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1) Stock A comprises 28 percent of Susan's portfolio. Which one of the following terms
applies to the 28 percent?
A.Portfolio variance
B.Portfolio standard deviation
C.Portfolio weight
D.Portfolio expected return
E.Portfolio beta
2) Which one of the following is a drawback of cash dividends?
A.Firms may have to forgo positive net present value projects
B.Stock prices tend to increase as annual dividend amounts increase
C.Cash dividends support stock prices
D.Dividends are felt to be directly related to agency costs
E.Dividend-paying firms tend to attract a wider field of investors than do
non-dividend-paying firms
3) Rockingham Motors issued a 20-year, 8 percent semiannual bond 3 years ago. The
bond currently sells for 98.6 percent of its face value. The company's tax rate is 35
percent. What is the aftertax cost of debt?
A.2.72 percent
B.5.43 percent
C.5.69 percent
D.5.72 percent
E.5.99 percent
4) Which two of the following determine when revenue is recorded on the financial
statements based on the recognition principle?
I. Payment is collected for the sale of a good or service.
II. The earnings process is virtually complete.
III. The value of a sale can be reliably determined.
IV. The product is physically delivered to the buyer.
A.I and II only
B.I and IV only
C.II and III only
D.II and IV only
E.I and III only
5) Which one of the following is most apt to create a situation where an agency conflict
could arise?
A.Increasing the size of a firm's operations
B.Downsizing a firm
C.Separating management from ownership
D.Decreasing employee turnover
E.Reducing both management and nonmanagement salaries
6) Net capital spending is equal to:
A.ending net fixed assets minus beginning net fixed assets plus depreciation
B.beginning net fixed assets minus ending net fixed assets plus depreciation
C.ending net fixed assets minus beginning net fixed assets minus depreciation
D.ending total assets minus beginning total assets plus depreciation
E.ending total assets minus beginning total assets minus depreciation
7) Assume that PE is the euro price of a product, PUS is the U.S. price of the identical
product, and S0 is the spot exchange rate, quoted as the amount of foreign currency per
dollar. Given this, which one of the following correctly expresses absolute purchasing
power parity?
A.PUS = S0/PE
B.PUS = S0 PE
C.PUS = S0 + PE
D.PE = S0/PUS
E.PE = S0 PUS
8) An agent who buys and sells securities from inventory is called a:
A.floor trader
B.dealer
C.commission broker
D.broker
E.floor broker
9) Which one of the following is the primary determinant of an investment's cost of
capital?
A.Life of investment
B.Initial cash outlay
C.
D.Source of funds used for the investment
E.Investment's net present value
10) Which of the following are weaknesses of the dividend growth model?
I. Market risk premium fluctuations
II. Lack of dividends for some firms
III. Reliance on historical beta
IV. Sensitivity of model to dividend growth rate
A.II only
B.I and II only
C.I and III only
D.II and IV only
E.I, II, III, and IV
11) Which one of the following commences on the day inventory is purchased and ends
on the day the payment for that inventory is collected? Assume all sales and purchases
are on credit.
A.Inventory period
B.Accounts receivable period
C.Accounts payable period
D.Operating cycle
E.Cash cycle
12) Which one of the following statements is correct?
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 also decrease the payables period
E.Both the operating cycle and the cash cycle must be positive values
13) River Rock, Inc. just paid an annual dividend of $2.80. The company has increased
its dividend by 2.5 percent a year for the past 10 years and expects to continue doing so.
What will a share of this stock be worth 6 years from now if the required return is 16
percent?
A.$23.60
B.$24.65
C.$25.08
D.$25.50
E.$26.90
14) What is the net present value of a project with the following cash flows if the
discount rate is 15 percent?
A.-$8,406.11
B.-$5,433.67
C.-$3,089.16
D.$1,407.92
E.$5,433.67
15) Tressler Industries opted to repurchase 5,000 shares of stock last year in lieu of
paying a dividend. The cash flow statement for last year must have which one of the
following assuming that no new shares were issued?
A.Positive operating cash flow
B.Negative cash flow from assets
C.Negative cash flow to stockholders
D.Negative operating cash flow
E.Positive cash flow to stockholders
16) Cash concentration accounts:
A.are no longer needed since the Check Clearing Act for the 21st Century has been
passed
B.eliminate the need for lockboxes
C.decrease a firm's disbursement float by reducing mail and processing delays
D.allow firms to more efficiently handle cash
E.tend to decrease a firm's investment income
17) Which one of the following statements is correct?
A.The financial market generally reacts the same to a new issue of equity as it does to a
new issue of debt as long as the issuer is the same
B.Issuing new equity shares is always viewed by the market as a positive event
C.Informed managers tend to issue new securities when the existing securities are
underpriced
D.A decline in the price of existing stock when a new issue is released is a direct cost of
selling securities
E.A firm's existing shareholders would prefer that new securities be issued when those
securities are overpriced rather than underpriced
18) The DuPont 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
19) The owners' equity accounts for Boats and More are shown here:
Assume Boats and More stock currently sells for $38 per share and a 10 percent stock
dividend is declared. What will be the new common stock account value?
A.$40,909
B.$45,000
C.$47,000
D.$48,511
E.$49,500
20) The Corner Store is a small-sized, general store which stocks a minimal level of
basic supplies and offers gasoline to a rural community. Which one of the following
types of credit is probably best-suited for financing this store's inventory?
A.Trust receipt financing
B.Receivables factoring
C.Field warehousing
D.Blanket inventory lien
E.Receivables assignment
21) Which of the following are sources of cash?
I. decreasing accounts receivable
II. increasing inventory
III. increasing accounts payable
IV. increasing common stock
A.I and III only
B.II and IV only
C.II and III only
D.I and IV only
E.I, III, and IV only
22) After successfully completing your corporate finance class, you feel the next
challenge ahead is to serve on the board of directors of Marine Enterprises.
Unfortunately, you will be the only individual voting for you. If Marine Enterprises has
350,000 shares outstanding and the stock currently sells for $52, how much will it cost
you to buy a seat if the company uses straight voting? Assume Marine Enterprises uses
cumulative voting and there are five open seats in the current election; how much will it
cost you to buy a seat now?
A.$9,100,000; $3,640,000
B.$9,100,000; $3,033,385
C.$9,100,052; $3,548,052
D.$9,100,052; $3,033,385
E.$9,100,052; $3,640,000
23) What is the IRR of the following set of cash flows?
A.12.93 percent
B.14.90 percent
C.15.81 percent
D.16.33 percent
E.17.78 percent
24) Suppose you bought a 6 percent coupon bond one year ago for $929. The bond sells
today for $933. The face value is $1,000. If the inflation rate last year was 4.3 percent,
what was your total real rate of return on this investment?
A.1.02 percent
B.2.48 percent
C.4.31 percent
D.6.89 percent
E.7.08 percent
25) The Toy Store has beginning retained earnings of $28,975. For the year, the
company earned net income of $4,680 and paid dividends of $1,600. The company also
issued $3,000 worth of new stock. What is the value of the retained earnings account at
the end of the year?
A.$20,445
B.$22,695
C.$27,375
D.$32,055
E.$35,255
