Which one of the following combinations will always result in an increased dividend
yield?
A. Increase in the stock price combined with a lower dividend amount
B. Increase in the stock price combined with a higher dividend amount
C. Decrease in the stock price combined with a lower dividend amount
D. Decrease in the stock price combined with a higher dividend amount
E. Increase in the stock price combined with a constant dividend amount
Cross Country Movers has just gone public. Under a firm commitment agreement, the
firm received $19.84 for each of the 2.12 million shares sold. The initial offering price
was $24.40 per share, and the stock rose to $25 per share in the first few minutes of
trading. The company paid $626,000 in legal and other direct costs and $105,000 in
indirect costs. What was the flotation cost as a percentage of the funds raised?
A. 29.91 percent
B. 27.85 percent
C. 30.49 percent
D. 28.24 percent
E. 28.60 percent
Which one of the following terms is most commonly used to describe the cash flows of
a new project that are simply an offset of reduced cash flows for a current project?
A. Opportunity cost
B. Sunk cost
C. Erosion
D. Replicated flows
E. Pirated flows
The ex-dividend date is defined as _____ day(s) before the date of record.
A. three business
B. three
C. two business
D. two
E. one
The primary purpose of protective covenants is to help:
A. reduce interest rate risk.
B. the issuer in case of default.
C. protect bondholders from issuer actions.
D. bondholders whose bonds are called.
E. convert bearer bonds into registered form.
Birds of a Feather has bonds outstanding that carry an annual coupon of 6 percent. The
bonds mature in 11 years and are currently priced at 94 percent of face value. What is
the firm’s pretax cost of debt?
A. 6.79 percent
B. 10.60 percent
C. 9.34 percent
D. 12.03 percent
E. 12.77 percent
How quickly can a bank receive payment once it transmits a copy of a check to the
bank on which the check was drawn?
A. Immediately
B. In one day
C. Between one and two days
D. In two days
E. Between two and three days
Net working capital is defined as:
A. the depreciated book value of a firm’s fixed assets.
B. the value of a firm’s current assets.
C. available cash minus current liabilities.
D. total assets minus total liabilities.
E. current assets minus current liabilities.
If a firm has a 100 percent dividend payout ratio, then the internal growth rate of the
firm is:
A. zero percent.
B. 100 percent.
C. equal to the ROA.
D. negative.
E. infinite.
Which one of the following is most closely related to the net present value profile?
A. Internal rate of return
B. Average accounting return
C. Profitability index
D. Payback
E. Discounted payback
Jamie earned $14 in interest on her savings account last year. She has decided to leave
the $14 in her account so that she can earn interest on the $14 this year. The interest
earned on last year’s interest earnings is called:
A. simple interest.
B. complex interest.
C. accrued interest.
D. interest on interest.
E. discounted interest.
Firm A uses straight-line depreciation. Firm B uses MACRS depreciation. Both firms
bought $75,000 worth of equipment last year that has a tax life of 5 years. The 5-year
MACRS percentage rates, starting with Year 1, are: 20, 32, 19.2, 11.52, 11.52, and 5.76.
Both firms have a marginal tax rate of 34 percent and identical operating cash flows
except for the depreciation effects. Given this, you know the:
A. depreciation expense for Firm A will be greater than Firm B’s expense every year.
B. equipment has a higher value on Firm B’s books than on Firm A’s at the end of Year
2.
C. operating cash flow of Firm A is greater than that of Firm B for Year 3.
D. market value of Firm A’s equipment is greater than the market value of Firm B’s at
end the first year.
E. market value of Firm B’s equipment is greater than the market value of Firm A’s
equipment at the end of Year 2.
Beauty Aids has an average collection period of 8.4 days and annual credit sales of
$937,800. What is the average investment in accounts receivable as shown on the
balance sheet? Assume a 365-day year.
A. $18,850
B. $20,375
C. $22,506
D. $18,906
E. $21,582
Margie opened a used bookstore and is both the 100 percent owner and the store’s
manager. Which type of business entity does Margie own if she is personally liable for
all the store’s debts?
A. Sole proprietorship
B. Limited partnership
C. Corporation
D. Joint stock company
E. General partnership
Inside quotes are defined as the:
A. bid and asked prices presented by NYSE DMMs.
B. last bid and asked price offered prior to the market close.
C. lowest asked and highest bid offers.
D. daily opening bid and asked quotes.
E. last traded bid and asked prices.
A loan has an APR of 8.5 percent and an EAR of 8.5 percent. Given this, the loan must:
A. have a one-year term.
B. have a zero percent interest rate.
C. charge interest annually.
D. must be partially amortized with each loan payment.
E. require the accrued interest be paid in full with each monthly payment.
The internal rate of return is unreliable as an indicator of whether or not an investment
should be accepted given which one of the following?
A. One of the time periods within the investment period has a cash flow equal to zero.
B. The initial cash flow is negative.
C. The investment has cash inflows that occur after the required payback period.
D. The investment is mutually exclusive with another investment of a different size.
E. The cash flows are conventional.
Which one of the following states that a firm’s cost of equity capital is a positive linear
function of the firm’s capital structure?
A. Static theory of capital structure
B. M&M Proposition I without taxes
C. M&M Proposition II without taxes
D. Homemade leverage theory
E. M&M Proposition I with taxes
Which of these is a noncash payment made by a firm to its shareholders that lessens the
value of each outstanding share?
A. Reverse stock split
B. Cash distribution
C. Stock dividend
D. Regular dividend
E. Liquidating dividend
MNM & Co incurred depreciation expenses of $36,810 last year. The sales were
$903,480 and the addition to retained earnings was $11,530. The firm paid interest of
$7,711 and dividends of $7,500. The tax rate was 33 percent. What was the amount of
the costs incurred by the company?
A. $822,845
B. $689,407
C. $742,306
D. $830,556
E. $780,400
Assume the USD equivalent of the Norwegian krone is .1425. If you have NKr5,500,
how much do you have in US dollars?
A. $861.42
B. $42,608.14
C. $38,596.49
D. $783.75
E. $16,216.50
Westover stock is expected to return 36 percent in a boom, 14 percent in a normal
economy, and lose 75 percent in a recession. The probabilities of a boom, normal
economy, and a recession are 2 percent, 93 percent, and 5 percent, respectively. What is
the standard deviation of the returns on this stock?
A. 19.90 percent
B. 20.52 percent
C. 20.41 percent
D. 18.79 percent
E. 19.74 percent
A company has the following account balances. Which statement is correct concerning
these balances?
A. Accounts receivable is a $1,400 source of cash.
B. Common stock is a $3,500use of cash.
C. Net working capital, excluding cash, is a $6,100 use of cash.
D. Long-term debt is a $1,700 source of cash.
E. Total debt is a $2,400 source of cash.
Red’s Electronics has a balance sheet with equity account values of: common stock ($1
par) of $70,500; capital surplus of $141,600; and retained earnings of $208,300. How
many shares will be outstanding if the firm declares a 2-for-9 reverse stock split?
A. 5,833 shares
B. 15,667 shares
C. 18,000 shares
D. 305,750 shares
E. 317,250 shares
The preferred stock of Dolphin Pools pays an annual dividend of $5.25 a share and sells
for $48a share. The tax rate is 35 percent. What is the firm’s cost of preferred stock?
A. 9.67 percent
B. 10.94 percent
C. 15.07 percent
D. 15.59 percent
E. 16.47 percent
Which one of the following is defined as the average compound return earned per year
over a multiyear period?
A. Geometric average return
B. Variance of returns
C. Standard deviation of returns
D. Arithmetic average return
E. Normal distribution of returns
The required return on Mountain Brook stock is 13.8 percent and the dividend growth
rate is 3.64 percent. The stock is currently selling for $32.80 a share. What is the
dividend yield?
A. 10.16 percent
B. 8.93 percent
C. 11.75 percent
D. 10.50 percent
E. 13.36 percent
The Lumber Yard has projected sales for April through July of $152,400, $161,800,
$189,700, and $196,400, respectively. The firm collects 52 percent of its sales in the
month of sale, 46 percent in the month following the month of sale, and the remainder
in the second month following the month of sale. What is the amount of the July
collections?
A. $189,819
B. $181,508
C. $122,852
D. $175,500
E. $192,626
Floral Shoppes has a new project in mind that will increase accounts receivable by
$19,000, decrease accounts payable by $4,000, increase fixed assets by $27,000, and
decrease inventory by $2,000. What is the amount the firm should use as the initial cash
flow attributable to net working capital when it analyzes this project?
A. -$25,000
B. -$17,000
C. -$21,000
D. -$12,000
E. -$52,000
JTL has 148,000 shares of stock outstanding. The firm has extra cash so it announced
this morning that it is willing to repurchase 18,000 of its shares. What type of offer is
the firm making?
A. Rights offer
B. Secondary issue
C. Targeted repurchase
D. Tender offer
E. Private issue
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.
Briar Patch Fruits has sales of $529,600, cost of goods sold of $408,350, depreciation
of $25,400, and interest expense of $9,100. The tax rate is 35 percent. What is the times
interest earned ratio?
A. 10.53
B. 9.46
C. 8.87
D. 4.38
E. 4.79
Which of these states that the difference in interest rates between two countries is equal
to the percentage difference between the forward exchange rate and the spot exchange
rate?
A. Arbitrage equilibrium
B. Relative purchasing power parity
C. Absolute purchasing power parity
D. Interest rate parity
E. Cross-rate parity
The security market line is a linear function that is graphed by plotting data points
based on the relationship between the:
A. risk-free rate and beta.
B. market rate of return and beta.
C. market rate of return and the risk-free rate.
D. risk-free rate and the market rate of return.
E. expected return and beta.