Companies will generally have a:
A. low beta if their sales are directly related to the market cycle.
B. high beta if their sales are highly dependent on the market cycle.
C. high beta if sales are independent of the market cycle.
D. high beta if their sales are highly variable but unrelated to the market cycle.
E. low beta is their sales are highly cyclical.
Answer:
The maximum rate at which a firm can grow while maintaining a constant debt-equity
ratio is best defined by its:
A. rate of return on assets.
B. internal rate of growth.
C. average historical rate of growth.
D. rate of return on equity.
E. sustainable rate of growth.
Answer:
A 12-year, 5 percent coupon bond pays interest annually. The bond has a face value of
$1,000. What is the percentage change in the price of this bond if the market yield rises
to 6 percent from the current level of 5.5 percent?
A. -5.28%
B. -4.26%
C. -2.38%
D. 1.13%
E. 4.13%
Answer:
Hilltop Paving has a levered equity cost of capital of 14.92 percent. The debt-to-value
ratio is .4, the tax rate is 34 percent, and the pretax cost of debt is 7.2 percent. What is
the estimated unlevered cost of equity?
A. 12.08%
B. 13.06%
C. 12.56%
D. 10.97%
E. 11.23%
Answer:
Which one of the following statements is true?
A. Highly positive serial correlations are indicators of market efficiency.
B. Abnormal returns limited to the announcement date are indicators of market
inefficiency.
C. Market studies indicate that stock markets are only weak form efficient.
D. Studies seem to indicate stock markets are semistrong but not strong form efficient.
E. Mutual funds provide little, if any, benefit to investors.
Answer:
New England Fisheries (NEF) has 18,000 shares outstanding at a market price per share
of $14. Maryland Fish Markets (MFM) has 7,000 shares outstanding at a market price
of $21 a share. Neither firm has any debt. MFM is acquiring NEF for $275,000 in cash.
What is the merger premium per share?
A. $1.43
B. $1.28
C. $.81
D. $1.04
E. $2.07
Answer:
On April 1st, Morning Coffee had a beginning cash balance of $318. Sales for March
were $460 and April sales were $510. During April the firm had cash expenses of $327
and payments on accounts payable of $262. The accounts receivable period is 30 days.
What is the firm’s beginning cash balance on May 1st?
A. $189
B. $173
C. $211
D. $239
E. $210
Answer:
The ultimate control of a corporation lies in the hands of the corporate:
A. board of directors.
B. stockholders.
C. president.
D. chief executive officer.
E. chairman of the board.
Answer:
A firm has zero debt in its capital structure and has an overall cost of capital of 10
percent. The firm is considering a new capital structure with 60 percent debt at an
interest rate of 8 percent. Assuming there are no taxes or other imperfections, what
would be the cost of equity with the new capital structure?
A. 9%
B. 10%
C. 13%
D. 14%
E. 11%
Answer:
The weighted average cost of capital for a firm is the:
A. discount rate which the firm should apply to all of the projects it undertakes.
B. overall rate which the firm must earn on its existing assets to maintain its value.
C. rate the firm should expect to pay on its next bond issue.
D. maximum rate which the firm should require on any projects it undertakes.
E. rate of return that the firm’s preferred stockholders should expect to earn over the
long term.
Answer:
You own both a May 20 call and a May 20 put. If the call finishes in the money, then
the put will:
A. also finish in the money.
B. finish at the money.
C. finish out of the money.
D. either finish at the money or in the money.
E. either finish at the money or out of the money.
Answer:
All else constant, as the variable cost per unit for a project increases, the:
A. contribution margin decreases.
B. sensitivity to fixed costs decreases.
C. project’s net present value increases.
D. accounting break-even point decreases.
E. net profit increases.
Answer:
A U.S. firm involved in foreign exports is most apt to highly engaged in: A. inverse
floaters.
A. inverse floaters.
B. super floaters.
C. Treasury futures.
D. currency swaps.
E. interest rate swaps.
Answer:
Enterprise value is based on the:
A. market value of interest bearing debt plus the market value of equity minus cash.
B. book values of debt and assets, other than cash.
C. market value of equity plus the book value of total debt minus cash.
D. book value of debt plus the market value of equity.
E. book values of debt and equity less cash.
Answer:
Conducting scenario analysis helps managers see the:
A. impact of an individual variable on the outcome of a project.
B. expected range of outcomes from a proposed project.
C. maximum range of outcomes that can occur over the course of a proposed project.
D. various decision points of a specific project.
E. consequences of changing a firm’s market share for a specific product.
Answer:
You purchased 300 shares of stock at a price of $37.23 per share. Over the last year, you
have received total dividend income of $351. What is the capital gains yield if your
total return is 11.47 percent?
A. 8.33%
B. 7.26%
C. 9.39%
D. 9.50%
E. 7.67%
Answer:
An equity issue sold to the firm’s existing stockholders is called a:
A. rights offer.
B. general cash offer.
C. private placement.
D. restricted placement.
E. direct placement.
Answer:
The buyer of a forward contract will be:
A. taking delivery of the goods today at today’s price.
B. making delivery of the goods at a later date at that date’s price.
C. making delivery of the goods today at today’s price.
D. taking delivery of the goods at a later date at a pre-specified price.
E. deciding on a future date whether or not to take delivery at a pre-specified price.
Answer:
Annuities where the payments occur at the end of each time period are called _____,
whereas _____ refer to annuity streams with payments occurring at the beginning of
each time period.
A. ordinary annuities; early annuities
B. late annuities; straight annuities
C. straight annuities; late annuities
D. annuities due; ordinary annuities
E. ordinary annuities; annuities due
Answer:
Jamie’s Motor Home Sales currently sells 1,100 Class A motor homes, 2,200 Class C
motor homes, and 2,800 pop-up trailers each year. Jamie is considering adding a
mid-range camper and expects that if she does so she can sell 1,500 of them. However,
if the new camper is added, Jamie expects that her Class A sales will decline to 850
units while the Class C camper sales decline to 2,000. The sales of pop-ups will not be
affected. Class A motor homes sell for an average of $140,000 each. Class C homes are
priced at $59,500 and the pop-ups sell for $5,000 each. The new mid-range camper will
sell for $42,900. What is the erosion cost of adding the mid-range camper?
A. $54,250,000
B. $46,900,000
C. $53,750,000
D. $63,150,000
E. $78,750,000
Answer:
A security issued in the United States that represents shares of a foreign stock and
allows that stock to be traded in the United States is called a(n):
A. American Depository Receipt.
B. Yankee bond.
C. Yankee stock.
D. Eurostock.
E. foreign obligation trust certificate.
Answer:
You are considering two savings options that each provide a rate of return of 4.65
percent. The first option requires annual savings of $2,000, $2,500, and $3,000 over the
next three years, respectively, with the first deposit due one year from today. The other
option is to save one lump sum amount today. If you want to have the same balance in
your savings at the end of the three years, regardless of the savings method you select,
how much do you need to save today if you select the lump sum option?
A. $6,811.50
B. $6,791.42
C. $7,128.23
D. $6,607.23
E. $7,500.00
Answer:
A financing project is acceptable if its IRR is:
A. exactly equal to its net present value (NPV).
B. exactly equal to zero.
C. greater than the discount rate.
D. less than the discount rate.
E. negative.
Answer:
Examples of cash disbursements include all of the following except:
A. wages.
B. payment for raw materials.
C. taxes.
D. dividends.
E. sales of assets.
Answer:
In comparison to debt issuance expenses, the total direct costs of equity issues are:
A. considerably less.
B. the same.
C. minimally less.
D. considerably greater.
E. minimally greater.
Answer:
Which one of the following statements concerning zero balance accounts is false?
A. The accounts are set up to process disbursements only.
B. The account maintains a minimal level of safety stock.
C. Funds are automatically transferred into the account as checks are presented for
payment.
D. The accounts must be directly linked to lockboxes.
E. The master and the zero balance accounts must be located within the same bank.
Answer:
Which type of business organization has the respective rights and privileges of a legal
person?
A. sole proprietorship
B. general partnership
C. limited partnership
D. corporation
E. limited liability company
Answer:
Ben’s Border Caf is considering a project that will produce sales of $16,000 and
increase cash expenses by $10,000. If the project is implemented, taxes will increase
from $23,000 to $24,500 and depreciation will increase from $4,000 to $5,500. What is
the amount of the operating cash flow using the top-down approach?
A. $4,000
B. $4,500
C. $6,000
D. $7,500
E. $8,500
Answer:
The sales level that results in a project’s net present value exactly equaling zero is called
the _____ break-even.
A. operational
B. leveraged
C. accounting
D. cash
E. present value
Answer:
A firm can repurchase its shares in all of the following ways except through:
A. a tender offer.
B. a reverse stock split.
C. a targeted repurchase.
D. open market purchases.
E. a Dutch auction.
Answer:
A firm has $820 in inventory, $3,200 in fixed assets, $1,210 in accounts receivable,
$890 in accounts payable, and $360 in cash. What is the amount of the net working
capital?
A.$4,700
B.$5,590
C.$3,600
D.$2,390
E.$1,500
Answer:
The rate at which a stock’s price is expected to appreciate (or depreciate) is called the
_____ yield.
A. current
B. total
C. dividend
D. capital gains
E. earnings
Answer:
Identify and explain the key differences between public issues of debt and direct private
long-term debt financing.
Answer:
On-line Text Co. has four new text publishing products that it is considering. The
projects are of equal risk with a beta of 1.6. The risk-free rate is 4.2 percent and the
market rate is expected to be 12.3 percent. The projects and their expected internal rates
of return are: W = 14.4 percent; X = 18 percent, Y = 16.4 percent; and Z = 17.2 percent.
Which projects should be accepted?
Answer:
List and describe the three basic types of secured inventory loans. What are the
advantages and disadvantages of each type of loan?
Answer:
Answer:
Why are some risks diversifiable and some nondiversifiable?
Answer:
Duration is defined as the weighted average time to maturity of a financial instrument.
List at least four other key things you know about duration.
Answer:
Identify five factors that help determine the value of a warrant above its lower limit.
Answer:
Accounts receivable and inventory are some of the most liquid assets a firm owns and
their market values are typically fairly close to book value. Even so, in the eyes of
many lenders, these assets make for inadequate collateral on loans, particularly if the
business looking to borrow the money is in a liquidity crisis. Why do you think this is
the case?
Answer:
Interest rate risk is often explained by using the concept of a teeter-totter. Explain
interest rate risk and how it is related to the movements of a teeter-totter.
Answer: