In a reverse stock split:
A. the number of shares outstanding increases and owners’ equity decreases.
B. the firm buys back existing shares of stock on the open market.
C. the firm sells new shares of stock on the open market.
D. the number of shares outstanding decreases but owners’ equity is unchanged.
E. shareholders make a cash payment to the firm.
Answer:
Kurt’s Interiors is considering a project with a sales price of $11, variable cost per unit
of $8.50, and fixed costs of $134,500. The tax rate is 35 percent and the applicable
discount rate is 14 percent. The project requires $224,000 of fixed assets that will be
worthless at the end of the 4-year project. What is the present value break-even point in
units per year?
A. 88,808
B. 92,480
C. 93,057
D. 93,750
E. 89,048
Answer:
APR, as it relates to financial distress, means the rules of:
A. absolute profitability.
B. arbitration priority.
C. absolute priority.
D. arbitration profitability.
E. automatic profitability.
Answer:
All of the following are major requirements needed to qualify for shelf registration
except:
A. having a current rating of investment grade.
B. having outstanding stock with a market value in excess of $150 million.
C. not defaulting on debt in the past three years.
D. having no violations of the Securities Act of 1933 in the past three years.
E. having no violations of the Securities Exchange Act of 1934 in the past three years.
Answer:
Baxter Trucking has a net cash inflow for the quarter of $38 including interest, a
beginning cash balance of $22, and a beginning loan balance of $45. Company policy is
to maintain a minimum cash balance of $20. What is the minimum amount the firm
must borrow or can repay to end the month with a zero cumulative surplus?
A. borrow $4
B. borrow $9
C. repay $36
D. repay $422
E. repay $40
Answer:
A preferred stock pays an annual dividend of $6.50 a share and has an annual rate of
return of 7.35 percent. What is the stock price?
A. $74.50
B. $71.78
C. $92.09
D. $88.44
E. $77.78
Answer:
Jaxon Markets currently has credit terms of net 30, an average collection period of 29
days, and average receivables of $211,410. The firm estimates that if it offered terms of
2/10, net 30 that 45 percent of its customers would pay on day 10 with the remainder
paying on average in 32 days. How much cash could the company free up from its
accounts receivables if it switched its credit policy?
A. $38,762
B. $50,301
C. $64,219
D. $58,336
E. $65,009
Answer:
Modern Flooring is considering a new product line. The new line would require
$134,000 of fixed assets and net working capital of $24,000. The firm will apply
straight-line depreciation over three years to the fixed assets. The new line is expected
to produce an operating cash flow of $35,000 the first year with that amount decreasing
by 10 percent annually for two years before the new line will be discontinued. The fixed
assets can be sold for $25,000 at the end of the project and all net working capital will
be recovered. What is the net present value of the new line at a discount rate of 11.5
percent and a tax rate of 35 percent?
A. −$31,209.17
B. $15,311.09
C. $17,456.32
D. $48,548.67
Answer:
A bank has a $25 million mortgage bond risk position which it hedges in the Treasury
bond futures markets at the Chicago Board of Trade. Approximately how many futures
contracts would be needed for this hedge if you assumed mortgage bonds and Treasury
bonds were perfectly correlated?
A. 5
B. 25
C. 250
D. 500
E. 2,500
Answer:
The acquisition of a firm in the same industry as the bidder is called a _____
acquisition.
A. conglomerate
B. forward
C. backward
D. horizontal
E. vertical
Answer:
The total return on a stock is equal to the:
A. dividend yield minus the capital gains yield.
B. dividend growth rate minus the dividend yield.
C. dividend yield plus the dividend growth rate.
D. growth rate of the dividends.
E. dividend divided by the sum of the dividend yield and capital gains yield.
Answer:
A firm has a total value of $548,000 and debt valued at $262,000. What is the weighted
average cost of capital if the aftertax cost of debt is 7.2 percent and the cost of equity is
12.6 percent?
A. 11.13%
B. 10.88%
C. 10.02%
D. 12.13%
E. 11.48%
Answer:
The concept of homemade leverage is most associated with:
A. MM Proposition I with no tax.
B. MM Proposition II with no tax.
C. MM Proposition I with tax.
D. MM Proposition II with tax.
E. no MM Proposition.
Answer:
An increase in which one of the following accounts increases a firm’s current ratio
without affecting its quick ratio?
A. accounts payable
B. cash
C. inventory
D. accounts receivable
E. fixed assets
Answer:
Which one of these statements is correct?
A. All overseas operations present the same amount of risk.
B. The value of an investment by a firm depends on the size, the timing, and the risk of
the investment’s cash flows.
C. When selecting one of two projects, managers should only consider the total cash
flow from each.
D. Most investors prefer greater risk over less risk.
E. Accountants record sales and expenses after the related cash flows occur.
Answer:
A financial institution can hedge its interest rate risk by:
A. matching the duration of its assets to the duration of its liabilities.
B. setting the duration of its assets equal to half that of the duration of its liabilities.
C. matching the duration of its assets, weighted by the market value of its assets with
the duration of its liabilities, weighted by the market value of its liabilities.
D. setting the duration of its assets, weighted by the market value of its assets to one
half that of the duration of the liabilities, weighted by the market value of the liabilities.
E. setting the duration of its assets equal to 1.0.
Answer:
On average, for the period 1926 through 2014:
A. the real rate of return on U.S. Treasury bills has been negative.
B. small-company stocks have underperformed large-company stocks.
C. long-term government bonds have produced higher returns than long-term corporate
bonds.
D. the risk premium on long-term corporate bonds has exceeded the risk premium on
long-term government bonds.
E. the risk premium on large-company stocks has exceeded the risk premium on small-
company stocks.
Answer:
The holders of Mikayla Corporation’s bond with a face value of $1,000 can exchange
that bond for 30 shares of stock. What is the conversion price if the stock is selling for
$28.20 a share?
A. $25.00
B. $33.33
C. $35.46
D. $28.20
E. $0
Answer:
The inventory turnover ratio is measured as:
A. total sales minus inventory.
B. inventory times total sales.
C. cost of goods sold divided by inventory.
D. inventory divided by cost of goods sold.
E. inventory divided by sales.
Answer:
When interest rates shift, the price of zero coupon bonds are ____ volatile:
A. more; if they have a short maturity rather than a long maturity.
B. not; because their duration always matches their maturity.
C. equally; regardless of their maturity.
D. less; than coupon bonds of the same maturity.
E. more; than coupon bonds of the same maturity.
Answer:
Delta Company has a capital structure of 38 percent risky debt with a beta of .39 and 62
percent equity with a beta of 1.47. What is the firm beta?
A. 1.01
B. .82
C. 1.26
D. 1.49
E. 1.06
Answer:
Lew’s Market invested in a project that returned 16.67 percent during a period when
inflation averaged 3.26 percent. What real rate of return did Lew’s earn on its project?
A. 13.41%
B. 13.03%
C. 12.87%
D. 12.99%
E. $13.29%
Answer:
If you want the most detailed information possible about the potential outcome of a
critical project you should conduct:
A. operating analysis.
B. simulation analysis.
C. financial analysis.
D. decision tree analysis.
E. sensitivity analysis.
Answer:
A ____ period prohibits executives from exercising their options for a stated period of
time.
A. investing
B. freeze-out
C. valuation
D. guaranteed
E. strike
Answer:
Jeff opted to exercise his August option on August 10 and received $2,500 in exchange
for his shares. Jeff must have owned a(an):
A. warrant.
B. American call.
C. American put.
D. European call.
E. European put.
Answer:
The chief operations officer typically reports directly to the:
A. chief executive officer.
B. shareholders.
C. company president.
D. chief financial officer.
E. controller.
Answer:
Ernst is trying to evaluate some options for a firm. However, he can”t remember how to
compute e–rt. Can you help him? If the rate is 4.38 percent and the time period is 6
months, what is the value of e–rt?
A. .9087
B. .8087
C. .9952
D. .8476
E. .9783
Answer:
The lower limit of a warrant’s value is defined as:
A. zero.
B. MIN(0, Exercise price – Stock price).
C. MAX(0, Stock price – Exercise price).
D. Stock price – Exercise price.
Answer:
The current market value of the assets of ABCD is $86.28 million. The call option value
on the firm’s assets is $53.09 million. What is the market value of the firm’s debt?
A. $74.49 million
B. $31.36 million
C. $33.19 million
D. $44.08 million
E. $139.37 million
Answer:
An investment has an initial cash outflow of $210,000 for fixed assets that will be
depreciated straight-line to zero over 4 years, which is the life of the project. The sales
price is set at $19.95 a unit, the annual fixed costs of $237,000, and the variable cost per
unit is $8.87. The tax rate is 34 percent and the discount rate is 11 percent. At what sales
quantity per year will the investment break even on an accounting basis?
A. 32,088 units
B. 29,889 units
C. 24,092 units
D. 30,135 units
E. 26,128 units
Answer:
Mortgage bankers earn income principally by:
A. speculating in Treasury futures.
B. collecting interest on long-term mortgages.
C. offsetting long and short hedge positions in Treasury futures.
D. charging origination and servicing fees.
E. hedging all interest rate risk.
Answer:
You want to purchase an annuity that will pay you $1,200 a quarter for 15 years and
earn a return of 5.5 percent, compounded quarterly. What is the most you should pay to
purchase this annuity?
A. $52,988.16
B. $48,811.20
C. $47,455.33
D. $48,450.67
E. $52,806.30
Answer:
Which one of the following statements concerning a sole proprietorship is correct?
A. A sole proprietorship is difficult to form.
B. The business profits are taxed twice at the federal level.
C. The business profits are taxed separately from the personal income of the owner.
D. The owner may be forced to sell his/her personal assets to pay company debts.
E. A sole proprietorship has an unlimited life.
Answer: