Which one of the following is an underwriting of securities where the offer price is
determined by investor bids?
A. Private placement
B. Best efforts underwriting
C. Initial public offering
D. Green Shoe option
E. Dutch auction
Ben invested $7,500 twenty years ago with an insurance company that has paid him 6
percent simple interest on his funds. Charles invested $7,500 twenty years ago in a fund
that has paid him 6 percent interest, compounded annually. How much more interest has
Charles earned than Ben over the past 20 years?
A. $0
B. $6,827.04
C. $7,553.52
D. $7,109.16
E. $8,266.49
The 8 percent, $1,000 face value bonds of Sweet Sue Foods are currently selling at
$1,057. These bonds have 16 years left until maturity. What is the current yield?
A. 7.38 percent
B. 7.57 percent
C. 8.00 percent
D. 8.23 percent
E. 8.28 percent
Sensitivity analysis:
A. looks at the most reasonably optimistic and pessimistic results for a project.
B. helps identify the variable within a project that presents the greatest forecasting risk.
C. is used for projects that cannot be analyzed by scenario analysis because the cash
flows are unconventional.
D. is generally conducted prior to scenario analysis just to determine if the range of
potential outcomes is acceptable.
E. illustrates how an increase in operating cash flow caused by changing both the
revenue and the costs simultaneously will change the net present value for a project.
Net present value involves discounting an investment’s:
A. assets.
B. future profits.
C. liabilities.
D. costs.
E. future cash flows.
The Egg House just borrowed $660,000 to build a new restaurant. The loan terms call
for equal annual payments at the end of each year. The loan is for 15 years at an APR of
8.35 percent. How much of the first annual payment will be used to reduce the principal
balance?
A. $21,311.62
B. $23,653.18
C. $18,211.08
D. $48,911.08
E. $51,420.90
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
Which one of the following will increase the current value of a stock?
A. Decrease in the dividend growth rate
B. Increase in the required return
C. Increase in the market rate of return
D. Decrease in the expected dividend for next year
E. Increase in the capital gains yield
Kaylor’s Tool Shoppe has 8,600 shares of stock outstanding at a market price of $8 a
share. Which one of the following stock splits should the firm declare if it wants to
increase the stock price to exactly $36a share? Ignore any taxes or market
imperfections.
A. 3-for-4 stock split
B. 2-for-11 stock split
C. 2-for-7 reverse stock split
D. 2-for-9 reverse stock split
E. 2-for-8 reverse stock split
The equity multiplier is equal to:
A. one plus the debt-equity ratio.
B. one plus the total asset turnover.
C. total debt divided by total equity.
D. total equity divided by total assets.
E. one divided by the total asset turnover.
Delta Mu Delta is considering purchasing some new equipment costing $393,000. The
equipment will be depreciated on a straight-line basis to a zero book value over the
four-year life of the project. Projected net income for the four years is $16,900,
$25,300, $27,700, and $18,400. What is the average accounting rate of return?
A. 11.23 percent
B. 11.63 percent
C. 12.01 percent
D. 12.49 percent
E. 10.87 percent
River Rock, Inc., just paid an annual dividend of $2.80. The company has increased its
dividend by 2.5 percent a year for the past 10 years and expects to continue doing so.
What will a share of this stock be worth 6 years from now if the required return is 16
percent?
A. $23.60
B. $24.65
C. $25.08
D. $25.50
E. $26.90
Which one of the following statements is correct?
A. Oral offers can be made for new securities during the waiting period.
B. A Green Shoe letter must be provided to all investors who purchase shares of a new
equity offering.
C. Corporate directors have the authority to authorize additional shares of stock for a
new issue.
D. The underwriters must approve any increase in the authorized number of shares for a
firm.
E. When issuing new securities, the first step is the distribution of the prospectus.
Janice plans to save $80 a month, starting today, for 20 years. Kate plans to save $80 a
month for 20 years, starting one month from today. Both Janice and Kate expect to earn
an average return of 5.5 percent on their savings. At the end of the 20 years, Janice will
have approximately _____ more than Janice.
A. $159.73
B. $66.67
C. $0
D. $78.14
E. $189.12
What is the legal document called that is provided to potential investors and describes a
new security offering?
A. Security agreement
B. Prospectus
C. Public statement
D. Registration statement
E. Formal filing
Newly issued securities are sold to investors in which one of the following markets?
A. Proxy
B. Stated value
C. Inside
D. Secondary
E. Primary
In November 2013, the NYSE was acquired by:
A. the Amsterdam Exchange.
B. the Intercontinental Exchange.
C. the Securities Exchange Commission.
D. Euronext.
E. the American Stock Exchange.
Which statement is correct?
A. Exchange rates are adjusted each morning and held constant until the following
morning.
B. The four most commonly traded currencies in the foreign exchange markets are the
U.S. dollar, French franc, European euro, and Brazilian real.
C. All South American countries use the peso as their currency.
D. New Zealand uses the same currency as Australia and that is the A$.
E. The foreign exchange market is the largest financial market in the world.
Southern Fried Chick’n has estimated quarterly sales for next year, starting with
Quarter 1, of $38,200, $41,300, $79,700, and $32,900.The accounts receivable period is
11 days. What is the expected accounts receivable balance at the end of the second
quarter? Assume each month has 30 days.
