Gee Whiz Underwriters retains the difference between its buying price and its offering
price on new securities. What is this amount called?
A. Markup
B. Commission
C. Rights price
D. Spread
E. Offer
Answer:
An American Depositary Receipt is defined as a security:
A. that has been deposited in an interest-bearing account at a U.S. bank.
B. issued outside the U.S. that represents shares of a U.S. stock.
C. issued in the U.S. that represents shares of a foreign stock.
D. that has a guarantee of payment from a U.S. bank.
E. issued in multiple countries but denominated in U.S. currency.
Answer:
Whitt’s BBQ has sales of $348,000, a profit margin of 8.1 percent, and a capital
intensity ratio of 0.70. What is the total asset turnover rate?
A. 1.04
B. 1.08
C. 1.13
D. 1.29
E. 1.43
Answer:
A project has an initial requirement of $261,000 for fixed assets and $27,000 for net
working capital. The fixed assets will be depreciated to a zero book value over the
four-year life of the project and have an estimated salvage value of $78,000. All of the
net working capital will be recouped at the end of the project. The annual operating
cash flow is $96,200 and the discount rate is 13 percent. What is the project’s net
present value if the tax rate is 35 percent?
A. $42,011
B. $43,333
C. $45,799
D. $47,880
E. $47,919
Answer:
Undertaker Enterprises earns $0.17 in profit on every $1 of sales and has $0.67 in assets
for every $1 of sales. The firm pays out 20 percent of its profits to its shareholders.
What is the internal growth rate?
A. 6.37 percent
B. 7.76 percent
C. 8.80 percent
D. 25.47 percent
E. 29.65 percent
Answer:
Augustino’s has the following estimated sales.
Purchases are equal to 64 percent of the following quarter’s sales. The accounts
receivable period is 45 days and the accounts payable period is 60 days. Assume there
are 30 days in each month. How much will the firm pay its suppliers in the third
quarter?
A. $7,211
B. $7,656
C. $8,405
D. $8,520
E. $8,889
Answer:
The dividend growth model can be used to value the stock of firms that pay which type
of dividends?
I. Constant annual dividend
II. Annual dividend with a constant increasing rate of growth
III. Annual dividend with a constant decreasing rate of growth
IV. Zero dividend
A. I only
B. II only
C. II and III only
D. I, II, and III only
E. I, II, III, and IV
Answer:
The Green House has a profit margin of 5.6 percent on sales of $311,200. The firm
currently has 15,000 shares of stock outstanding at a market price of $11.60 per share.
What is the price-earnings ratio?
A. 9.98
B. 10.02
C. 11.50
D. 11.93
E. 12.84
Answer:
You are debating between spending a week in Brazil or a week in Chile. You’ve
estimated the cost of the Brazilian trip at 56,300 reals and the Chilean trip at 13.6
million pesos. The currency per U.S. dollar is 2.2212 reals and 581.73 pesos. If you
prefer the less expensive trip, as measured in U.S. dollars, you should travel to _____
because you can save ____.
A. Brazil; you can save $1,460.45
B. Brazil; you can save $1,518.74
C. Chile; you can save $984.29
D. Chile; you can save $1,613.33
E. Chile; you can save $1,968.12
Answer:
Which type of financing is generally used by new car dealers to finance their
inventories?
A. Blanket inventory lien arrangement
B. Trust receipt loans
C. Committed line of credit
D. Trade credit financing
E. Field warehousing financing
Answer:
Given the following information, what is the standard deviation of the returns on a
portfolio that is invested 40 percent in Stock A, 35 percent in Stock B, and the
remainder in Stock C?
A. 11.86 percent
B. 12.72 percent
C. 13.16 percent
D. 13.43 percent
E. 13.57 percent
Answer:
Whole Foods has a book value per share of $13.50, earnings per share of $1.21, and a
price-earnings ratio of 17.6. What is the market-to-book ratio?
A. 1.08
B. 1.58
C. 1.99
D. 2.47
E. 11.16
Answer:
The economic order quantity approach states that inventory order sizes should be
determined in which one of the following manners?
A. By dividing annual item sales by the carrying cost per item and multiplying by 2
B. By computing the average number of items sold each month
C. By equating restocking costs with carrying costs
D. By dividing the inventory into various groups based on the value per item
E. By computing the amount of the derived demand
Answer:
Interest rate parity defines the relationships among which of the following?
A. Spot exchange rates, future exchange rates, interest rates, and inflation rates
B. Real and nominal interest rates across countries
C. Real interest and inflation rates
D. Forward exchange rates, relative interest rates, and spot exchange rates
E. Spot exchange rates, forward exchange rates, nominal interest rates, and real interest
rates
Answer:
What is the net present value of a project with the following cash flows if the discount
rate is 15 percent?
A. $39.80
B. $42.97
C. $44.16
D. $48.21
E. $48.30
Answer:
The Steel Factory is considering a project that will produce annual cash flows of
$36,800, $45,500, $56,200, and $21,800 over the next four years, respectively. What is
the internal rate of return if the initial cost of the project is $135,000?
A. 7.56 percent
B. 9.19 percent
C. 11.28 percent
D. 12.24 percent
E. 12.83 percent
Answer:
Assume a firm has positive net earnings. The operating cash flow of this firm:
A. ignores both depreciation and taxes.
B. is unaffected by the depreciation expense.
C. must be negative.
D. increases when tax rates decrease.
Answer:
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 an interest-only loan.
E. require the accrued interest be paid in full with each monthly payment.
Answer:
On April 14, McCallister’s purchased $10,000 worth of inventory. The terms of sale
were 2/10, net 30. The implicit interest is _____ and the effective annual rate is _____
percent.
A. $200; 14.95
B. $200; 44.59
C. $400; 14.95
D. $400; 27.38
E. $400; 44.59
Answer:
Which one of the following statements is correct?
A. Shareholders’ equity is the residual value of a firm.
B. Net working capital must be a positive value.
C. An increase in cash reduces the liquidity of a firm.
D. Equipment is generally considered a highly liquid asset.
E. Depreciation increases total assets.
Answer:
A stock has a beta of 1.47 and an expected return of 16.6 percent. The risk-free rate is
4.8 percent. What is the slope of the security market line?
A. 6.49 percent
B. 7.28 percent
C. 8.03 percent
D. 9.03 percent
E. 9.99 percent
Answer:
Which one of the following is a website that enables Lester to sell his shares of ABC
stock directly to Marti?
A. SuperDOT
B. POST
C. ECN
D. SEAT
E. eNET
Answer:
Noah’s Landing stock is expected to produce the following returns given the various
states of the economy. What is the expected return on this stock?
A. 4.05 percent
B. 4.23 percent
C. 4.51 percent
D. 5.47 percent
E. 20.26 percent
Answer:
You are considering a firm under three separate scenarios: (1) no debt, taxes, or
bankruptcy costs; (2) with debt and taxes but no bankruptcy costs; and (3) with debt,
taxes, and bankruptcy costs. Under which one of these three scenarios will the firm
have the highest value?
Answer:
Give an example of a situation where the management of a firm is acting in a manner
that is contrary to the principal goal of financial management.
Answer:
Can a firm have a negative cash cycle? If yes, explain how that can occur and discuss
whether or not that would be good for a firm. If no, explain why that cannot occur and
why preventing it from occurring is good for a firm.
Answer:
Explain why the net present value is considered to be the best method of analyzing an
investment.
Answer:
Explain why the marginal tax rate, rather than the average tax rate, is used when
computing the cash flows from a proposed new project.
Answer:
Identify four parties that have a demand for U.S. dollars and explain why they wish to
obtain those dollars.
Answer: