Firm A is acquiring Firm T for $22,500 in cash. Firm A has 2,300 shares of stock
outstanding at a market value of $26 a share. Firm T has 1,200 shares of stock
outstanding at a market price of $17 a share. Neither firm has any debt. The net present
value of the acquisition is $1,900. What is the price per share of Firm A after the
acquisition?
A. $26.00
B. $28.25
C. $26.83
D. $25.17
E. $26.50
Answer:
A 3-year project has a contribution margin of $15, projected fixed costs of $120,000, a
projected variable cost per unit of $12, straight-line depreciation for 3 years of $61,000,
and a projected present value break-even point of 13,601.20 units. The tax rate is 34
percent and the discount rate is 12 percent. What is the equivalent annual cost?
A. $81,110.46
B. $76,191.86
C. $84,207.19
D. $72,549.02
E. $76,666.67
Answer:
Warrants generally:
A. cannot be detached.
B. expire within 30 days.
C. remain attached to their original security until the expiration date.
D. increase in value when the underlying stock price decreases.
E. have longer maturity periods than calls.
Answer:
The basic regulatory framework for the public trading of securities in the United States
was provided by the:
A. New York Stock Exchange when it was founded.
B. Securities Exchange Act of 1934.
C. Federal Reserve Bank.
D. Securities Act of 1933 and the Securities Exchange Act of 1934.
E. Sarbanes-Oxley Act in 2002.
Answer:
The closing price of a stock is quoted at 32.08, with a P/E of 21 and a net change of .36.
Based on this information, which one of the following statements is correct?
A. The closing price on the previous day was $.36 higher than today’s closing price.
B. A dealer will buy the stock at $32.08 and sell it at $32.44 a share.
C. The current earnings per share equal $32.08 / 21 + $.36.
D. The current stock price is equivalent to 21 years of the firm’s current earnings per
share.
E. The earnings per share have increased by $.36 this year.
Answer:
A warrant bestows its owner with the:
A. obligation to sell securities directly to the firm at a fixed price for a stated period of
time.
B. right to purchase securities directly from the firm at a fixed price for a stated period
of time.
C. obligation to purchase securities directly from the firm at a fixed price for a stated
period of time.
D. right to sell securities directly to the firm at a fixed price for a stated period of time.
E. right to sell securities directly to the firm at the prior day’s closing price for a stated
period of time.
Answer:
Shortage costs include all of the following except:
A. opportunity cost related to low return on assets.
B. order costs.
C. disruption of production schedules.
D. production setup costs.
E. lost sales.
Answer:
A project has an accounting break-even point of 2,962 units. The fixed costs are
$46,308 and the depreciation expense is $22,147. The projected variable cost per unit is
$23.10. What is the projected sales price?
A. $48.07
B. $42.96
C. $41.20
D. $46.21
E. $45.40
Answer:
The financial ratio days’ sales in inventory is measured as:
A. inventory turnover plus 365 days.
B. inventory times 365 days.
C. inventory plus cost of goods sold, divided by 365 days.
D. 365 days divided by the inventory.
E. 365 days divided by the inventory turnover.
Answer:
The increase in risk to shareholders when financial leverage is introduced is best
evidenced by:
A. higher EPS as EBIT increases.
B. a higher variability of EPS with debt than with all-equity financing.
C. increased use of homemade leverage.
D. the increase in taxes.
E. decreasing earnings as EBIT increases.
Answer:
The symbol “S0” represents the:
A. spot exchange rate expressed in dollars per unit of foreign currency.
B. forward rate expressed in foreign currency units per dollar.
C. profit that can be realized on a triangle arbitrage.
D. spot rate in foreign currency units per dollar.
E. forward rate expressed in dollars per unit of foreign currency.
Answer:
Bonds that grant the issuer the right to extinguish the debt prior to maturity are referred
to as which type of bond?
A. put bond
B. debenture
C. callable bond
D. subordinated bond
E. covenant bond
Answer:
You own 25 percent of Unique Vacations, Inc. You have decided to retire and want to
sell your shares in this closely held, all-equity firm. The other shareholders have agreed
to have the firm borrow $1.5 million to purchase your 1,000 shares of stock. What is the
total value of this firm today if you ignore taxes?
A. $4.8 million
B. $5.1 million
C. $5.4 million
D. $5.7 million
E. $6.0 million
Answer:
Rosina purchased a 15-year bond at par value when it was initially issued. The bond has
a coupon rate of 7 percent and matures 13 years from now. If the current market rate for
this type and quality of bond is 7.5 percent, then Rosina should expect:
A. the bond issuer to increase the amount of all future interest payments.
B. the yield to maturity to remain constant due to the fixed coupon rate.
C. to realize a capital loss if she sold the bond at today’s market price.
D. today’s market price to exceed the face value of the bond.
E. the current yield today to be less than 7 percent.
Answer:
A bond/warrant package is priced to sell at a face value of $1,000. Each bond comes
with 50 detachable warrants. A warrant gives the owner the right to buy one share of
stock at $20 per share. The value of a warrant has been estimated at $2. The bonds
mature in 20 years. Similar bonds without warrants yield 10 percent. What is the bond’s
annual coupon rate?
A. 6.67%
B. 8.83%
C. 9.04%
D. 7.35%
E. 7.78%
Answer:
A supplier, who requires payment within ten days, should be most concerned with
which one of the following ratios when granting credit?
A. current
B. cash
C. debt-equity
D. quick
E. total debt
Answer:
What is the addition to retained earnings for 2015?
A.
$4,030
B.
$4,630
C.
$3,700
D.
$4,900
E.
Answer:
A corporate bond with a face value of $1,000 matures in 4 years and has a coupon rate
of 6.25 percent. The current price of the bond is $932 and interest is paid semiannually.
What is the yield to maturity?
A. 9.05%
B. 6.67%
C. 8.58%
D. 8.28%
E. 7.92%
Answer:
The Gallery has 150,000 shares and 150,000 warrants outstanding. One new share can
be purchased for every 10 warrants plus $25 per new share. The stock is currently
selling for $28 per share. If all of the warrants are exercised immediately, what would
be the adjusted market price of the stock?
A. $30.50
B. $25.13
C. $26.96
D. $28.00
E. $27.73
Answer:
How does the absolute priority rule rank the following claims in a bankruptcy
liquidation?
A. administrative expenses, wages, government taxes, secured creditors, and
stockholders
B. administrative expenses, wages, government taxes, stockholders, and secured
creditors
C. wages, administrative expenses, secured creditors, government taxes, and
stockholders
D. wages, administrative expenses, secured creditors, stockholders, and government
taxes
E. government taxes, administrative expenses, wages, secured creditors, and
stockholders
Answer:
Risk that affects at most a small number of assets is called _____ risk.
A. portfolio
B. nondiversifiable
C. market
D. unsystematic
E. total
Answer:
Ronnie’s Coffee House is considering a project which will produce sales of $6,000 and
increase cash expenses by $2,500. If the project is implemented, taxes will increase by
$1,300. The additional depreciation expense will be $1,000. An initial cash outlay of
$2,000 is required for net working capital. What is the amount of the operating cash
flow using the top-down approach?
A. $200
B. $1,500
C. $2,200
D. $3,500
E. $4,200
Answer:
Flow-based insolvency is defined as:
A. a balance sheet measurement.
B. a negative equity position.
C. a negative cash flow in any one period.
D. a negative net profit for the year.
E. an insufficient operating cash flow to meet current obligations.
Answer:
The APV method to value a project should be used when:
A. a project’s level of debt is known over the life of the project.
B. a project’s target debt-to-value ratio is constant over the life of the project.
C. a project’s debt financing is unknown over the life of the project.
D. there are no subsidies to debt financing.
E. level of market interest rates is expected to vary over the project’s life.
Answer:
Unique Stores common stock pays a constant annual dividend of $1.75 a share. What is
the value of this stock at a discount rate of 13.25 percent?
A. $12.50
B. $13.33
C. $13.21
D. $12.88
E. $14.18
Answer:
A mutually exclusive project is a project whose:
A. acceptance or rejection has no effect on other projects.
B. NPV is always negative.
C. IRR is always negative.
D. acceptance or rejection affects other projects.
E. cash flow pattern exhibits more than one sign change.
Answer:
Financial managers primarily create firm value by:
A. maximizing current dividends.
B. investing in assets that generate cash in excess of their cost.
C. lowering the earnings per share.
D. increasing the firm’s market share.
E. maximizing current sales.
Answer:
Average daily float can be calculated as:
A. Average daily receipts / Weighted average delay.
B. Annual sales / 365.
C. Total receipts / Total days.
D. Total float Total days.
E. Average daily receipts Weighted average delay.
Answer:
The beta of the stock of an individual firm is primarily affected by:
A. the overall trend of the firm’s use of financial leverage.
B. the overall direction of the market’s movements.
C. variance of the market and the stock, but not their co-movement.
D. the operating and financial leverage of the firm as well as the cyclical nature of the
firm’s revenues.
E. the growth rate and changes of the firm’s revenues and profits.
Answer:
Altman’s revised model for private firms and non-manufacturers predicts bankruptcy
when the computed value is:
A. negative.
B. less than 1.23.
C. greater than 1.0 and less than 1.23.
D. greater than 2.50.
E. greater than 2.90.
Answer:
You purchased eight TJH call option contracts with a strike price of $37.50 when the
option quote was $.55. The option expires today when the value of TJH stock is $37.10.
Ignoring trading costs and taxes, what is your total profit on your investment?
A. $0
B. -$120
C. -$440
D. $420
E. -$760
Answer:
Who is credited with saying “Markets can stay irrational longer than you can stay
solvent”?
A. G.C. Biddle
B. Warren Buffett
C. R.S. Kaplan
D. John Maynard Keynes
E. Jay Ritter
Answer:
Lory Company had net earnings of $127,000 this past year of which $46,200 was paid
out in dividends. The company’s equity was $1,587,500. Lory has 200,000 shares
outstanding with a current market price of $11.63 per share. Both the number of shares
and the dividend payout ratio are constant. What is the required rate of return if the
growth rate is 5.6 percent?
A. 8.42%
B. 6.67%
C. 7.70%
D. 7.39%
E. 8.24%
Answer:
The duration of a coupon bond is:
A. equal to its number of payments.
B. less than that of a zero coupon bond of equal maturity.
C. equal to the zero coupon bond of the same maturity.
D. equal to its maturity.
E. increases as the time to maturity decreases.
Answer:
Salem, Inc. has an inventory turnover of 15 and an accounts receivable turnover of 9.
The accounts payable period is 51 days. What is the length of the cash cycle?
A. 13.89 days
B. 14.07 days
C. 14.23 days
D. 18.79 days
E. 23.00 days
Answer: