1) Aaron’s Tea House has a 32 percent tax rate and an interest tax shield valued at
$6,728 for the year. How much did the firm pay in annual interest?
A.$2,153
B.$2,304
C.$2,468
D.$20,507
E.$21,025
2) What is the payback period for a $27,500 investment with the following cash flows?
A.3.54 years
B.3.89 years
C.4.22 years
D.4.54 years
E.The project never pays back
3) If your nominal rate of return is 14.38 percent and your real rate of return is 3.97
percent, what is the inflation rate?
A.8.47 percent
B.10.01 percent
C.10.54 percent
D.18.35 percent
E.18.92 percent
4) Which one of the following most likely represents the greatest political risk for a
U.S.-based firm?
A.A product assembly plant located in a foreign country
B.A foreign sales office
C.Accounting office which handles all payroll functions and is located in a foreign
country
D.Natural ore mine in a foreign country
E.Sub-assembly plant in a foreign country that uses U.S. made components
5) Today, Tony is investing $16,000 at 6.5 percent, compounded annually, for 4 years.
How much additional income could he earn if he had invested this amount at 7 percent,
compounded annually?
A.$323.22
B.$389.28
C.$401.16
D.$442.79
E.$484.08
6) The common stock of Green Garden Flowers is selling for $24 a share. The company
pays a constant annual dividend and has a total return of 3.8 percent. What is the
amount of the dividend?
A.$0.38
B.$0.76
C.$0.91
D.$1.38
E.$1.54
7) Consider a 3-year project with the following information: initial fixed asset
investment = $770,000; straight-line depreciation to zero over the 3-year life; zero
salvage value; price = $34.99; variable costs = $23.16; fixed costs = $245,000; quantity
sold = 94,500 units; tax rate = 35 percent. How sensitive is OCF to an increase of one
unit in the quantity sold?
A.$7.69
B.$8.38
C.$8.67
D.$9.97
E.$11.83
8) A cost-cutting project will decrease costs by $48,500 a year. The annual depreciation
on the project’s fixed assets will be $11,300 and the tax rate is 34 percent. What is the
amount of the change in the firm’s operating cash flow resulting from this project?
A.$24,552
B.$26,791
C.$25,805
D.$32,333
E.$35,852
9) Which of the following ratings indicate that a bond is low-quality?
I. Baa
II. BB
III. B
IV. Ba
A.II only
B.II and III only
C.II, III, and IV only
D.I, II, and III only
E.I, II, III, and IV
10) Which of the following statements related to market efficiency tends to be
supported by current evidence?
I. Markets tend to respond quickly to new information.
II. It is difficult for the typical investor to earn above-average returns without taking
above-average risks.
III. Short-run prices are difficult to predict accurately based on public information.
IV. Markets are most likely weak form efficient.
A.I and III only
B.II and IV only
C.I and IV only
D.I, III, and IV only
E.I, II, and III only
11) 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
12) Coastal Gifts has an average collection period of 18 days and annual sales of
$694,000. What is the average investment in accounts receivables as shown on the
balance sheet?
A.$18,850
B.$20,375
C.$21,506
D.$28,700
E.$34,225
13) Which one of the following is the correct formula for the future value of $500
invested today at 7 percent interest for 8 years?
A.FV = $500/[(1 + 0.08) 7]
B.FV = $500/[(1 + 0.07) 8]
C.FV = $500/(0.07 8)
D.FV = $500 (1 + 0.07)8
E.FV = $500 (1 + 0.08)7
14) For which one of the following instruments does a bank guarantee payment by the
buyer?
A.Money market preferred stock
B.Commercial paper
C.Banker’s acceptance
D.Invoice
E.Time draft
15) Graphic Designs has 120,000 shares of cumulative preferred stock outstanding.
Preferred shareholders are supposed to be paid $1.50 per quarter per share in dividends.
However, the firm has encountered financial problems and has not paid any dividends
for the past three quarters. How much will the firm have to pay per share of preferred
next quarter if the firm also wishes to pay a common stock dividend?
A.$3.00
B.$4.50
C.$6.00
D.$7.50
E.$9.00
16) Lisa has $1,000 in cash today. Which one of the following investment options is
most apt to double her money?
A.6 percent interest for 3 years
B.12 percent interest for 5 years
C.7 percent interest for 9 years
D.8 percent interest for 9 years
E.6 percent interest for 10 years
17) Windsor stock has produced returns of 22.6 percent, 18.7 percent, 11.3 percent,
-19.8 percent, and 2.4 percent over the past five years, respectively. What is the
variance of these returns?
A.0.028453
B.0.031947
C.0.035682
D.0.039515
E.0.040016
18) Kate’s Korner Market monitors 3 percent of its inventory on a daily basis, another
20 percent on a weekly basis, and the remaining inventory on a quarterly basis. What
inventory management approach is being used?
A.ABC
B.EOQ
C.MRP
D.Q*
E.JIT
19) Currently, you own 5.4 percent of the outstanding stock of Keiffer Industries. The
firm has decided to issue additional shares of stock and has given you the first option to
purchase 5.4 percent of those additional shares. Which one of the following will you be
participating in if you opt to purchase the shares you have been offered?
A.Rights offer
B.Red herring offer
C.Private placement
D.IPO
E.General cash offer
20) In which one of the following situations would the payback method be the preferred
method of analysis?
A.A project that can easily be expanded
B.Two mutually exclusive projects
C.A proposed expansion of a firm’s current operations
D.Different-sized projects
E.Investment funds available only for a limited period of time
21) The following table presents financial information for Boss Stores, Inc., a retail
chain store in the U.S.
Use the information from Boss’s annual financial statements. What is the actual sales
growth rate for 2010?
A.- 17.6%
B.- 7.9%
C.8.51%
D.21.4%
E.None of the above
22) On which one of the following dates are dividend checks mailed?
A.Date of record
B.Ex-dividend date
C.Payment date
D.Declaration date
E.Public announcement date
23) The Green Balloon just paid its first annual dividend of $0.12 a share. The firm
plans to increase the dividend by 3.5 percent per year indefinitely. What is the firm’s
cost of equity if the current stock price is $6.50 a share?
A.5.35 percent
B.5.41 percent
C.14.42 percent
D.18.79 percent
E.19.98 percent
24) Which one of the following tends to be the primary attitude of firms’ towards their
dividend policy?
A.Dividends should be increased annually no matter what
B.Dividends should be flexible and adjusted annually in response to changes in the
firm’s earnings
C.The costs associated with cutting dividends are perceived to be less than the costs of
obtaining external financing
D.Once a dividend is increased, it should not be decreased
E.Dividend smoothing is talked about but is not really a factor that affects dividend
decisions
25) Liz’s Home Remedy has a $24 million bond issue outstanding with a coupon rate of
7.75 percent and a current yield of 7.67 percent. What is the present value of the tax
shield if the tax rate is 34 percent?
A.$632,400
B.$625,872
C.$6.28 million
D.$8.16 million
E.$8.68 million
26) Assume that clienteles exist. Given this assumption, which one of the following
statements is correct?
A.A firm can increase its share price by increasing its dividend payout
B.Dividend policy is irrelevant as long as each clientele group is currently satisfied
C.All firms will adopt a high dividend payout policy
D.All dividends become irrelevant
E.All firms should adopt a low dividend payout policy
27) When a bond’s yield to maturity is less than the bond’s coupon rate, the bond:
A.had to be recently issued
B.is selling at a premium
C.has reached its maturity date
D.is priced at par
E.is selling at a discount
28) You are considering the following two mutually exclusive projects. The crossover
point is _____ and Project _____ should be accepted if the discount rate is 14 percent.
A.12.79 percent; B
B.13.28 percent; A
C.13.28 percent; B
D.15.96 percent; A
E.15.96 percent; B
29) Selected financial data for Link, Inc. follows: ($ in thousands)
The profit margin for 2012 is:
A.-94%
B.-57%
C.13%
D.31%
E.None of the above
30) Who determines the offer price in a Dutch auction?
A.Lead underwriter
B.Chief financial officer of the issuing firm
C.SEC
D.Bidders
E.Board of directors of the issuing firm
31) The Veggie Hut has net income of $26,400, total equity of $102,700, and total
assets of $189,500. The dividend payout ratio is 0.30. What is the internal growth rate?
A.7.99 percent
B.8.57 percent
C.10.81 percent
D.16.87 percent
E.21.94 percent
32) Julie wants to create a $5,000 portfolio. She also wants to invest as much as
possible in a high risk stock with the hope of earning a high rate of return. However, she
wants her portfolio to have no more risk than the overall market. Which one of the
following portfolios is most apt to meet all of her objectives?
A.Invest the entire $5,000 in a stock with a beta of 1.0
B.Invest $2,500 in a stock with a beta of 1.98 and $2,500 in a stock with a beta of 1.0
C.Invest $2,500 in a risk-free asset and $2,500 in a stock with a beta of 2.0
D.Invest $2,500 in a stock with a beta of 1.0, $1,250 in a risk-free asset, and $1,250 in a
stock with a beta of 2.0
E.Invest $2,000 in a stock with a beta of 3, $2,000 in a risk-free asset, and $1,000 in a
stock with a beta of 1.0
33) Kris will receive $800 a month for the next 5 years from an insurance settlement.
The interest rate is 4 percent, compounded monthly, for the first 2 years and 5 percent,
compounded monthly, for the final 3 years. What is this settlement worth to him today?
A.$36,003.18
B.$38,219.97
C.$41,388.71
D.$43,066.22
E.$45,115.16
34) Berkley Trucking recently purchased a new truck costing $147,800. The firm
financed this purchase at 7.6 percent interest with monthly payments of $2,100. How
many years will it take the firm to pay off this debt?
A.6.50 years
B.6.67 years
C.7.48 years
D.7.60 years
E.7.79 years
35) The 7.5 percent preferred stock of Tanners Floors is selling for $57 a share. What is
the firm’s cost of preferred stock if the tax rate is 35 percent and the par value per share
is $100?
A.11.69 percent
B.12.81 percent
C.13.16 percent
D.13.79 percent
E.14.14 percent
36) The primary goal of financial management is to maximize which one of the
following for a corporation?
A.Current profits
B.Market share
C.Number of shares outstanding
D.Market value of existing stock
E.Revenue growth
37) The Du Pont identity can be used to help a financial manager determine the:
I. degree of financial leverage used by a firm.
II. operating efficiency of a firm.
III. utilization rate of a firm’s assets.
IV. rate of return on a firm’s assets.
A.II and III only
B.I and III only
C.II, III, and IV only
D.I, II, and III only
E.I, II, III, and IV