Which of these would be the most common evidence of indebtedness when a sale is
made on open account?
A. Sight draft
B. Commercial draft
C. Banker’s acceptance
D. Promissory note
E. Invoice
A stock is priced at $38.24 a share and has a market rate of return of 9.65 percent. What
is the dividend growth rate if the company plans to pay an annual dividend of $.48 a
share next year?
A. 7.42 percent
B. 8.39 percent
C. 2.23 percent
D. 7.60 percent
E. 1.26 percent
When issuing securities, which of the following can occur prior to receiving the
approval by the SEC of a registration statement?
I. Oral offer to buy shares
II. Written offer to buy shares
III. Final determination of the offer price
IV. Distribution of a preliminary prospectus
A. I only
B. III only
C. III and IV only
D. I and IV only
E. None of the listed activities can occur until after the SEC approval is received.
Empire Industries is considering adding a new product to its lineup. This product is
expected to generate sales for four years after which time the product will be
discontinued. What is the project’s net present value at a required rate of return of 14.8
percent?
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A. $1,505.52
B. $1,067.24
C. $1,758.71
D. $1,519.58
E. $902.71
Kurt, who is a divisional manager, continually brags that his division’s required return
for its projects is one percent lower than the return required for any other division of the
firm. Which one of the following most likely contributes the most to the lower rate
requirement for Kurt’s division?
A. Kurt tends to overestimate the projected cash inflows on his projects.
B. Kurt tends to underestimate the variable costs of his projects.
C. Kurt has the most efficiently managed division.
D. Kurt’s division is less risky than the other divisions.
E. Kurt’s projects are generally financed with debt while the other divisions’ projects are
financed with equity.
Which one of the following increases the number of shares outstanding but does not
change a firm’s equity account values?
A. Reverse stock split
B. Cash distribution
C. Stock split
D. Liquidation dividend
E. Special dividend
Which of the following parties are participants in the foreign exchange market?
I. U.S. importers
II. U.S. exporters
III. U.S. travelers to Europe
IV. Foreign portfolio managers who purchase American securities
A. I and III only
B. II and IV only
C. I, III, and IV only
D. II, III, and IV only
E. I, II, III, and IV
You are going to London and plan on spending £4,500. How many dollars will this trip
cost you if the currency per $1 is £.6391?
A. $2,875.95
B. $2,892.16
C. $7,041.15
D. $6,890.01
E. $3,044.04
You own a stock with an average return of 14.6 percent and a standard deviation of 21.2
percent. In any one given year, you have a 95 percent chance that you will not lose
more than _____ percent nor earn more than ____ percent on this stock.
A. -25.2; 48.2
B. -27.8; 57.0
C. -42.4;57.0
D. -43.6; 49.4
E. -38.4; 42.6
City Plumbing has inventory of $287,800, equity of $538,800, total assets of $998,700,
and sales of $1,027,400. What is the common-size percentage for the inventory
account?
A. 28.01 percent
B. 33.66 percent
C. 53.42 percent
D. 28.82 percent
E. 31.68 percent
The constant growth model can be used to value the stock of firms that have which
type(s) of dividends?
A. Dividends that change by either a constant amount or a constant rate
B. Dividends that change annually by a constant amount or that are zero
C. Dividends that change annually by a constant amount
D. Dividends that are either constant or change annually at a constant rate
E. Only dividends that increase at a constant rate
A project requires $428,000 of equipment that is classified as seven-year property. What
is the depreciation expense in Year 3 given the following MACRS depreciation
allowances, starting with Year 1: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46
percent?
A. $89,038.42
B. $48,447.30
C. $56,038.15
D. $74,857.20
E. $104,817.20
Marti’s BBQ is offering 5,000 shares of stock to the general public on a cash basis.
Which one of the following terms best applies to this offer?
A. Rights offer
B. General cash offer
C. Green Shoe
D. Red herring
E. Prospectus
BR Trucking has total sales of $911,300, a total asset turnover of 1.1, and a profit
margin of 5.87 percent. Currently, the firm has 18,500 shares outstanding. What are the
earnings per share?
A. $2.92
B. $2.97
C. $2.86
D. $2.58
E. $2.89
The spot rate on the Hong Kong dollar is 7.75. Interest rates in Hong Kong are expected
to be 6 percent while they are anticipated to be 3 percent in the U.S. What is the
expected exchange rate two years from now?
A. HK$7.9825
B. HK$8.1808
C. HK$8.2220
D. HK$8.3778
E. HK$8.4141
The Dry Dock has inventory of $431,700, accounts payable of $94,200, cash of
$51,950, and accounts receivable of $103,680. What is the cash ratio?
A. .64
B. .55
C. .53
D. .98
E. 1.34
Miller’s Hardware has 415,000 shares of stock outstanding with a current market value
of $42 a share. You own 84,500 of those shares. Next month, the election will be held to
select four new members to the board of directors. The firm uses a cumulative voting
system. How much additional money do you need to spend to guarantee that you will
be elected to the board assuming that everyone else votes for one of the other
candidates?
A. $0
B. $28,518
C. $34,062
D. $62,958
E. $98,910
T.L.C. Enterprises just revised its capital structure from a debt-equity ratio of .37 to a
debt-equity ratio of .48. The firm’s shareholders who prefer the old capital structure
should:
A. sell some shares and hold the sale proceeds in cash.
B. sell all of their shares and loan out the entire sale proceeds.
C. do nothing.
D. sell some shares and loan out the sale proceeds.
E. borrow funds and purchase more shares.
Will and Bill both enjoy sunshine, water, and surfboards. Thus, the two friends decided
to create a business together renting surfboards, paddle boats, and inflatable devices in
California. Will and Bill will equally share in the decision making and in the business
profits or losses. Which type of business did they create if they both have full personal
liability for the firm’s debts?
A. Sole proprietorship
B. Limited partnership
C. Corporation
D. Joint stock company
E. General partnership
Over the last four years, the common stock of Plymouth Shippers has had an arithmetic
average return of 10.4 percent. Three of those four years produced returns of 16.1
percent, 15.6 percent, and 9.4 percent, respectively. What is the geometric average
return for this four-year period?
A. 9.72 percent
B. 10.41 percent
C. 8.93 percent
D. 10.22 percent
E. 9.38 percent
The Embroidery Shoppe had beginning retained earnings of $18,670. During the year,
the company reported sales of $83,490, costs of $68,407, depreciation of $8,200,
dividends of $950, and interest paid of $478. The tax rate is 34 percent. What is the
retained earnings balance at the end of the year?
A. $21,947.30
B. $22,193.95
C. $22,233.24
D. $23,783.24
E. $21,883.25
An increase in which one of the following will increase operating cash flow for a
profitable, tax-paying firm?
A. Fixed expenses
B. Marginal tax rate
C. Net capital spending
D. Inventory
E. Depreciation
What is the net present value of the following cash flows if the relevant discount rate is
11.4 percent?
A. $4,887.26
B. $5,006.19
C. $8,215.46
D. $13,058.39
E. $18,519.71
The next dividend payment by S&S will be $1.38 per share. The dividends are
anticipated to maintain a 2.5 percent growth rate, forever. If the stock currently sells for
$26.90 per share, what is the required return?
A. 8.03 percent
B. 7.82 percent
C. 7.63 percent
D. 8.74 percent
E. 9.02 percent
Lakeside Winery is considering expanding its winemaking operations. The expansion
will require new equipment costing $708,000 that would be depreciated on a
straight-line basis to a zero balance over the four-year life of the project. The equipment
can be sold for $220,000 after the four years. The project requires $46,000 initially for
net working capital, all of which will be recouped at the end of the project. The
projected operating cash flow is $211,500 a year. What is the net present value of this
project if the relevant discount rate is 13 percent and the tax rate is 34 percent?
A. -$7,632.77
B. -$8,309.18
C. -$10,747.11
D. $7,008.14
E. $1,309.54
A stock repurchase will:
A. increase the number of shares outstanding.
B. decrease the earnings per share.
C. decrease the market price per share.
D. increase the market value per share.
E. decrease the PE ratio.
You are analyzing a project and have developed the following estimates. The
depreciation is $13,600 a year and the tax rate is 34 percent. What is the base-case
operating cash flow?
A. $8,770
B. $6,204
C. $11,433
D. $19,804
E. $20,410
A $1,000 face value bond is currently quoted at 100.8. The bond pays semiannual
payments of $22.50 each and matures in six years. What is the coupon rate?
A. 2.72 percent
B. 2.85 percent
C. 4.46 percent
D. 2.25 percent
E. 4.50 percent
E-Z Loans is offering a special on one-year loans. The company will loan you $1,500
today with no waiting and no credit check, in exchange for one payment of $2,000 one
year from now. What is the APR on this loan?
A. 30.63 percent
B. 21.20 percent
C. 25.63 percent
D. 17.93 percent
E. 33.33 percent
LD&M sells earnings forecasts for international securities. Its credit terms are 1/3, net
15. Based on experience, 84 percent of all customers take the discount. What is the
average collection period?
A. 4.42 days
B. 4.92 days
C. 5.08 day
D. 4.57 days
E. 4.08 days
A stock has returns for five years of 14 percent, -16 percent, 12 percent, 23 percent, and
4 percent, respectively. The stock has an average return of ______ percent and a
standard deviation of _____ percent.
A. 7.40; 13.54
B. 7.04; 14.63
C. 7.40; 14.72
D. 8.60; 14.63
E. 8.60; 16.36