A. $4,668.89
B. $10,603.10
C. $5,047.78
D. $15,143.33
E. $14,006.67
Which one of these most likely represents the greatest political risk for a U.S.-based
firm?
A. A product assembly plant located in a foreign country
B. A foreign sales office
C. Accounting office that handles all payroll functions and is located in a foreign
country
D. Natural ore mine in a foreign country
E. Subassembly plant in a foreign country that uses U.S.-made components
Roller Coaster’s has a WACC of 11.6 percent, ignoring taxes. It has a target capital
structure of 60 percent equity and 40 percent debt and a cost of equity of 14.27 percent.
What is the cost of debt?
A. 5.5 percent
B. 7.6 percent
C. 9.3 percent
D. 9.4 percent
E. 18.7 percent
The sustainable growth rate is defined as the maximum rate at which a firm can grow
given which of the following conditions?
A. No new external financing of any kind
B. No new debt but additional external equity equal to the increase in retained earnings
C. New debt and external equity in equal proportions
D. New debt and external equity, provided the debt-equity ratio remains constant
E. No new external equity and a constant debt-equity ratio
Which one of the following changes during a year will increase cash flow from assets
but not affect the operating cash flow?
A. Increase in depreciation
B. Increase in accounts receivable
C. Increase in accounts payable
D. Decrease in cost of goods sold
E. Increase in sales
Use the following financial information to answer this question.
What are the values of the three components of the DuPont identity? Use ending
balance sheet values.
A. .1168; 1.01; .5241
B. .1153; 1.01; .4259
C. .1153; 1.01; 1.9080
D. .1168; .99; .5241
E. .1153; .99; 1.9080
Which one of these is a perpetuity?
A. Trust income of $1,200 a year forever
B. Retirement pay of $2,200 a month for 20 years
C. Lottery winnings of $1,000 a month for life
D. Car payment of $260 a month for 60 months
E. Rental payment of $800 a month for one year
Which one of the following is an aftermarket function performed by the underwriters of
a securities issue?
A. Distributing the registration statements
B. Distributing the red herrings
C. Filing a letter of comment with the SEC
D. Exercising the Green Shoe option
E. Setting the market price
Which one of the following parties can sell shares of ABC stock in the primary market?
A. ABC company
B. Any corporation, other than the ABC company
C. Any institutional shareholder
D. Any private individual shareholder
E. Only officers and directors of ABC company
The concept of marginal taxation is best exemplified by which one of the following?
A. Kirby’s paid $120,000 in taxes while its primary competitor paid only $80,000 in
taxes.
B. Johnson’s Retreat paid only $45,000 on total revenue of $570,000 last year.
C. Mitchell’s Grocer increased its sales by $52,000 last year and had to pay an
additional $16,000 in taxes.
D. Burlington Centre paid no taxes last year due to carryforward losses.
E. The Blue Moon paid $2.20 in taxes for every $10 of revenue last year.
The Sports Club plans to pay an annual dividend of $1.20 per share next year, $1.12 per
share a year for the following two years, and then a final liquidating dividend of $14.20
per share four years from now. How much is one share of this stock worth to you today
if you require a rate of return of 18.7 percent of this risky investment?
A. $9.63
B. $8.36
C. $7.56
D. $12.60
E. $10.30
You want to borrow $4,700 for 24 months and can afford monthly payments of $210,
but no more. Assuming monthly compounding, what is the highest APR rate you can
afford?
A. 5.95 percent
B. 6.33 percent
C. 6.80 percent
D. 6.25 percent
E. 7.13 percent
All of the following are means of reducing the number of outstanding shares with the
exception of a(n):
A. open market purchase.
B. reverse stock split.
C. tender offer.
D. rights offer.
E. targeted repurchase.
Currently, you own a portfolio comprised of the following three securities. How much
of the riskiest security should you sell and replace with risk-free securities if you want
your portfolio beta to equal 90 percent of the market beta?
A. $7,023.15
B. $7,811.29
C. $8,666.67
D. $7,753.51
E. $8,318.50
Which statement is correct?
A. Firms cannot use lockboxes if they use cash concentration accounts.
B. Firms prefer to increase processing delay on disbursements.
C. Firms prefer to eliminate all types of float.
D. Firms open regional offices so their employees can pick up lockbox payments
throughout the day.
E. The Check Clearing Act for the 21 st Century is designed to reduce total collection
time to one day.
Karley’s setting aside $32,000 each quarter, starting today, for the next three years for
an expansion project. How much money will the firm have at the end of the three years
if it can earn an average of 5.45 percent on its savings?
A. $428,409.29
B. $414,123.86
C. $390,411.20
D. $419,766.30
E. $362,009.14
KL Textiles writes 22 checks a day for an average amount of $827 each. These checks
generally clear the bank 3.5 days after they are written. In addition, the firm generally
receives an average of $23,902 a day in checks. Deposited amounts are available after
one day. What is the amount of the firm’s disbursement float?
A. $11,951
B. $23,902
C. $39,777
D. $29,840
E. $63,679