1) New Steel Products has total assets of $991,000, a total asset turnover rate of 1.1, a
debt-equity ratio of 0.6, and a return on equity of 8.7 percent. What is the firm’s net
income?
A.$53,885.63
B.$58,303.33
C.$64,624.14
D.$70,548.09
E.$77,236.67
2) Which one of the following is the best example of an announcement that is most apt
to result in an unexpected return?
A.A news bulletin that the anticipated layoffs by a firm will occur as expected on
December 1
B.Announcement that the CFO of the firm is retiring June 1st as previously announced
C.Announcement that a firm will continue its practice of paying a $3 a share annual
dividend
D.Statement by a firm that it has just discovered a manufacturing defect and is recalling
its product
E.The verification by senior management that the firm is being acquired as had been
rumored
3) The term structure of interest rates is affected by which of the following?
I. interest rate risk premium
II. real rate of interest
III. default risk premium
IV. inflation premium
A.I and II only
B.II and III only
C.I, III, and IV only
D.I, II, and IV only
E.I, II, III, and I
4) What is the net present value of the following cash flows if the relevant discount rate
is 8.6 percent?
A.$3,560.87
B.$5,006.19
C.$8,215.46
D.$13,058.39
E.$18,874.45
5) Figure 9.1
In March of 2011, Macklemore Corp. considered an acquisition of Blue Scholar
Learning, Inc. (BSL), a privately-held educational software firm. As a first step in
deciding what price to bid for BSL, Macklemore’s CFO, Ryan Lewis, has prepared a
five-year financial projection for the company assuming the acquisition takes place.
Use this projection and BSL’s 2010 actual financial figures to answer the questions
below.
Assume that in the years after 2015 the company’s free cash flow grows 4 percent per
year in perpetuity. Macklemore’s WACC is 8.0 percent. BSL’s WACC is 11.5 percent,
and the average of the two companies’ WACCs, weighted by sales, is 8.2 percent. What
is the maximum acquisition price (in $ millions) Macklemore should pay to acquire
BSL’s equity at the end of 2010?
A.$1,976.09
B.$2,501.09
C.$2,877.09
D.$4,195.09
E.$4,571.09
6) Jefferson International is trying to choose between the following two mutually
exclusive design projects:
The required return is 12 percent. If the company applies the profitability index (PI)
decision rule, which project should the firm accept? If the company applies the NPV
decision rule, which project should it take? Given your first two answers, which project
should the firm actually accept?
A.Project A; Project B; Project A
B.Project A; Project B; Project B
C.Project B; Project A; Project A
D.Project B; Project A; Project B
E.Project B; Project B, Project B
7) Sherpa Movers has just gone public. Under a firm commitment agreement, the firm
received $34.40 for each of the 3.5 million shares sold. The initial offering price was
$37 per share, and the stock rose to $43 per share in the first few minutes of trading.
Sherpa Movers paid $896,000 in legal and other direct costs and $225,000 in indirect
costs. What was the flotation cost as a percentage of the funds raised?
A.22.91 percent
B.23.85 percent
C.24.49 percent
D.26.17 percent
E.28.60 percent
8) What is the primary purpose of a cash discount?
A.Customer compensation for an out of stock item
B.Customer compensation for faulty goods or services
C.Means of offsetting the interest charges on an account receivable
D.Inducement to pay promptly
E.Incentive to purchase a specialty item
9) Martin & Martin, Inc. stock is currently selling for $19 per share. The firm just made
an offer to one of its major shareholders to repurchase all the shares owned by that
shareholder for $25 per share. What type of offer is being made?
A.Rights offer
B.Secondary issue
C.Targeted repurchase
D.Tender offer
E.Private issue
10) Which one of the following indicates that a project should be rejected?
A.Average accounting return that exceeds the requirement
B.Payback period that is shorter than the requirement period
C.Positive net present value
D.Profitability index less than 1.0
E.Internal rate of return that exceeds the required return
11) The book value of a firm is:
A.equivalent to the firm’s market value provided that the firm has some fixed assets
B.based on historical cost
C.generally greater than the market value when fixed assets are included
D.more of a financial than an accounting valuation
E.adjusted to the market value whenever the market value exceeds the stated book
value
12) If the financial markets are semi-strong form efficient, then:
A.only the most talented analysts can determine the true value of a security
B.only individuals with private information have a marketplace advantage
C.technical analysis provides the best tool to use to gain a marketplace advantage
D.no one individual has an advantage in the marketplace
E.every security offers the same rate of return
13) Which one of the following defines the cash cycle?
A.Inventory period plus the accounts receivable period
B.Inventory period plus the accounts payable period
C.Operating cycle minus the inventory period
D.Operating cycle minus the accounts payable period
E.Operating cycle minus the accounts receivable period
14) Figure 9.1
In March of 2011, Macklemore Corp. considered an acquisition of Blue Scholar
Learning, Inc. (BSL), a privately-held educational software firm. As a first step in
deciding what price to bid for BSL, Macklemore’s CFO, Ryan Lewis, has prepared a
five-year financial projection for the company assuming the acquisition takes place.
Use this projection and BSL’s 2010 actual financial figures to answer the questions
below.
Estimate BSL’s value (in $ millions) at the end of 2010 assuming that in the years after
2015 the company’s free cash flow grows 4 percent per year in perpetuity.
Macklemore’s WACC is 8.0 percent. BSL’s WACC is 11.5 percent, and the average of
the two companies’ WACCs, weighted by sales, is 8.2 percent.
