Under credit terms of 1/5, net 15, customers should:
A. always pay on the 15th day.
B. take the 5 percent discount and pay immediately.
C. take the discount and pay on the day following the day of sale.
D. either take the discount or pay on the 15th day.
E. both take the discount and pay on the 15th day.
Answer:
In general, the capital structures used by U.S. firms:
A. tend to overweigh debt in relation to equity.
B. generally result in debt-equity ratios between 0.45 and 0.60.
C. are fairly standard for all SIC codes.
D. tend to be those which maximize the use of the firm’s available tax shelters.
E. vary significantly across industries.
Answer:
Troyer Markets and Deb’s Grocery are all-equity firms. Troyer Markets has 2,400
shares outstanding at a market price of $14.80 a share. Deb’s Grocery has 3,200 shares
outstanding at a price of $28 a share. Deb’s Grocery is acquiring Troyer Markets for
$37,500 in cash. What is the merger premium per share?
A. $0
B. $0.825
C. $1.108
D. $1.216
E. $1.320
Answer:
The government has imposed a fine on the Corner Tavern. The fine calls for annual
payments of $125,000, $100,000, $75,000, and $50,000, respectively, over the next four
years. The first payment is due one year from today. The government plans to invest the
funds until the final payment is collected and then donate the entire amount, including
the investment earnings, to help the local community shelter. The government will earn
5.5 percent on the funds held. How much will the community shelter receive four years
from today?
A. $319,674.06
B. $336,875.00
C. $392,510.99
D. $428,572.71
E. $485,737.67
Answer:
Spot trades must be settled:
A. at the time of the trade.
B. on the day following the trade date.
C. within two business days.
D. within three business days.
E. within one week of the trade date.
Answer:
Which one of the five Cs of credit refers to the general economic situation in the
customer’s line of business?
A. capacity
B. character
C. conditions
D. capital
E. collateral
Answer:
The ex-dividend date is defined as _____ business day(s) before the date of record.
A. 1
B. 2
C. 3
D. 5
E. 10
Answer:
To convince investors to accept greater volatility, you must:
A. decrease the risk premium.
B. increase the risk premium.
C. decrease the real return.
D. decrease the risk-free rate.
E. increase the risk-free rate.
Answer:
The principle of diversification tells us that:
A. concentrating an investment in two or three large stocks will eliminate all of the
unsystematic risk.
B. concentrating an investment in three companies all within the same industry will
greatly reduce the systematic risk.
C. spreading an investment across five diverse companies will not lower the total risk.
D. spreading an investment across many diverse assets will eliminate all of the
systematic risk.
E. spreading an investment across many diverse assets will eliminate some of the total
risk.
Answer:
Your firm has total assets of $4,900, fixed assets of $3,200, long-term debt of $2,900,
and short-term debt of $1,400. What is the amount of net working capital?
A. -$100
B. $300
C. $600
D. $1,700
E. $1,800
Answer:
Steve, the sales manager for TL Products, wants to sponsor a one-week “Customer
Appreciation Sale” where the firm offers to sell additional units of a product at the
lowest price possible without negatively affecting the firm’s profits. Which one of the
following represents the price that should be charged for the additional units during this
sale?
A. average variable cost
B. average total cost
C. average total revenue
D. marginal revenue
E. marginal cost
Answer:
Which one of the following statements related to the NYSE is correct?
A. Commission brokers work on behalf of brokerage firm clients.
B. Shareholders of NYSE Group, Inc. own ‘seats” on the exchange.
C. Specialists buy at the asked price.
D. The NYSE is primarily a dealer’s market.
E. Floor brokers earn income in the form of a bid-ask spread.
Answer:
A convertible bond has a face value of $5,000 and a conversion price of $80. The bond
has a 6 percent coupon, pays interest semi-annually, and matures in 12 years. Similar
bonds are yielding 7.5 percent. The current price of the stock is $42 per share. What is
the conversion value of this bond?
A. $1,680
B. $2,575
C. $2,625
D. $4,651
E. $5,000
Answer:
You just returned from some extensive traveling throughout the Americas. You started
your trip with $20,000 in your pocket. You spent 3.4 million pesos while in Chile and
16,500 bolivares in Venezuela. Then on the way home, you spent 47,500 pesos in
Mexico. How many dollars did you have left by the time you returned to the U.S. given
the following exchange rates? (Note: Multiple symbols are used to designate various
currencies. For example, the U.S. dollar is notated as “$” or as “USD”.)
A. 1,113 USD
B. 3,535 USD
C. 4,117 USD
D. 4,244 USD
E. 7,408 USD
Answer:
Simple Foods has a zero coupon bond issue outstanding that matures in 9 years. The
bonds are selling at 42 percent of par value. What is the company’s aftertax cost of debt
if the tax rate is 38 percent?
A. 5.48 percent
B. 5.73 percent
C. 6.12 percent
D. 7.73 percent
E. 9.88 percent
Answer:
Sailcloth & More currently produces boat sails and is considering expanding its
operations to include awnings for homes and travel trailers. The company owns land
beside its current manufacturing facility that could be used for the expansion. The
company bought this land 5 years ago at a cost of $319,000. At the time of purchase,
the company paid $24,000 to level out the land so it would be suitable for future use.
Today, the land is valued at $295,000. The company has some unused equipment that it
currently owns valued at $38,000. This equipment could be used for producing awnings
if $12,000 is spent for equipment modifications. Other equipment costing $490,000 will
also be required. What is the amount of the initial cash flow for this expansion project?
A. -$785,000
B. -$823,000
C. -$835,000
D. -$859,000
E. -$883,000
Answer:
The forward rate market is dependent upon:
A. current forward rates exceeding current spot rates.
B. current spot rates exceeding current forward rates over time.
C. current spot rates equaling current forward rates, on average, over time.
D. forward rates equaling the actual future spot rates on average over time.
E. current spot rates equaling the actual future spot rates on average over time.
Answer:
Which of the following statements related to the BAT model is correct?
I. The BAT model is used to determine the target cash balance for a firm.
II. The BAT model is rarely used in business due to its complex nature.
III. The BAT model is a model that helps eliminate a firm’s collection float.
IV. One disadvantage of the BAT model is the fact that it assumes all cash outflows are
known with certainty.
A. I and II only
B. III and IV only
C. II and III only
D. I and III only
E. I and IV only
Answer:
The profit margin, the debt-equity ratio, and the dividend payout ratio for Fake Stone,
Inc. are constant. Sales are expected to increase by $1,062 next year. What is the
projected addition to retained earnings for next year?
A. $92.34
B. $188.55
C. $1,909.16
D. $2,144.34
E. $2,386.08
Answer:
You are considering two savings options. Both options offer a 7.4 percent rate of return.
The first option is to save $900, $1,500, and $3,000 at the end of each year for the next
three years, respectively. The other option is to save one lump sum amount today. If you
want to have the same balance in your savings account at the end of the three years,
regardless of the savings method you select, how much do you need to save today if
you select the lump sum option?
A. $3,410
B. $3,530
C. $3,600
D. $4,560
E. $4,780
Answer:
What is the annual percentage rate on a loan with a stated rate of 2.75 percent per
quarter?
A. 11.00 percent
B. 11.09 percent
C. 11.18 percent
D. 11.27 percent
E. 11.31 percent
Answer:
The current market value of the assets of Nano Tek is $19.5 million. The market value
of the equity is $7.5 million. The risk-free rate is 4.5 percent and the outstanding debt
matures in 5 years. What is the market value of the firm’s debt?
A. $8.50 million
B. $9.98 million
C. $12.00 million
D. $19.42 million
E. $23.84 million
Answer:
Pete paid $1,032 as his total cost of purchasing a bond. This price is referred to as the:
A. quoted price.
B. spread price.
C. clean price.
D. dirty price.
E. call price.
Answer:
Morristown Industries has an issue of preferred stock outstanding that pays a $12.60
dividend every year in perpetuity. What is the required return if this issue currently sells
for $80 per share?
A. 15.75 percent
B. 16.72 percent
C. 16.80 percent
D. 16.86 percent
E. 16.95 percent
Answer:
Sue recently purchased a right to buy 100 shares of ABC stock for $27.50 a share if she
so chooses at any time within the next four months. Which one of the following does
Sue own?
A. futures contract
B. call option
C. put option
D. straddle
E. strangle
Answer:
Which one of the following players on the floor of the NYSE can be likened to
part-time help because they are called to duty only when others are fully employed?
A. floor trader
B. specialist
C. dealer
D. floor broker
E. commission broker
Answer:
Which one of the following will increase the accounts payable period, all else constant?
A. an increase in the cost of goods sold account value
B. an increase in the ending accounts payable balance
C. an increase in the cash cycle
D. a decrease in the operating cycle
E. an increase in the accounts payable turnover rate
Answer:
A firm has an interval measure of 48. This means that the firm has sufficient liquid
assets to do which one of the following?
A. pay all of its debts that are due within the next 48 hours
B. pay all of its debts that are due within the next 48 days
C. cover its operating costs for the next 48 hours
D. cover its operating costs for the next 48 days
E. meet the demands of its customers for the next 48 hours
Answer:
The percentage of the next dollar you earn that must be paid in taxes is referred to as
the _____ tax rate.
A. mean
B. residual
C. total
D. average
E. marginal
Answer:
Dan is comparing three machines to determine which one to purchase. The machines
sell for differing prices, have differing operating costs, differing machine lives, and will
be replaced when worn out. Which one of the following computational methods should
Dan use as the basis for his decision?
A. internal rate of return
B. operating cash flow
C. equivalent annual cost
D. depreciation tax shield
E. bottom-up operating cash flow
Answer: