Which one of the following features distinguishes an ordinary annuity from an annuity
due?
A. Number of equal payments
B. Amount of each payment
C. Frequency of the payments
D. Annuity interest rate
E. Timing of the annuity payments
Which of these refers to a customer’s willingness to meet his or her credit obligations?
A. Capital
B. Conditions
C. Capacity
D. Character
E. Collateral
The argument that dividend policy is irrelevant tends to be supported by which one of
these factors?
A. Flotation costs associated with equity issues
B. Current tax laws
C. An unsatisfied demand for high-dividend-paying stocks
D. Current equilibrium in the clientele dividend market
E. The current tax exclusion available to corporate investors
You will receive annual payments of $800 at the end of each year for 12 years. The first
payment will be received in Year 3. What is the present value of these payments if the
discount rate is 7 percent?
A. $5,465.20
B. $6,018.52
C. $6,299.80
D. $5,549.96
E. $6,856.60
A firm is reviewing a project that has an initial cost of $67,000. The project will
produce annual cash inflows, starting with Year 1, of $8,000, $13,400, $18,600,
$24,100, and finally in Year 5, $37,900. What is the profitability index if the discount
rate is 11 percent?
A. .92
B. .98
C. 1.02
D. 1.05
E. 1.09
Which one of the following supports the theory that the value of a firm increases as the
firm’s level of debt increases?
A. M&M Proposition I without taxes
B. M&M Proposition II without taxes
C. M&M Proposition I with taxes
D. Static theory of capital structure
E. No theory suggests this.
The matching principle states that:
A. costs should be recorded on the income statement whenever those costs can be
reliably determined.
B. costs should be recorded when paid.
C. the costs of producing an item should be recorded when the sale of that item is
recorded as revenue.
D. sales should be recorded when the payment for that sale is received.
E. sales should be recorded when the earnings process is virtually completed and the
value of the sale can be determined.
Which one of the following is an electronic network that enables Katie to sell her shares
of ABC stock directly to Marti?
A. SuperDOT
B. POST
C. ECN
D. SEAT
E. eNET
Which country is correctly matched with its currency?
A. Canada—pound
B. China—yuan
C. Mexico—real
D. Japan—lira
E. United Kingdom—euro
Which one of the following will increase the present value of a lump sum future amount
to be received in 15 years?
A. An increase in the time period
B. An increase in the interest rate
C. A decrease in the future value
D. A decrease in the interest rate
E. Changing to compound interest from simple interest
The Nifty Fifty is considering opening a new store at a start-up cost of $628,000. The
initial investment will be depreciated straight-line to zero over the 15-year life of the
project. What is the average accounting rate of return given the following net income
projections?
A. 16.42 percent
B. 16.68 percent
C. 17.01 percent
D. 17.18 percent
E. 16.35 percent
An upward-sloping term structure of interest rates indicates:
A. the real rate of return is lower for short-term bonds than for long-term bonds.
B. there is an indirect relationship between real interest rates and time to maturity.
C. there is an indirect relationship between nominal interest rates and time to maturity.
D. the nominal rate is declining as the real rate rises as the time to maturity increases.
E. the nominal rate is increasing even though the real rate is constant as the time to
maturity increases.
Your portfolio is310 shares of Rising Sun Co. that currently sells for $48 a share. The
company has announced a cash dividend of $1.04 per share with an ex-dividend date of
tomorrow. Assume there are no taxes. What should you expect your portfolio value to
be tomorrow morning assuming all else is held constant?
A. $14,616
B. $14,880
C. $15,026
D. $15,144
E. $15,210
Gabe’s Market is comparing two different capital structures. Plan I would result in
15,000 shares of stock and $210,000 in debt. Plan II would result in 13,000 shares of
stock and $252,000 in debt. The interest rate on the debt is 8 percent. Ignoring taxes,
compare both of these plans to an all-equity plan assuming that EBIT will be $52,000.
The all-equity plan would result in 25,000 shares of stock outstanding. Of the three
plans, the firm will have the highest EPS with _____ and the lowest EPS with ____.
A. Plan I; Plan II
B. Plan II; the all-equity plan
C. Plan II; Plan I
D. Plan I; the all-equity plan
E. the all-equity plan; Plan I
The market rate of return is 11.8 percent and the risk-free rate is 3.45 percent. Galaxy
Co. has 36 percent more systematic risk than the overall market and has a dividend
growth rate of 3.5 percent. The firm’s stock is currently selling for $42 a share and has a
dividend yield of 2.8 percent. What is the firm’s cost of equity?
A. 10.55 percent
B. 15.31 percent
C. 19.82 percent
D. 16.28 percent
E. 21.11 percent
A bond dealer sells at the _____ price and buys at the _____ price.
A. clean; dirty
B. dirty; clean
C. bid; asked
D. asked; bid
E. asked; asked
The Blue Lagoon is considering a project with a five-year life. The project requires
$32,000 of fixed assets that are classified as five-year property for MACRS. Variable
costs equal 67 percent of sales, fixed costs are $12,600, and the tax rate is 34 percent.
What is the operating cash flow for Year 4 given the following sales estimates and
MACRS depreciation allowance percentages?
A. -$1,806.67
B. $640.89
C. $1,311.16
D. $1,409.80
E. -$2,276.60
ST Trucking just signed a $3.8 million contract. The contract calls for a payment of
$1.1 million today, $1.3 million one year from today, and $1.4 million two years from
today. What is this contract worth today at a discount rate of 8.7 percent?
