boats, and inflatable
devices in California. Will and Bill will equally share in the decision making and in the
profits or losses. Which type of business did they create if they both have full personal
liability for the firm’s debts?
A.Sole proprietorship
B.Limited partnership
C.Corporation
D.Joint stock company
E.General partnership
4) Which one of the following best illustrates the concept of derived demand?
A.A minimum wage worker tends to buy more off-brand products than do more highly
paid professionals
B.A windshield company has to step up production because auto sales are increasing
C.A grocery store is selling more fresh fruits and vegetables because people are
improving their diets
D.Restaurant sales are rising because unemployment is falling
E.Retail stores have higher sales around the holiday season than in other seasons of the
year
5) James Fabricators just liquidated its poorest performing division and realized net
proceeds from the transaction of $2.2 million. The firm has 200,000 shares of stock
outstanding at a market price of $62 a share. Which one of the following is the best
estimate of the stock’s post-dividend price per share if the firm distributes the entire
liquidation proceeds in the form of a liquidating dividend? Ignore taxes and market
imperfections.
A.$51.00
B.$51.38
C.$53.40
D.$58.79
E.$62.00
6) An increase in the accounts receivable period will do which one of the following?
A.Lengthen the accounts payable period
B.Shorten the inventory period
C.Shorten the operating cycle
D.Lengthen the cash cycle
E.Shorten the accounts payable period
7) Stadford, Inc. is financed with 40 percent debt and 60 percent equity. This mixture of
debt and equity is referred to as the firm’s:
A.capital structure
B.capital budget
C.asset allocation
D.working capital
E.risk structure
8) Lee pays 1 percent per month interest on his credit card account. When his monthly
rate is multiplied by 12, the resulting answer is referred to as the:
A.annual percentage rate
B.compounded rate
C.effective annual rate
D.perpetual rate
E.simple rate
9) The Monster Truck operates several specialty vehicles that provide hot food and
beverages for firms that have workers employed in outlying regions. The company has
annual sales of $350,500. Cost of goods sold average 48 percent of sales and the profit
margin is 5.2 percent. The average accounts receivable balance is $44,700. On average,
how long does it take The Hot Truck to collect payment for its services?
A.7.84 days
B.24.17 days
C.46.55 days
D.48.33 days
E.51.90 days
10) The required return on Mountain Brook stock is 14 percent and the dividend growth
rate is 5.5 percent. The stock is currently selling for $18.80 a share. What is the
dividend yield?
A.7.50 percent
B.8.93 percent
C.9.75 percent
D.10.50 percent
E.12.50 percent
11) Kelly just completed compiling a listing of her firm’s accounts receivable with each
invoice segregated according to the length of time the invoice has been outstanding.
What is the name given to this listing?
A.Aging schedule
B.Collection report
C.Credit evaluation report
D.Invoice schedule
E.Terms of credit
12) Which one of the following conditions exists at the point where a firm maximizes
its value?
A.The tax benefit from an additional dollar of debt is zero
B.Financial distress costs are equal to zero
C.The debt-equity ratio is 1.0
D.WACC is minimized
E.The cost of equity is minimized
13) What is the effective annual rate of 6.5 percent compounded quarterly?
A.6.02 percent
B.6.29 percent
C.6.54 percent
D.6.66 percent
E.6.83 percent
14) The standard deviation measures the _____ of a security’s returns over time.
A.average value
B.frequency
C.volatility
D.mean
E.arithmetic average
15) Which one of the following statements is correct concerning a firm’s fixed assets?
A.The market value is the expected selling price in today’s economy
B.The market value is affected by the accounting method selected
C.The market value is equal to the initial cost minus the depreciation to date
D.The book value is equal to the market value minus the accumulated depreciation
E.The book value is the greater of the initial cost or the current market value
16) Which one of the following terms is used to identify the concept that exchange rates
vary to keep purchasing power constant among currencies?
A.Exchange rate equilibrium
B.Exchange rate parity
C.Universal parity
D.Market equilibrium
E.Purchasing power parity
17) 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
18) 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
19) What is the payback period for a $28,500 investment with the following cash
flows?
A.3.65 years
B.3.89 years
C.4.22 years
D.4.44 years
E.The project never pays back
20) You are analyzing a project and have developed the following estimates. The
depreciation is $7,600 a year and the tax rate is 34 percent. What is the worst-case
operating cash flow?
A.-$1,311
B.-$641
C.$274
D.$599
E.$1,206
21) Today, you are borrowing money from your local bank. The loan is to be repaid in
one lump sum payment of $15,000 one year from now. How much money are you
borrowing today if the APR is 10.6 percent?
A.$11,899.48
B.$12,550.00
C.$13,562.39
D.$13,762.14
E.$14,037.97
22) Woodcrafters requires an average accounting return (AAR) of at least 17 percent on
all fixed asset purchases. Currently, it is considering some new equipment costing
$178,000. This equipment will have a four-year life over which time it will be
depreciated on a straight-line basis to a zero book value. The annual net income from
this equipment is estimated at $10,100, $10,300, $17,900, and $19,600 for the four
years. Should this purchase occur based on the accounting rate of return? Why or why
not?
A.Yes, because the AAR is less than 17 percent
B.Yes, because the AAR is equal to 17 percent
C.Yes, because the AAR is greater than 17 percent
D.No, because the AAR is less than 17 percent
E.No, because the AAR is greater than 17 percent
23) 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
24) 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
25) Martha is investing $5 today at 6 percent interest so she can have $10 later. The $10
is referred to as the:
A.true value
B.future value
C.present value
D.discounted value
E.complex value
26) Western Hardwood Sales has total equity of $79,000, a profit margin of 4.8 percent,
an equity multiplier of 1.5, and a total asset turnover of 1.3 . What is the amount of the
firm’s sales?
A.$154,050
B.$173,550
C.$181,430
D.$185,620
E.$739,440
27) Black Stone Furnaces wants to build a new facility. The cost of capital for this
investment is primarily dependent on which one of the following?
A.Firm’s overall source of funds
B.Source of the funds used to build the facility
C.Current tax rate
D.The nature of the investment
E.Firm’s historical average rate of return
28) The capital gains yield equals which one of the following?
A.Total yield
B.Current discount rate
C.Market rate of return
D.Dividend yield
E.Dividend growth rate
29) Which one of the following is the vertical intercept of the security market line?
A.Market rate of return
B.Individual security rate of return
C.Market risk premium
D.Individual security beta multiplied by the market risk premium
E.Risk-free rate
30) The Pretzel Factory has net sales of $821,300 and costs of $698,500. The
depreciation expense is $28,400 and the interest paid is $8,400. What is the amount of
the firm’s operating cash flow if the tax rate is 34 percent?
A.$87,620
B.$89,540
C.$91,220
D.$93,560
E.$95,240
31) You want to have $45,000 in cash to buy a car 4 years from today. You expect to
earn 4.5 percent, compounded annually, on your savings. How much do you need to
deposit today if this is the only money you save for this purpose?
A.$33,618.92
B.$34,511.68
C.$35,726.04
D.$37,735.26
E.$38,156.19
32) Wilson’s Realty has total assets of $46,800, net fixed assets of $37,400, current
liabilities of $6,100, and long-term liabilities of $24,600. What is the total debt ratio?
A.0.41
B.0.60
C.0.66
D.0.78
E.0.86
33) Which one of the following has nearly the same meaning as free cash flow?
A.Net income
B.Cash flow from assets
C.Operating cash flow
D.Cash flow to shareholders
E.Addition to retained earnings
34) Tim’s Tools just issued a dividend of $1.80 per share on its common stock. The
company is expected to maintain a constant 4 percent growth rate in its dividends
indefinitely. If the stock sells for $31 a share, what is the company’s cost of equity?
A.8.81 percent
B.9.37 percent
C.9.94 percent
D.10.04 percent
E.10.46 percent
35) Which of the following will increase the sustainable rate of growth for a firm?
I. Decreasing the profit margin
II. Increasing the dividend payout ratio
III. Decreasing the capital intensity ratio
IV. Increasing the target debt-equity ratio
A.I and II only
B.III and IV only
C.II and IV only
D.I, III, and IV only
E.I, II, III, and IV
36) You want to invest an amount of money today and receive back twice that amount
in the future. You expect to earn 6 percent interest. Approximately how long must you
wait for your investment to double in value?
A.6 years
B.7 years
C.8 years
D.12 years
E.14 years
37) Chestnut Tree Farms has identified the following two mutually exclusive projects:
Over what range of discount rates would you choose Project A?
A.8.28 percent or less
B.8.28 percent or more
C.9.33 percent or more
D.9.55 percent or less
E.9.55 percent or more
38) 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
39) Which one of the following will generally receive the highest priority in a
bankruptcy liquidation, assuming the absolute priority rule is followed?
A.Claims by unsecured creditors
B.Employee wages
C.Government tax claims
D.Contributions to employee retirement plans
E.Bankruptcy administrative expenses
40) 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
B.The portfolio expected rate of return must be the same for each economic state
C.The portfolio risk premium must equal zero
D.The portfolio expected rate of return must equal the expected market rate of return
E.There must be equal probabilities that the state of the economy will be a boom or a
bust