1) The specific location on the floor of an exchange where a particular security is traded
is called a:
A.box office
B.figure 6
C.DMM’s post
D.trading booth
E.seat
2) The spot exchange rate is the exchange rate that applies to a(n):
A.LIBOR transaction
B.ADR transaction
C.spot trade
D.forward trade
E.future transaction
3) 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 to the firm’s current
shareholders before making any offer of these shares to the general public. Which one
of the following terms best applies to this offer?
A.General cash offer
B.Rights offer
C.In-house offering
D.Private placement
E.Initial public offering
4) Over the past five years, a stock returned 8.3 percent, -32.5 percent, -2.2 percent,
46.9 percent, and 11.8 percent, respectively. What is the variance of these returns?
A.0.071188
B.0.076290
C.0.081504
D.0.082547
E.0.091306
5) Which one of the following is a shortage cost associated with a firm’s inventory?
A.Restocking cost
B.Opportunity cost of capital
C.Inventory obsolescence
D.Insurance cost
E.Inventory theft
6) What is the expected return on a security given the following information?
A.8.78 percent
B.9.43 percent
C.9.97 percent
D.10.22 percent
E.11.48 percent
7) Which one of the following could cause the total return on an investment to be a
negative rate?
A.Constant annual dividend amount
B.Increase in the annual dividend amount
C.Stock price that remains constant over the investment period
D.Stock price that declines over the investment period
E.Stock price that increases over the investment period
8) Which one of the following states that the difference in interest rates between two
countries is equal to the percentage difference between the forward exchange rate and
the spot exchange rate?
A.Arbitrage equilibrium
B.Relative purchasing power parity
C.Absolute purchasing power parity
D.Interest rate parity
E.Cross-rate parity
9) The corporate tax structure in the U.S. is based on a:
A.maximum tax rate of 38 percent
B.minimum tax rate of 10 percent
C.flat rate of 34 percent for the highest income earners
D.flat-rate tax
E.modified flat-rate tax
10) 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
11) What is the group of underwriters called who share both the risks and the marketing
responsibilities for a securities offering?
A.Syndicate
B.Underwriting cartel
C.Firm commitment group
D.Dutch auction group
E.Venture capitalists
12) Obama and Biden International just announced it will be paying an annual dividend
of $0.90 a share plus an extra dividend of $0.30 a share this year. The company also
announced that its regular dividend, which is all it anticipates paying after this year, will
increase by 4.5 percent annually. What is the anticipated dividend per share next year?
A.$0.82
B.$0.90
C.$0.94
D.$1.15
E.$1.19
13) Gabe’s Market is comparing two different capital structures. Plan I would result in
11,000 shares of stock and $225,000 in debt. Plan II would result in 14,000 shares of
stock and $150,000 in debt. The interest rate on the debt is 8 percent. Ignoring taxes,
compare both of these plans to an all-equity plan assuming that EBIT will be $45,000.
The all-equity plan would result in 20,000 shares of stock outstanding. Of the three
plans, the firm will have the highest EPS with _____ and the lowest EPS with ____.
A.Plan I; Plan II
B.Plan I; all-equity plan
C.Plan II; Plan I
D.Plan II; all-equity plan
E.all-equity plan; Plan I
14) Given the following information, what is the expected return on a portfolio that is
invested 30 percent in both Stocks A and C, and 40 percent in Stock B?
A.11.97 percent
B.12.94 percent
C.13.33 percent
D.13.84 percent
E.14.42 percent
15) Tanner Tavern writes four checks a day for an average amount of $5,400 each.
These checks generally clear the bank four days after they are written. In addition, the
firm generally receives and deposits checks amounting to $18,700 each day. All
deposits are available on the next day. What is the firm’s net float?
A.Net collection float of $13,200
B.Net collection float of $18,700
C.Net collection float of $22,300
D.Net disbursement float of $67,700
E.Net disbursement float of $86,400
16) International Exchange has three divisions: A, B, and C. Division A has the least
risk and Division C has the most risk. The firm has an aftertax cost of debt of 6.1
percent and a cost of equity of 14.3 percent. The firm is financed with 35 percent debt
and 65 percent equity. Division A’s projects are assigned a discount rate that is 3 percent
less than the firm’s weighted average cost of capital. What is the discount rate
applicable to Division A?
A.7.98 percent
B.8.27 percent
C.8.44 percent
D.9.48 percent
E.13.43 percent
17) The Color Box uses a combination of common stock, preferred stock, and debt
financing. The company wants preferred stock to represent 8 percent of the total
financing. It also wants to structure the firm in a manner that will produce a weighted
average cost of capital of 10.25 percent. The aftertax cost of debt is 5.1 percent, the cost
of preferred is 9.3 percent, and the cost of common stock is 15.6 percent. What
percentage of the firm’s capital funding should be debt financing?
A.46.12 percent
B.52.03 percent
C.54.15 percent
D.58.78 percent
E.63.21 percent
18) You find a certain stock that had returns of 14 percent, -27 percent, 19 percent, and
21 percent for four of the last five years, respectively. The average return of the stock
over this period was 9.5 percent. What is the standard deviation of the stock’s returns?
A.11.67 percent
B.12.90 percent
C.14.14 percent
D.18.47 percent
E.20.59 percent
19) Kaylor’s Tool Shoppe has 16,000 shares of stock outstanding at a market price of $2
a share. Which one of the following stock splits should the firm declare if it wants to
increase the stock price to exactly $15 a share? Ignore any taxes or market
imperfections.
A.15-for-2 stock split
B.8-for-1 stock split
C.1-for-7 reverse stock split
D.2-for-15 reverse stock split
E.1-for-8 reverse stock split
20) Classic Cars is considering a project that requires $148,000 of fixed assets that are
classified as five-year property for MACRS. What is the book value of these assets at
the end of year 3? The MACRS allowance percentages are as follows, commencing
with year 1: 20.00, 32.00, 19.20, 11.52, 11.52, and 5.76 percent.
A.$34,210
B.$36,667
C.$42,624
D.$43,450
E.$44,504
21) Which one of the following best describes a line of credit?
A.Long-term, prearranged, committed bank loan
B.Short-term loan secured by accounts receivable
C.Short-term loan secured by inventory
D.Long-term, prearranged, noncommitted bank loan
E.Short-term prearranged bank loan that can be either committed or noncommitted
22) Precision Cuts has a target debt-equity ratio of 0.55 . Its cost of equity is 15.4
percent, and its pretax cost of debt is 7.8 percent. If the tax rate is 32 percent, what is
the company’s WACC?
A.10.20 percent
B.10.72 percent
C.10.91 percent
D.11.28 percent
E.11.82 percent
23) Given the following exchange rates, which of the following currencies are selling at
a premium?
A.Japanese yen only
B.Swiss franc and Canadian dollar only
C.U.S. pound only
D.Canadian dollar, Swiss franc, and UK pound only
E.All four currencies
24) 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 four-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 4?
A.$11,794
B.$12,417
C.$14,258
D.$16,348
E.$16,971
25) Uptown Insurance offers an annuity due with semiannual payments for 25 years at 6
percent interest. The annuity costs $200,000 today. What is the amount of each annuity
payment?
A.$7,546.70
B.$7,600.00
C.$7,773.10
D.$7,800.00
E.$7,856.25
26) You are analyzing a project and have developed the following estimates. The
depreciation is $52,000 a year and the tax rate is 34 percent. What is the worst-case
operating cash flow?
A.-$32,509
B.-$19,288
C.-$4,225
D.$27,556
E.$48,106
27) Which one of the following methods of analysis ignores the time value of money?
A.Net present value
B.Internal rate of return
C.Discounted cash flow analysis
D.Payback
E.Profitability index
28) Kim’s Bridal Shoppe has 15,000 shares of common stock outstanding at a price of
$11 a share. It also has 2,000 shares of preferred stock outstanding at a price of $34 a
share. There are 50 bonds outstanding that have a 7.5 percent semiannual coupon. The
bonds mature in six years, have a face value of $1,000, and sell at 96 percent of par.
What is the capital structure weight of the common stock?
A.24.20 percent
B.31.68 percent
C.53.15 percent
D.58.72 percent
E.66.23 percent
29) Services United is considering a new project that requires an initial cash investment
of $78,000. The project will generate cash inflows of $29,500, $32,700, $18,500, and
$10,000 over each of the next four years, respectively. How long will it take to recover
the initial investment?
A.2.74 years
B.2.85 years
C.2.99 years
D.3.27 years
E.3.68 years
30) A U.S. firm has total assets valued at £890,000 located in London. This valuation
did not change from last year. Last year, the exchange rate was £0.62 = $1. Today, the
exchange rate is £0.68 = $1. By what amount did these assets change in value on the
firm’s U.S. financial statements?
A.-$126,660.34
B.$-113,511.03
C.$-87,248.91
D.$113,511.03
E.$126,660.34