Municipal bonds are:
A. generally purchased by tax-exempt investors.
B. risk-free.
C. issued by federal, state, and local governmental bodies.
D. zero coupon bonds.
E. generally callable.
China Importers would like to spend $215,000 to expand its warehouse. However, the
company has a loan outstanding that must be repaid in 2.5 years and thus will need the
$215,000 at that time. The warehouse expansion project is expected to increase the cash
inflows by $60,000 in the first year, $140,000 in the second year, and $150,000 a year
for the following 2 years. Should the firm expand at this time? Why or why not?
A. Yes; because the money will be recovered in 1.69 years
B. Yes; because the money will be recovered in 1.87 years
C. Yes; because the money will be recovered in 2.10 years
D. No; because the project never pays back
E. No; because the money will not be recovered in time to repay the loan
The Fruit Mart is an all-equity firm with a current cost of equity of 17.4 percent. The
estimated earnings before interest and taxes are $169,500 annually forever. Currently,
the firm has no debt but is in the process of borrowing $400,000 at 9.5 percent interest.
The tax rate is 35 percent. What is the value of the unlevered firm?
A. $649,207
B. $753,571
C. $656,411
D. $719,307
E. $633,190
If a firm has an inventory turnover of 15, the firm:
A. sells its entire inventory every 15 days.
B. stocks its inventory only once every 15 days.
C. delivers inventory to its customers every 15 days.
D. sells its inventory by granting customers 15 days’ of free credit.
E. sells its entire inventory an average of 15 times each year.
Wiggle Pools has total equity of $358,200 and net income of $47,500. The debt-equity
ratio is .68 and the total asset turnover is 1.2. What is the profit margin?
A. 4.82 percent
B. 5.23 percent
C. 5.67 percent
D. 6.58 percent
E. 7.31 percent
Windsor stock has produced returns of 13.8 percent, 11.7 percent, 2.3 percent, -21.4
percent, and 8.9 percent over the past five years, respectively. What is the variance of
these returns?
A. .020574
B. .031947
C. .035682
D. .019515
E. .020016
Which statement is correct?
A. Rarely is debt issued privately in the U.S.
B. All U.S. debt issues, private and public, must be registered with the SEC.
C. Private placements generally have shorter maturities than term loans.
D. It is easier to renegotiate a public issue than it is a private issue of debt.
E. A direct placement of debt generally has more restrictive covenants than a public
issue.
Molly is considering a project with cash inflows of $811, $924, $638, and $510 over the
next four years, respectively. The relevant discount rate is 11.2 percent. What is the net
present value of this project if it the start-up cost is $2,700?
A. -$425.91
B. -$131.83
C. -$383.01
D. $10.45
E. $229.50
You purchased an item costing $6,379 on April 5. The terms of sale were 1/7, net 15.
What is the last day you can pay the discounted price?
A. April 12
B. April 22
C. April 28
D. April 6
E. April 11
A semiannual 5.4 percent coupon bond currently sells for par value. What is the
maturity on this bond?
A. The bond must mature in one year.
B. The bond could have any maturity date.
C. The bond must be maturing today.
D. The bond must mature in 10 years.
E. The bond must be a perpetual security.
Greenbriar Cotton Mill is spending $284,000 to update its facility. The company
estimates that this investment will improve its cash inflows by $50,500 a year for 8
years. What is the payback period?
A. 4.03 years
B. 4.95 years
C. 5.48 years
D. 5.62 years
E. The project never pays back.
Which one of the following types of securities has the lowest priority in a bankruptcy
proceeding?
A. Convertible bond
B. Senior debt
C. Common stock
D. Preferred stock
E. Straight bond
Lew’s Auto Repair has cash of $18,600, accounts receivable of $34,500, accounts
payable of $28,900, inventory of $97,800, long-term debt of $142,000, and net fixed
assets of $363,800. The firm estimates that if it wanted to cease operations today it
could sell the inventory for $85,000 and the fixed assets for $349,000. The firm could
collect 100 percent of its receivables as they are secured. What is the market value of
the firm’s assets?
A. $332,800
B. $458,200
C. $374,200
D. $495,500
E. $487,100
Which one of the following is the annuity present value formula?
A. C x ({1 – [1/(1 + r)t]}/r)
B. C x ({1 – [1/(1 + r)t]} -r)
C. C x ({1 – [r/(1 + r)t]}/r)
D. C x ({1 – [1/(1 x r)t]} x r)
E. C x ({1 – [r/(1 x r)t]} x r)
Suppose that in 2015, a $10 silver certificate from 1898 sold for $11,700. For this to
have been true, what would the annual increase in the value of the certificate have
been?
A. 6.22 percent
B. 6.01 percent
C. 7.23 percent
D. 6.49 percent
E. 7.07 percent
A disbursement account into which funds are transferred only as needed to cover the
demands for payment is called a(n) ____ account.
A. master
B. controlled disbursement
C. bank controlled
D. investment
E. safety stock
The Toy Chest will pay an annual dividend of $2.64 per share next year and currently
sells for $48.30 a share based on a market rate of return of 11.67 percent. What is the
capital gains yield?
A. 7.35 percent
B. 7.78 percent
C. 9.23 percent
D. 6.20 percent
E. 4.49 percent
The systematic risk principle states that the expected return on a risky asset depends
only on the asset’s ___ risk.
A. unique
B. diversifiable
C. asset-specific
D. market
E. unsystematic
A firm has total assets of $638,727, current assets of $203,015, current liabilities of
$122,008, and total debt of $348,092. What is the debt-equity ratio?
A. 1.03
B. 1.20
C. 1.31
D. 1.43
E. .87
What is the value today of $3,600 received at the end of each year for eight years if the
first payment is paid at the end of Year 4 and the discount rate is 12 percent?
A. $11,694.21
B. $12,484.57
C. $12,729.12
D. $15,089.23
E. $14,429.52
Which one of the following is a working capital decision?
A. How should the firm raise additional capital to fund its expansion?
B. What debt-equity ratio is best suited to the firm?
C. What is the cost of debt financing?
D. Should the firm borrow money for five or for ten years?
E. How much cash should the firm keep in reserve?
Big Tree Inn has an EBIT of $121,318, a decrease in net working capital of $1,204,
interest expense of $5,200, net capital spending of $5,200, and a tax rate of 35 percent.
The firm’s WACC is 12.6 percent and its growth rate is 2.7 percent. What is the
adjusted value of the firm?
A. $694,311.08
B. $708,007.49
C. $756,168.69
D. $733,333.33
E. $789,022.15
Assume you can exchange $1 for either £1 or €.50 in the U.S. In the London market,
you can exchange £1 for €.52. This situation creates an opportunity to profit
immediately from which one of the following?
A. Futures arbitrage
B. Currency hedge
C. Interest rate swap
D. Absolute purchasing power parity
E. Triangle arbitrage
Over the period of 1926-2014, which one of the following investment classes had the
highest volatility of returns?
A. Large-company stocks
B. U.S. Treasury bills
C. Small-company stocks
D. Long-term corporate bonds
E. Long-term government bonds
Business Solutions is expected to pay its first annual dividend of $.84 per share in Year
3. Starting in Year 6, the company plans to increase the dividend by 2 percent per year.
What is the value of this stock today, Year 0, at a required return of 14.4 percent?
A. $5.01
B. $8.09
C. $8.29
D. $7.03
E. $9.34
Rob wants to invest $15,000 for 7 years. Which one of the following rates will provide
him with the largest future value?
A. 3 percent simple interest
B. 3 percent interest, compounded annually
C. 2 percent interest, compounded annually
D. 4 percent simple interest
E. 4 percent interest, compounded annually
Suppose that a small, rural city in the countryside of North Dakota plans to issue
$150,000 worth of 10-year bonds. Which one of the following components of the
bond’s yield will be affected by the fact that no active secondary market is expected for
these bonds?
A. Real rate
B. Liquidity premium
C. Interest rate risk premium
D. Inflation premium
E. Taxability premium
You are given the exchange rate between the U.S. dollar and the Canadian dollar. You
are also given the exchange rate between the U.S. dollar and the Mexican peso. What is
the name given to the Canadian dollar per Mexican peso exchange rate derived from the
information that was provided?
A. Swap rate
B. Depositary rate
C. Forward rate
D. London Interbank rate
E. Cross-rate
The Fried Green Tomatoes Restaurant increased its operating cycle from 67 days to 71
days while the cash cycle decreased by 2 days. How have these changes affected the
accounts payable period?
A. Decreased by 6 days
B. Decreased by 5 days
C. Decreased by 2 days
D. Increased by 2 days
E. Increased by 6 days
You want to purchase a new condominium that costs $287,500. Your plan is to pay 25
percent down in cash and finance the balance over 15 years at 3.75 percent. What will
be your monthly mortgage payment including principal and interest?
A. $1,568.07
B. $1,333.33
C. $1,708.16
D. $1,221.43
E. $1,406.11
The rate of return an investor earns on a bond prior to adjusting for inflation is called
the:
A. nominal rate.
B. real rate.
C. dirty rate.
D. coupon rate.
E. clean rate.
Good Foods has net income of $82,490, total equity of $518,700, and total assets of
$1,089,500. The dividend payout ratio is .30. What is the internal growth rate?
A. 2.32 percent
B. 3.57 percent
C. 5.60 percent
D. 2.87 percent
E. 4.94 percent