A. $3,783,648.48
B. $3,480,817.37
C. $2,108,001.32
D. $3,202,223.89
E. $3,202,840.91
The economic order quantity (EOQ) is best defined as the:
A. minimum size of an order needed to qualify for free shipping.
B. minimum amount that must be ordered to obtain the quantity discount.
C. number of items that are sold on average each month.
D. restocking quantity that minimizes the total cost of inventory.
E. minimal amount of inventory that must be purchased to receive a cash discount.
KIT Kars stock currently sells for $54.10 per share and has a fixed 2.5 percent dividend
growth rate. What was the amount of the last dividend paid if the required rate of return
is 11 percent?
A. $4.49
B. $3.57
C. $5.30
D. $4.15
E. $4.36
Newton Industries is considering a project and has developed the following estimates:
unit sales = 4,800, price per unit = $67, variable cost per unit = $42, annual fixed costs
= $11,900. The depreciation is $14,700 a year and the tax rate is 34 percent. What effect
would an increase of $1 in the selling price have on the operating cash flow?
A. $3,168
B. $4,823
C. $1
D. $83,448
E. $82,368
Which statement is correct?
A. A portfolio that contains at least 30 diverse individual securities will have a beta of
1.0.
B. Any portfolio that is correctly valued will have a beta of 1.0.
C. A portfolio that has a beta of 1.12 will lie to the left of the market portfolio on a
security market line graph.
D. A risk-free security plots at the origin on a security market line graph.
E. An underpriced security will plot above the security market line.
Based on the most recent survey information presented in your textbook, CFOs tend to
use which two methods of investment analysis the most frequently?
A. Payback and net present value
B. Payback and internal rate of return
C. Internal rate of return and net present value
D. Net present value and profitability index
E. Profitability index and internal rate of return
Which one of these represents systematic risk?
A. Major layoff by a regional manufacturer of power boats
B. Increase in consumption created by a reduction in personal tax rates
C. Surprise firing of a firm’s chief financial officer
D. Closure of a major retail chain of stores
E. Product recall by one manufacturer
Classic Cars is considering a project that requires $311,250 of fixed assets that are
classified as five-year property for MACRS. What is the book value of these assets at
the end of Year 3? The MACRS allowance percentages are as follows, commencing
with Year 1: 20.00, 32.00, 19.20, 11.52, 11.52, and 5.76 percent.
A. $153,742
B. $136,811
C. $89,640
D. $93,450
E. $144,504
What is the key difference between an ordinary preferred stock and a money market
preferred stock?
A. Issuer
B. Maturity
C. Fixed versus floating dividend
D. Voting rights
E. Absence of any dividend
Which of these best describes a line of credit?
A. Long-term, prearranged, committed bank loan
B. Short-term loan secured by accounts receivable
C. Short-term loan secured by inventory
D. Long-term, prearranged, non committed bank loan
E. Short-term prearranged bank loan that can be either committed or non committed
A 12-year, annual coupon bond is priced at $1,102.60. The bond has a $1,000 face
value and a yield to maturity of 5.33 percent. What is the coupon rate?
A. 5.09 percent
B. 5.33 percent
C. 5.74 percent
D. 6.28 percent
E. 6.51 percent
The possibility that more than one discount rate can cause the net present value of an
investment to equal zero is referred to as:
A. duplication.
B. the net present value profile.
C. multiple rates of return.
D. the AAR problem.
E. the dual dilemma.
A DMM is a(n):
A. employee who executes orders to buy and sell for clients of his or her brokerage
firm.
B. individual who trades on the floor of an exchange for his or her personal account.
C. NYSE member who functions as a dealer for a limited number of securities.
D. broker who buys and sells securities from a market maker.
E. trader who deals only with primary offerings.
The Impulse Shopper recently paid an annual dividend of $1.13 per share. The
company just announced that it is suspending all dividend payments on its common
stock for the next five years. After that, the company expects to pay $.50 a share at the
end of each year. At a required return of 18 percent, what is this stock worth today?
A. $0
B. $1.13
C. $2.78
D. $1.03
E. $1.21
A security produced returns of 12 percent, -11 percent, -2 percent, 15 percent, and 9
percent over the past five years, respectively. Based on these five years, what is the
probability that an investor in this stock will lose more than 17.06 percent in any one
given year?
A. .50 percent
B. 1.00 percent
C. 1.25 percent
D. 2.50 percent
E. 5.00 percent
Which statement is true?
A. If a firm decreases its inventory period, its accounts receivable period will also
decrease.
B. The longer the cash cycle, the more cash a firm typically has available to invest.
C. A firm would prefer a negative cash cycle over a positive cash cycle.
D. Decreasing the inventory period will automatically decrease the payables period.
E. Both the operating cycle and the cash cycle must be positive values.
An all-equity firm has net income of $46,420, depreciation of $3,758, and taxes of
$23,915. What is the firm’s operating cash flow?
A. $47,850
B. $51,950
C. $46,250
D. $50,178
E. $46,750
Leslie Printing has net income of $26,310 for the year. At the beginning of the year, the
firm had common stock of $55,000, paid-in surplus of $11,200, and retained earnings of
$48,420. At the end of the year, the firm had total equity of $142,430. The firm paid
dividends of $32,500. What is the amount of the net new equity raised during the year?
A. $34,000
B. $42,500
C. $25,000
D. $21,500
E. $0