The transaction motive for holding cash refers to the need to have cash for which one of
the following purposes?
A. Safety margin
B. Investment opportunities
C. Daily operations
D. Financial reserve
E. Bargain opportunities
Windsor stock has produced returns of 22.6 percent, 18.7 percent, 11.3 percent, -19.8
percent, and 2.4 percent over the past five years, respectively. What is the variance of
these returns?
A. 0.028453
B. 0.031947
C. 0.035682
D. 0.039515
E. 0.040016
Which one of the following statements related to securities dealers is correct?
A. Dealers match buyers with sellers.
B. Dealers buy and sell from their own inventory.
C. Dealers operate on a physical trading floor.
D. Dealers operate exclusively in auction markets.
E. Dealers are limited to trading nonlisted stocks.
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
Which of the following can generally be found in a bonds indenture agreement?I. Terms
of repaymentII. Names of registered shareholdersIII. Protective covenantsIV. Total
amount of the bond issue
A. I and III only
B. II, III, and IV only
C. I, II, and III only
D. I, III, and IV only
E. I, II, III, and IV
Which of the following will increase the sustainable rate of growth for a firm?I.
Decreasing the profit marginII. Increasing the dividend payout ratioIII. Decreasing the
capital intensity ratioIV. Increasing the target debt-equity ratio
A. I and II only
B. III and IV only
C. II and IV only
D. I, III, and IV only
E. I, II, III, and IV
Based on the capital asset pricing model, which one of the following must increase the
expected return on an individual security, all else constant?
A. An increase in the risk level of that security as measured by the standard deviation
B. An increase in the risk-free rate given a security beta of 1.42
C. A decrease in the market rate of return given a security beta of 1.13
D. A decrease in the market rate of return given a security beta of .78
E. A decrease in the risk-free rate given a security beta of 1.06
You own a stock that has an expected return of 16.00 percent and a beta of 1.33. The
U.S. Treasury bill is yielding 3.65 percent and the inflation rate is 2.95 percent. What is
the expected rate of return on the market?
A. 12.07 percent
B. 12.94 percent
C. 13.64 percent
D. 14.09 percent
E. 14.42 percent
Red Roofs, Inc. has current liabilities of $24,300 and accounts receivable of $7,800.
The firm has total assets of $43,100 and net fixed assets of $23,700. The owners equity
has a book value of $21,400. What is the amount of the net working capital?
A. $5,100
B. -$4,900
C. $6,500
D. $18,800
E. -$2,600
Bruce Moneybags owns several restaurants and hotels near a local interstate. One
restaurant, Beef and More, needs modernized. He is trying to decide whether to accept
an offer and sell Beef and More as is for the offer price of $1.1 million or renovate the
restaurant himself. The projected renovation cost is $1.3 million. The restaurant would
need to be shut down completely during the renovation which would cause a net
operating cash flow loss of $210,000 in todays dollars. The estimated present value of
the cash inflows from the renovated restaurant are $3.2 million. When analyzing the
renovation project, what opportunity cost, if any, should be included for the current
restaurant? Assume the restaurant is totally paid for and any future costs will be paid in
cash.
A. There is no opportunity cost since the current restaurant is owned free and clear.
B. The opportunity cost is the value of the current offer to buy the restaurant.
C. The opportunity cost is the cost of the needed improvements.
D. The opportunity cost is the present value of the loss of operating cash flows while
the restaurant is closed for renovation.
E. The opportunity cost is the cost of the renovations plus the loss of the operating cash
flows during the renovation.
Which one of the following statements is correct?
A. All of the major stock exchanges are U.S. based.
B. The NYSE was created by the National Association of Securities Dealers in the early
1970s.
C. The American Stock Exchange is a dealer market.
D. OTC markets have a physical trading floor generally located in either New York City
or Chicago.
E. The primary purpose of the NYSE is to match buyers with sellers.