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1) The stock price of Samuelson, Inc., is $71. Investors require a 15 percent rate of
return on similar stocks. If the company plans to pay a dividend of $4.20 next year,
what growth rate is expected for the company's stock price?
A.6.01 percent
B.7.56 percent
C.7.78 percent
D.8.24 percent
E.9.08 percent
2) The foreign subsidiary of a U.S. firm is profitable when profits are measured in the
foreign currency but those profits become losses when measured in U.S. dollars. This is
an example of which one of the following?
A.Interest rate disparities
B.Short-run exposure to exchange rate risk
C.Long-run exposure to exchange rate risk
D.Political risk associated with the foreign operations
E.Translation exposure to exchange rate risk
3) The Outpost currently sells short leather jackets for $349 each. The firm is
considering selling long coats also. The coats would sell for $689 each and the
company expects to sell 900 a year. If the firm decides to carry the long coat,
management feels that the sales of the short jacket will decline from 1,420 to 1,265
units. Variable costs on the jacket are $210 and $445 on the long coat. The fixed costs
for this project are $42,000, depreciation is $11,000 a year, and the tax rate is 33
percent. What is the projected operating cash flow for this project?
A.$108,187
B.$111,264
C.$112,212
D.$119,672
E.$120,418
4) A bond has a 7 percent coupon rate, a face value of $1,000, semiannual payments,
and sells at par. The current yield is _____ percent and the effective annual yield is
_____ percent.
A.6.76; 6.87
B.6.76; 6.96
C.7.00; 7.00
D.7.00; 7.12
E.7.23; 7.23
5) Which one of the following statements related to the security market line is correct?
A.An underpriced security will plot below the security market line
B.A security with a beta of 1.54 will plot on the security market line if it is correctly
priced
C.A portfolio with a beta of 0.93 will plot to the right of the overall market
D.A security with a beta of 0.99 will plot above the security market line if it is correctly
priced
E.A risk-free security will plot at the origin
6) Which one of the following is the computation of the risk premium for an individual
security? E(r) is the expected return on the security, rf is the risk-free rate, is the
security's beta, and E(r)M is the expected rate of return on the market.
A.E(r)M - rf
B.E(r) - E(r)M
C.E(r) - (E(r)M + rf)
D.[E(r)M - rf]
E.[E(r) - rf]
7) Katie's Dinor spent $84,000 to refurbish its current facility. The firm borrowed 80
percent of the refurbishment cost at 9.2 percent interest for 5 years. What is the amount
of each monthly payment?
A.$1,108.91
B.$1,282.16
C.$1,333.33
D.$1,401.49
E.$1,487.06
8) As of Monday morning, the ledger balance and the available balance for a firm was
$3,600. During the day, the firm wrote 3 checks in the amounts of $230, $590, and
$870. The firm deposited a check for $360 and a check for $910. What is the amount of
the collection float as of the end of the day?
A.$420
B.$580
C.$840
D.$1,270
E.$1,690
9) A preferred stock pays an annual dividend of $7. What is one share of this stock
worth to you today if you require a 14 percent rate of return?
A.$6.14
B.$7.98
C.$43.00
D.$50.00
E.$98.00
10) Tropical Fruit Extracts expects its earnings before interest and taxes to be $218,000
a year forever. Currently, the firm has no debt. The cost of equity is 16.3 percent and the
tax rate is 35 percent. The company is in the process of issuing $2 million of bonds at
par that carry a 6.5 percent annual coupon. What is the unlevered value of the firm?
A.$371,429
B.$431,971
C.$747,485
D.$869,325
E.$988,315
11) Which one of the following statements concerning underwriting is correct?
A.Underwriters exercise the Green Shoe option whenever the market price of an IPO
declines initially
B.Underwriters guarantee the number of shares to be sold in a best efforts underwriting
C.Competitive underwriting is generally more expensive than negotiated underwriting
D.The majority of equity underwritings in the U.S. are competitive underwritings
E.Underwriters may receive warrants as part of their compensation
12) Which one of the following is basically equivalent to a 2-for-1 stock split?
A.20 percent stock dividend
B.25 percent stock dividend
C.50 percent stock dividend
D.100 percent stock dividend
E.200 percent stock dividend
13) Assume you are a banker who has loaned money to a firm, but that firm is now
facing increased competition and reduced cash flows. Which one of the following ratios
would you most closely monitor to evaluate the firm's ability to repay its loan?
A.current ratio
B.debt-to-equity ratio
C.times interest earned ratio
D.times burden covered ratio
E.None of the above.
14) Martha is investing $5 today at 6 percent interest so she can have $10 later. The $10
is referred to as the:
A.true value
B.future value
C.present value
D.discounted value
E.complex value
15) Accounts receivable financing is the term used to describe which of the following
types of loans which involve either the assignment or the factoring of a firm's accounts
receivables?
A.Secured short-term loan
B.Unsecured short-term loan
C.Secured long-term loan
D.Unsecured long-term loan
E.Trust receipt loan
16) Which one of the following projects is most apt to be financed with venture capital?
A.Additional warehouse space for a profitable trucking firm
B.New product for an international plastics manufacturing company
C.Prototype for a newly patented hand tool by an individual inventor
D.Seasonal merchandise for a major retailer
E.Domestic outlet for a large global exporter
17) On June 22, Roy's Welding Shop purchased $3,300 worth of goods. The terms of
the sale were 1/7, net 21. What is the effective annual rate of interest for the credit
period for this sale?
A.29.96 percent
B.31.38 percent
C.34.42 percent
D.37.73 percent
E.38.63 percent
18) Over the past 4 years, large-company stocks and U.S. Treasury bills have produced
the returns stated below. During this period, inflation averaged 2.8 percent. Given this
information, the average real rate of return on large-company stocks was ___ percent as
compared to _____ percent for Treasury bills.
A.6.47; 0.92
B.6.47; 1.08
C.7.98; 0.92
D.7.98; 1.08
E.7.98; 1.22
19) Which one of the following statements related to the income statement is correct?
A.Depreciation has no effect on taxes
B.Interest paid is a noncash item
C.Taxable income must be a positive value
D.Net income is distributed either to dividends or retained earnings
E.Taxable income plus interest and depreciation equals earnings before interest and
taxes
20) Ted's Toys just reconciled its bank account and has $12,300 in outstanding deposits
and $31,400 in checks outstanding. The firm's checkbook has a positive balance. The
firm sells on a cash basis only and deposits its receipts on a daily basis. The deposited
funds are available to the firm the following day. The firm writes and mails checks on a
daily basis also. These checks generally clear the bank in 3 days. What do you know
about the firm's float given this information?
A.The firm has disbursements float but no collection float
B.The collection float exceeds the disbursement float
C.The firm has a net collection float
D.The disbursement float exceeds the collection float
E.Since transactions occur daily, the firm has no float
21) Davidson Interiors declared a dividend to holders of record on Thursday, October
15, that is payable on Monday, November 2. Suenette purchased 200 shares of
Davidson Interiors stock on Monday, October 12 and Jake purchased 100 shares of this
stock on the following day. Which one of the following statements is correct given this
information?
A.Both Suenette and Jake will receive this dividend
B.Suenette will receive the dividend but Jake will not
C.Jake will receive the dividend but Suenette will not
D.Neither Suenette nor Jake will receive this dividend
E.You cannot determine who will or will not receive this dividend based on the
information provided
22) The expected return on a security depends on which of the following?
I. risk-free rate of return
II. amount of the security's unique risk
III market rate of return
IV. standard deviation of returns
A.I and III only
B.II and IV only
C.II, III, and IV only
D.I, III, and IV only
E.I, II, III, and IV
23) The Play House's December 31, 2009 balance sheet showed net fixed assets of
$1,238,000 and the December 31, 2010 balance sheet showed net fixed assets of
$1,416,000. The company's 2010 income statement showed a depreciation expense of
$214,600. What was the firm's net capital spending for 2010?
A.$36,600
B.$42,400
C.$392,600
D.$404,400
E.$416,600
24) The Limited collects 25 percent of sales in the month of sale, 60 percent of sales in
the month following the month of sale, and 15 percent of sales in the second month
following the month of sale. During the month of April, the firm will collect:
A.60 percent of February sales
B.15 percent of April sales
C.60 percent of March sales
D.15 percent of March sales
E.25 percent of February sales
25) You bought a yen-denominated corporate bond at the beginning of the year for
100,000. The bond paid 3 percent annual interest and was trading for 110,000 at
year-end. The exchange rate was $1 = 100 at the beginning of the year and $1 = 122 at
year-end. What holding period return, measured in yen, did you earn on the bond?
A.-18.03%
B.-7.38%
C.-5.03%
D.3.0%
E.0%
26) Consider the following investment opportunity.
Assume the annual figures are unchanged for the expected life of the investment. What
is the rate of return on this investment? Assuming the investor wants to earn at least 12
percent, is this investment an attractive one?
27) Todd wants to start his own business and is debating between organizing the
business as a sole proprietorship or a corporation. Explain the pros and cons of both
forms of business organization.
28) Draw a graph that illustrates the relationship between interest rates and the present
value of $1,000 to be received in one year.
29) Miller Tool is a successful manufacturer of both consumer and industrial hand tools
and is publicly owned. The firm has several positive net present value projects that it
would like to pursue and thus decided to issue additional shares of common stock. As a
result of this stock issue, the firm's stock price declined. Explain why this occurred
when the proceeds of the issue are being used to fund positive net present value
projects.
30) Identify the cash flows that occur between a firm and its shareholders and explain
how each of these cash flows affects the cash flow to stockholders.
31) Explain the difference between a sunk cost and an opportunity cost and give an
example of each.
