A U.S. Treasury bond pays 9.5 percent interest. You are in the 25 percent tax bracket.
What is your after-tax yield on this bond?
A. 1.28 percent
B. 2.23 percent
C. 7.13 percent
D. 8.35 percent
E. 9.50 percent
A particular set of golf clubs in the U.S. costs $1,100. According to absolute purchasing
power parity, what should the identical set of clubs cost in the UK when the spot rate is
0.6703 = $1?
A. 1,641.06
B. 1,728.08
C. 633.80
D. 647.50
E. 737.33
Which one of the following refers to the relationship between nominal returns, real
returns, and inflation?
A. Call premium
B. Fisher effect
C. Conversion ratio
D. Bid-ask spread
E. Clean-dirty spread
Early Works had $87,600 in net fixed assets at the beginning of the year. During the
year, the company purchased $6,400 in new equipment. It also sold, at a price of
$2,300, some old equipment with a book value of $1,100. The depreciation expense for
the year was $3,700. What is the net fixed asset balance at the end of the year?
A. $76,400
B. $78,800
C. $80,000
D. $89,200
E. $89,400
You own a portfolio consisting of the securities listed below. The expected return for
each security is as shown. What is the expected return on the portfolio?
A. 9.97 percent
B. 10.86 percent
C. 11.23 percent
D. 12.09 percent
E. 14.20 percent
Which one of the following represents the present value of the interest tax shield?
A. D x (1 – Tc)
B. D/(1 – Tc)
C. D/Tc
D. D – D(Tc)
E. Tc x D
Marthas Fabric House has sales of $137,200, total equity of $74,400, and a debt-equity
ratio of 0.45. What is the capital intensity ratio?
A. 0.79
B. 0.83
C. 1.06
D. 1.20
E. 1.27
All else constant, which of the following will increase the aftertax cost of debt for a
firm?I. Increase in the yield to maturity of the firms outstanding debtII. Decrease in the
yield to maturity of the firms outstanding debtIII. Increase in the firms tax rateIV.
Decrease in the firms tax rate
A. I only
B. I and III only
C. I and IV only
D. II and III only
E. II and IV only
You are analyzing a company that has cash of $11,200, accounts receivable of $27,800,
fixed assets of $124,600, accounts payable of $31,300, and inventory of $56,900. What
is the quick ratio?
A. 0.30
B. 0.67
C. 0.80
D. 1.25
E. 1.37
Jericho Snacks is an all-equity firm with estimated earnings before interest and taxes of
$826,000 annually forever. Currently, the firm has no debt but is considering borrowing
$650,000 at 6.75 percent interest. The tax rate is 34 percent and the current cost of
equity is 17.2 percent. What is the value of the levered firm?
A. $3,187,271
B. $3,169,535
C. $3,307,271
D. $3,390,535
E. $3,506,418
If a security plots to the right and below the security market line, then the security has
____ systematic risk than the market and is ____.
A. more; overpriced
B. more; underpriced
C. less; overpriced
D. less; underpriced
E. less; correctly priced
Which of the following statements correctly relate to M&M Proposition I, with taxes?I.
Debt decreases the value of a firm.II. The levered value of a firm exceeds the firms
unlevered value.III. The weighted average cost of capital (WACC) is constant.IV. The
optimal capital structure is zero debt.
A. I only
B. II only
C. II and III only
D. I and IV only
E. I, III, and IV only
Which of the following are important factors to consider when seeking a venture
capitalist?I. Exit strategyII. Management styleIII. Personal contactsIV. Financial
strength
A. I and III only
B. II and IV only
C. III and IV only
D. II, III, and IV only
E. I, II, III, and IV
The inflation premium:
A. increases the real return.
B. is inversely related to the time to maturity.
C. remains constant over time.
D. rewards investors for accepting interest rate risk.
E. compensates investors for expected price increases.
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
Davidson Interiors declared a dividend to holders of record on Thursday, October 15,
that is payable on Monday, November 2. Suenette purchased 200 shares of Davidson
Interiors stock on Monday, October 12, and Jake purchased 100 shares of this stock on
the following day. Which one of the following statements is correct given this
information?
A. Both Suenette and Jake will receive this dividend.
B. Suenette will receive the dividend but Jake will not.
C. Jake will receive the dividend but Suenette will not.
D. Neither Suenette nor Jake will receive this dividend.
E. You cannot determine who will or will not receive this dividend based on the
information provided.
Which one of the following is basically equivalent to a 2-for-1 stock split?
A. 20 percent stock dividend
B. 25 percent stock dividend
C. 50 percent stock dividend
D. 100 percent stock dividend
E. 200 percent stock dividend
A sole proprietorship:
A. provides limited liability for its owner.
B. involves significant legal costs during the formation process.
C. has an unlimited life.
D. has its profits taxed as personal income.
E. can generally raise significant capital from nonowner sources.
Which one of the following is the suggested method of handling exchange rate risk for
a large, multinational firm headquartered in the U.S.? Assume the operations in each
country represent a different division of the firm.
A. At the division level
B. At a level that combines all divisions representing a separate geographic continent
C. At a level that combines divisions based on the currency used by each division
D. By segregating U.S. operations and foreign operations
E. On a centralized basis for all divisions