Which of the following will tend to increase the credit period?
I. Increase in the buyer’s inventory period
II. Decrease in the buyer’s inventory period
III. Increase in the buyer’s operating cycle
IV. Decrease in the buyer’s operating cycle
A. I and III only
B. I and IV only
C. II and III only
D. II and IV only
E. II only
Answer:
Friendly Skies Airline has earnings before interest and taxes of $21,680 and net income
of $12,542. The tax rate is 35 percent. What is the times interest earned ratio?
A. 0.88
B. 1.73
C. 3.09
D. 5.59
E. 9.09
Answer:
Morgantown Movers has net working capital of $11,300, current assets of $31,200,
equity of $53,400, and long-term debt of $11,600. What is the amount of the net fixed
assets?
A. $31,800
B. $32,900
C. $45,500
D. $48,100
E. $53,700
Answer:
Phil’s Hardware sells its inventory in 75 days, on average. Costs of goods sold for the
year are $631,800. What is the average value of the firm’s inventory?
A. $119,706
B. $129,821
C. $147,132
D. $161,096
E. $182,513
Answer:
Assume large-company stocks returned 12.8 percent on average over the past 75 years.
The risk premium on these stocks was 7.9 percent and the inflation rate was 3.6 percent.
What was the average nominal risk-free rate of return for those 75 years?
A. 4.90 percent
B. 9.20 percent
C. 4.26 percent
D. 8.33 percent
E. 8.60 percent
Answer:
Which of the following should be included when compiling pro forma statements for a
proposed investment?
I. Forecasted sales
II. Start-up costs
III. Aftertax salvage value of any assets sold
IV. Anticipated changes in net working capital
A. I only
B. II and IV only
C. I, II, and III only
D. II, III, and IV only
E. I, II, III, and IV
Answer:
Appalachian Mountain Goods has paid increasing dividends of $.0.12, $0.18, $0.20,
and $0.25 a share over the past four years, respectively. The firm estimates that future
increases in its dividends will be equal to the arithmetic average growth rate over these
past four years. The stock is currently selling for $12.60 a share. The risk-free rate is 3.2
percent and the market risk premium is 9.1 percent. What is the cost of equity for this
firm if its beta is 1.26?
A. 14.34 percent
B. 16.91 percent
C. 19.78 percent
D. 22.96 percent
E. 24.03 percent
Answer:
Which one of the following statements is correct?
A. Peer group analysis is easier when a firm is a conglomerate versus when it has only a
single line of business.
B. Peer group analysis is easier when seasonal firms have different fiscal years.
C. Peer group analysis is simplified when firms use varying methods of depreciation.
D. Comparing results across geographic locations is easier since all countries now use a
common set of accounting standards.
E. Adjustments have to be made when comparing the income statements of firms that
use different methods of accounting for inventory.
Answer:
You are analyzing a project and have developed the following estimates. The
depreciation is $3,200 a year and the tax rate is 34 percent. What is the best-case
operating cash flow?
A. $13,473
B. $14,196
C. $15,280
D. $16,701
E. $17,423
Answer:
Greenbriar Cotton Mill is spending $330,000 to update its facility. The company
estimates that this investment will improve its cash inflows by $56,500 a year for 10
years. What is the payback period?
A. 4.03 years
B. 4.95 years
C. 5.48 years
D. 5.84 years
E. The project never pays back.
Answer:
The market where euros, pesos, dollars, and pounds are traded is referred to as which
one of the following?
A. ADR market
B. LIBOR market
C. Gilt market
D. Euromarket
E. Foreign exchange market
Answer:
The local video store has to restock a popular video game every five days as it
completely sells out in that period of time. What is the inventory turnover rate for this
game?
A. 5.00 times
B. 5.25 times
C. 57.14 times
D. 60.00 times
E. 73.00 times
Answer:
Which one of the following statements correctly applies to a sole proprietorship?
A. The business entity has an unlimited life.
B. The ownership can easily be transferred to another individual.
C. The owner enjoys limited liability for the firm’s debts.
D. Debt financing is easy to arrange in the firm’s name.
Answer:
When comparing savings accounts, you should select the account that has the:
A. lowest annual percentage rate.
B. highest annual percent rate.
C. highest stated rate.
D. lowest effective annual rate.
Answer:
If a firm has a 100 percent dividend payout ratio, then the internal growth rate of the
firm is:
A. zero percent.
B. 100 percent.
C. equal to the ROA.
D. negative.
E. infinite.
Answer: