1) Jericho Snacks is an all-equity firm with estimated earnings before interest and taxes
of $826,000 annually forever. Currently, the firm has no debt but is considering
borrowing $650,000 at 6.75 percent interest. The tax rate is 34 percent and the current
cost of equity is 17.2 percent. What is the value of the levered firm?
A.$3,187,271
B.$3,169,535
C.$3,307,271
D.$3,390,535
E.$3,506,418
2) The Rainbow Company has total sales of $713,200 and a profit margin of 8.5
percent. Currently, the firm has 12,500 shares outstanding. What are the earnings per
share?
A.$2.98
B.$3.31
C.$3.56
D.$4.58
E.$4.85
3) The Brown Squirrel has the following estimated sales:
The accounts receivable period is 60 days. How much should the firm expect to collect
in April?
A.$18,600
B.$19,900
C.$21,200
D.$21,450
E.$24,300
4) Standards Life Insurance offers a perpetuity that pays annual payments of $100,000.
This contract sells for $2,750,000 today. What is the interest rate?
A.3.64 percent
B.3.87 percent
C.4.10 percent
D.4.21 percent
E.4.39 percent
5) You place an order for 800 units of Good Y at a unit price of $33. The supplier offers
terms of 1/15, net 45 . The supplier is offering you a discount of _____ if you pay
within ____ days.
A.$264; 15
B.$264; 30
C.$264; 45
D.$1,600; 15
E.$1,600; 45
6) The systematic risk principle states that the expected return on a risky asset depends
only on which one of the following?
A.Unique risk
B.Diversifiable risk
C.Asset-specific risk
D.Market risk
E.Unsystematic risk
7) Twelve years ago, you deposited $3,400 into an account. Seven years ago, you added
an additional $1,000 to this account. You earned 8 percent, compounded annually, for
the first 5 years and 5.5 percent, compounded annually, for the last 7 years. How much
money do you have in your account today?
A.$5,666.67
B.$6,717.29
C.$7,411.90
D.$8,708.15
E.$8,721.97
8) Amish Bakery needs $210,000 today to fund a new project. The project will not
produce any cash flows for two years and thus the firm agreed to a two-year, pure
discount loan at 7.5 percent interest. How much will the firm owe on this loan at the
time it must be repaid?
A.$228,060.00
B.$237,540.21
C.$240,860.00
D.$241,159.39
E.$242,681.25
9) Relative purchasing power parity is based on the principle that the expected
percentage change in the exchange rate between two countries is equal to which one of
the following?
A.Difference in the risk-free interest rates in the two countries
B.Average interest rate in the two countries
C.Average inflation rate of the two countries
D.Difference in the inflation rates of the two countries
E.Difference between the two countries’ average inflation and interest rates
10) Southern Wear stock has an expected return of 14.6 percent. Given the information
below, what is the expected return on this stock if the economy is normal? Round your
answer to the nearest whole percentage.
A.13 percent
B.17 percent
C.18 percent
D.21 percent
E.23 percent
11) Builder’s Outlet just hired a new chief financial officer. To get a feel for the
company, she wants to compare the firm’s sales and costs over the past three years to
determine if any trends are present and also determine where the firm might need to
make changes. Which one of the following statements will best suit her purposes?
A.Income statement
B.Balance sheet
C.Common-size income statement
D.Common-size balance sheet
E.Statement of cash flows
12) Many of the smaller sell orders sent to the floor of the NYSE are:
A.handled by the floor traders
B.purchased by the commission brokers
C.electronically transmitted to the DMMs
D.executed on an ECN
E.executed in the primary market
13) Last year, The Pizza Joint added $4,100 to retained earnings from sales of $93,600.
The company had costs of $74,400, dividends of $2,500, and interest paid of $1,400.
The tax rate was 34 percent. What was the amount of the depreciation expense?
A.$7,300
B.$7,500
C.$7,800
D.$8,100
E.$8,400
14) Cookies and Cream has 9,000 shares of stock outstanding at a market price of
$14.65 per share. What will the price per share be after the firm declares a 12 percent
stock dividend? Ignore taxes and market imperfections.
A.$12.24
B.$13.08
C.$14.65
D.$14.96
E.$15.00
15) Which one of the following is evidence of indebtedness?
A.Terms of sale
B.Credit cost curve
C.Credit instrument
D.Concentration policy
E.Credit policy
16) A $1,000 face value bond currently has a yield to maturity of 6.69 percent. The
bond matures in three years and pays interest annually. The coupon rate is 7 percent.
What is the current price of this bond?
A.$948.01
B.$949.60
C.$1,005.26
D.$1,008.18
E.$1,010.13
17) Smiley Industrial Goods has bonds on the market making annual payments, with 13
years to maturity, and selling for $1,095. At this price, the bonds yield 6.4 percent.
What must the coupon rate be on these bonds?
A.6.67 percent
B.6.84 percent
C.7.23 percent
D.7.50 percent
E.7.83 percent
18) Gleason, Inc. elects its board of directors on a staggered basis using cumulative
voting. This implies that:
A.if there are two open seats, then the candidate with the highest number of votes and
the candidate with the lowest number of votes will be selected
B.the candidates for the open seats are voted for in individual elections
C.all open positions are filled with one round of voting, assuming there are no tie votes
D.shareholders can accumulate their votes over multiple years and cast all those votes
in one election
E.the firm’s entire board of directors is elected annually in one combined election
19) Which one of the following statements is correct?
A.NASDAQ has more listed stocks than does the NYSE
B.The NYSE is a dealer market
C.NASDAQ is an auction market
D.NASDAQ has the most stringent listing requirements of any U.S. exchange
E.The trading floor for NASDAQ is located in Chicago
20) Soul Foods recently liquidated its fast-food division. That unit represented 25
percent of the firm’s overall market value. Prior to the liquidation, the firm’s stock was
selling for $40 a share, the annual dividend was steady at $1.30 per share, and there
were 16,000 shares outstanding. The firm is preparing to distribute the entire liquidation
proceeds to shareholders. How much will the liquidating dividend be per share?
A.$0.24
B.$1.30
C.$6.10
D.$7.40
E.$10.00
21) The required return on a stock is equal to which one of the following if the dividend
on the stock decreases by 1 percent per year?
A.(P0/D1) – g
B.(D1/P0)/g
C.Dividend yield + capital gains yield
D.Dividend yield – capital gains yield
E.Dividend yield capital gains yield
22) Which one of the following can be defined as a benefit-cost ratio?
A.Net present value
B.Internal rate of return
C.Profitability index
D.Accounting rate of return
E.Modified internal rate of return
23) All else constant, which one of the following will decrease if a firm increases its net
income?
A.Return on assets
B.Profit margin
C.Return on equity
D.Price-sales ratio
E.Price-earnings ratio
24) A project has an annual operating cash flow of $45,000. Initially, this four-year
project required $3,800 in net working capital, which is recoverable when the project
ends. The firm also spent $21,500 on equipment to start the project. This equipment will
have a book value of $4,300 at the end of year 4 . What is the cash flow for year 4 of
the project if the equipment can be sold for $5,400 and the tax rate is 34 percent?
A.$51,724
B.$52,038
C.$53,826
D.$53,862,900
E.$53,900
25) Fresh Foods would like to sell 1,600 shares of stock using a Dutch auction. The bids
received are as follows:
What is the total amount the issuer will receive from this auction? Ignore costs.
A.$59,700
B.$57,600
C.$56,500
D.$54,000
E.$51,000
26) Swan Lake Marina is expected to pay an annual dividend of $1.58 next year. The
stock is selling for $18.53 a share and has a total return of 12 percent. What is the
dividend growth rate?
A.2.82 percent
B.3.03 percent
C.3.28 percent
D.3.47 percent
E.3.66 percent
27) Arts and Crafts Warehouse wants to issue 15-year, zero coupon bonds that yield 7.5
percent. What price should it charge for these bonds if the face value is $1,000?
(Assume semiannual compounding.)
A.$308.15
B.$331.40
C.$356.08
D.$362.14
E.$369.94
28) Aardvark, Inc. pays a constant annual dividend. At the end of trading on
Wednesday, the price of its stock was $ At the end of trading on the following day, the
stock price was $27. As a result of the decline in the stock’s price, the dividend yield
_____ while the capital gains yield ____.
A.remained constant; remained constant
B.increased; remained constant
C.increased; increased
D.decreased; remained constant
E.decreased; decreased