Which one of the following will decrease the aftertax cost of debt for a firm?
A. Decrease in the firm’s beta
B. Increase in tax rates
C. Increase in the risk-free rate of return
D. Decrease in the market price of the debt
E. Increase in a bond’s yield to maturity
Which one of these transactions will increase the liquidity of a firm?
A. Cash purchase of new production equipment
B. Payment of an account payable
C. Cash purchase of inventory
D. Credit sale of inventory at cost
E. Cash payment of employee wages
Which one of the following statements related to the static theory of capital structure is
correct?
A. A firm begins to lose value as soon as the first dollar of debt is incurred.
B. The actual value of a firm continually rises in direct proportion to the increased use
of debt.
C. The linear function of a firm’s value has a constant positive slope.
D. A firm’s value is maximized when a firm operates at its optimal debt level.
E. The value of a firm will automatically decrease whenever the debt-equity ratio is
decreased.
Global Traders is offering 130,000 shares of stock to the public in a general cash offer.
The offer price is $38 a share and the underwriter’s spread is 8 percent. The
administrative costs are estimated at $865,000. How much will Global Traders receive
from this stock offering as net proceeds assuming the issue is completely sold?
A. $3,370,800
B. $3,679,800
C. $4,490,000
D. $4,075,000
E. $3,828,400
Which of these is the most indicative of a flexible short-term financial policy?
A. High ratio of short-term debt to long-term debt
B. Relatively small investment in current assets
C. High ratio of current assets to sales
D. Low level of net working capital
E. Relatively low level of liquidity
Rembrandt, Samurai, Yankee, and Bulldog are all names associated with which one of
the following?
A. Eurobonds
B. Currencies
C. Cross-rate
D. Foreign bonds
E. Foreign interest rates
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. 11.08 percent
B. 12.94 percent
C. 12.33 percent
D. 10.84 percent
E. 10.42 percent
The cash ratio is used to evaluate the:
A. liquidity of a firm.
B. speed at which a firm generates cash.
C. length of time that a firm can pay its bills if no additional cash becomes available.
D. ability of a firm to pay the interest on its debt.
E. relationship between the firm’s cash balance and its current liabilities.
Given a profitable firm, depreciation:
A. increases net income.
B. increases net fixed assets.
C. decreases net working capital.
D. lowers taxes.
E. has no effect on net income.
The written agreement that contains the specific details related to a bond issue is called
the bond:
A. indenture.
B. debenture.
C. document.
D. registration statement.
E. issue paper.
A firm has a current ratio of 1.4 and a quick ratio of .9. Given this, you know for certain
that the firm:
A. pays cash for its inventory.
B. has more than half its current assets invested in inventory.
C. has more cash than inventory.
D. has more current liabilities than it does current assets.
E. has positive net working capital.
Which one of the following is the correct formula for the current value of $600 invested
today at 5 percent interest for 6 years?
A. PV = $600/ [(1 + .06) x5]
B. PV = $600/ [(1 +.05) x6]
C. PV = $600/ (.06 x5)
D. PV = $600 / (1 + .05)6
E. PV = $600 / (1 + .06)5
Garden Veggies would like to sell 1,500 shares of stock using a Dutch auction. The bids
received are as follows:
What is the total amount the issuer will receive from this auction? Ignore costs.
A. $58,500
B. $54,000
C. $56,500
D. $57,600
E. $51,000
Tennessee Valley Antiques would like to issue new equity shares if its cost of equity
declines to 12.5 percent. The company pays a constant annual dividend of $2.10 per
share. What does the market price of the stock need to be for the firm to issue the new
shares?
A. $15.60
B. $15.10
C. $16.80
D. $17.90
E. $18.40
You’re trying to save to buy a new car valued at $48,690. You have $38,000 today that
can be invested at your bank. The bank pays 3.7 percent annual interest on its accounts.
How long will it be before you have enough to buy the car for cash? Assume the price
of the car remains constant.
A. 5.13 years
B. 9.29 years
C. 4.67 years
D. 7.08 years
E. 6.82 years
City Loans wants to earn an effective annual return on its consumer loans of 18.9
percent per year. The bank applies daily compounding. What interest rate is the firm
required by law to report to potential borrowers?
A. 17.47 percent
B. 17.32 percent
C. 17.86 percent
D. 16.39 percent
E. 18.90 percent
You contacted your stock broker this morning and placed an order to sell 300 shares of
a stock that trades on the NYSE. This sale will occur in the:
A. dealer market.
B. over-the-counter market.
C. secondary market.
D. primary market.
E. tertiary market.
Which characteristic applies to commercial paper?
A. Maturities of 270 days or more
B. Offerings registered with the SEC
C. Interest rates higher than comparable bank loans
D. Issued directly by large-sized firms
E. Issued primarily by low-rated firms
Which one of the following is the quoted price of a bond?
A. Par value
B. Discount price
C. Face value
D. Dirty price
E. Clean price
Al’s Markets earns $.12 in profit for every $1 of equity and borrows $.65 for every $1
of equity. What is the firm’s return on assets?
A. 12.00 percent
B. 7.27 percent
C. 15.15 percent
D. 13.75 percent
E. 8.33 percent
Assume that long-term corporate bonds had an average return of 6.4 percent and a
standard deviation of 2.9 percent for a 50-year period. What range of returns would you
expect to see on these bonds 68 percent of the time?
A. 3.5 percent to 9.3 percent
B. 3.5 percent to 10.9 percent
C. 2.9 percent to 6.4 percent
D. .6 percent to 11.9 percent
E. .6 percent to 12.2 percent
You would like to establish a trust fund that would provide annual scholarships of
$100,000 forever. How much would you have to deposit today in one lump sum to
achieve this goal if you can earn a guaranteed 4.5 percent rate of return?
A. $1,678,342
B. $1,800,000
C. $2,413,435
D. $1,620,975
E. $2,222,222
The balance sheet of a firm shows beginning net fixed assets of $348,200 and ending
net fixed assets of $371,920. The depreciation expense for the year is $46,080 and the
interest expense is $11,460. What is the amount of the net capital spending?
A. -$22,360
B. -$4,780
C. $23,720
D. $58,340
E. $69,800
Which one of the following best indicates a firm is utilizing its assets more efficiently
than it has in the past?
A. A decrease in the total asset turnover
B. A decrease in the capital intensity ratio
C. An increase in days’ sales in receivables
D. A decrease in the profit margin
E. A decrease in the inventory turnover rate
The Black Horse is currently considering a project that will produce cash inflows of
$11,000 a year for three years followed by $6,500 in Year 4. The cost of the project is
$38,000. What is the profitability index if the discount rate is 9 percent?
A. .85
B. .93
C. 1.04
D. 1.09
E. 1.12
State Street Market currently has 68days in its cash cycle and 115days in its operating
cycle. The firm purchases its entire inventory from one supplier. This supplier has
offered a 3 percent discount on all purchases if State Street Market will pay in 10 days.
If the market opts to take advantage of the discount offered, its new operating cycle will
be _____ days and its new cash cycle will be _____ days.
A. 105; 58
B. 105; 95
C. 115; 68
D. 115; 105
E. 113; 95
You are scheduled to receive $7,500 in two years. When you receive it, you will invest
it at 4.5 percent per year. How much will your investment be worth ten years from
now?
A. $10,665.75
B. $11,428.09
C. $9,110.24
D. $10,113.33
E. $11,617.07
Which one of the following refers to a method of increasing the rate at which an asset is
depreciated?
A. Noncash expense
B. Straight-line depreciation
C. Depreciation tax shield
D. Accelerated cost recovery system
E. Market-based depreciation
A corporation:
A. is ultimately controlled by its board of directors.
B. is a legal entity separate from its owners.
C. is prohibited from entering into contractual agreements.
D. has its identity defined by its bylaws.
E. has its existence regulated by the rules set forth in its charter.
A firm wishes to maintain an internal growth rate of 4.5 percent and a dividend payout
ratio of 60 percent. The current profit margin is 7.5 percent and the firm uses no
external financing sources. What must be the total asset turnover?
A. .98
B. 1.06
C. 1.21
D. 1.44
E. 1.59
Kelly just completed compiling a listing of her firm’s accounts receivables 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
Contingency planning focuses on the:
A. opportunity costs involved with a project.
B. sunk costs related to a project.
C. economic effects on a project’s profitability.
D. managerial options implicit in a project.
E. optional capital requirements of a project.
Which one of the following best exemplifies unsystematic risk?
A. Unexpected economic collapse
B. Unexpected increase in interest rates
C. Unexpected increase in the variable costs for a firm
D. Sudden decrease in inflation
E. Expected increase in tax rates
If a firm has a negative cash flow from assets every year for several years, the firm:
A. may be continually increasing in size.
B. must also have a negative cash flow from operations each year.
C. is operating at a high level of efficiency.
D. is repaying debt every year.
E. has annual net losses.