A.$4,297.25
B.$4,571.09
C.$4,686.78
D.$6,181.09
E.$5,351.19
15) Which one of the following is the agreed-upon exchange rate that is to be used
when currencies are exchanged at some point in the future based on an agreement made
today?
A.Spot rate
B.ADR rate
C.London Interbank Offer Rate
D.Forward exchange rate
E.Cross rate
16) Which one of the following statements is correct?
A.Generally speaking, the size of a firm has no effect on its tendency to pay dividends
B.The market crash and the accounting scandals in the early 2000’s tended to cause
financially- stable firms to cease paying cash dividends
C.The majority of firms either started paying or increased their dividends per share in
response to the May 2003 change in dividend taxation
D.Firms tend to prefer cash dividends over share repurchases for their flexibility and
tax benefits
E.A non-dividend paying firm is more apt to do a stock repurchase than to commence
paying dividends
17) The cash coverage ratio is used to evaluate the:
A.liquidity of a firm
B.speed at which a firm generates cash
C.length of time that a firm can pay its bills if no additional cash becomes available
D.ability of a firm to pay the interest on its debt
E.relationship between the firm’s cash balance and its current liabilities
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) A project has the following cash flows. What is the payback period?
A.2.48 years
B.2.59 years
C.2.96 years
D.3.21 years
E.3.43 years
20) A stock has an average return of 18.2 percent and a standard deviation of 10.7
percent. In any one given year, you have a 95 percent chance that you will not lose
more than _____ percent nor earn more than ____ percent if you invest in this security.
A.-3.2 percent to 28.9 percent
B.-3.2 percent to 39.6 percent
C.-13.9 percent to 28.9 percent
D.-13.9 percent to 39.6 percent
E.-13.9 percent to 50.3 percent
21) The spot rate is SF1.1426 = $1. A hotel room in a resort area of Switzerland costs
SF385. Based on absolute purchasing power parity, what should an identical room in
the U.S. cost?
A.$354.24
B.$336.95
C.$387.05
D.$425.48
E.$439.90
22) The weighted average cost of capital for a firm is the:
A.discount rate which the firm should apply to all of the projects it undertakes
B.rate of return a firm must earn on its existing assets to maintain the current value of
its stock
C.coupon rate the firm should expect to pay on its next bond issue
D.minimum discount rate the firm should require on any new project
E.rate of return shareholders should expect to earn on their investment in this firm
23) 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
24) If you put up $46,000 today in exchange for a 6.75 percent 15-year annuity, what
will the annual cash flow be?
A.$4,519.27
B.$4,666.67
C.$4,971.10
D.$5,203.16
E.$5,338.09
25) You are analyzing a company that has cash of $11,200, accounts receivable of
$27,800, fixed assets of $124,600, accounts payable of $31,300, and inventory of
$56,900. What is the quick ratio?
A.0.30
B.0.67
C.0.80
D.1.25
E.1.37
26) The spot rate on the Canadian dollar is 1.23. Interest rates in Canada are expected to
average 4.2 percent while they are anticipated to be 3.3 percent in the U.S. What is the
expected exchange rate three years from now?
A.C$1.2760
B.C$1.2635
C.C$1.2483
D.C$1.2108
E.C$1.1971
27) A $1,000 face value bond is currently quoted at 101.2. The bond pays semiannual
payments of $27.50 each and matures in 6 years. What is the coupon rate?
A.2.72 percent
B.2.75 percent
C.5.00 percent
D.5.43 percent
E.5.50 percent
28) Thirteen years ago, you deposited $2,400 into an account. Eight 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 8 years.
How much money do you have in your account today?
A.$4,666.67
B.$4,717.29
C.$5,411.90
D.$6,708.15
E.$6,946.59
29) Depreciation expense:
A.reduces both taxes and net income
B.increases the net fixed assets as shown on the balance sheet
C.reduces both the net fixed assets and the costs of a firm
D.is a noncash item that increases net income
E.decreases current assets, net income, and operating cash flows
30) The Jones Brothers recently established a trust fund that will provide annual
scholarships of $12,000 indefinitely. These annual scholarships can best be described
by which one of the following terms?
A.Ordinary annuity
B.Annuity due
C.Amortized payment
D.Perpetuity
E.Continuation
31) The Tourist Stop takes an average of 63 days to sell its inventory and an average of
1.5 days to collect payment on its sales. What is the inventory turnover rate?
A.5.79
B.7.29
C.8.68
D.10.18
E.11.42
32) A proposed project requires an initial cash outlay of $749,000 for equipment and an
additional cash outlay of $48,500 in year one to cover operating costs. During years 2
through 4, the project will generate cash inflows of $354,000 a year. What is the net
present value of this project at a discount rate of 16 percent?
A.-$105,427
B.-$41,209
C.$67,333
D.$128,612
E.$239,602
33) You are given the following exchange rates for the Canadian dollar versus the U.S.
dollar:
Which one of the following statements is correct given this information?
A.Last week, it took C$0.8078 to purchase US$1
B.This week you can exchange one Canadian dollar for $1.2376 American
C.It is cheaper for an American to travel in Canada this week as compared to last week
D.The Canadian dollar depreciated from last week to this week
E.You would have made a profit if you invested U.S. $100 in Canadian dollars last
week and then converted your money back to U.S. dollars this week. Ignore any interest
earnings
34) Precision Engineering has a target debt-equity ratio of 0.55. Its cost of equity is 15.4
percent, and its pre-tax cost of debt is 7.8 percent. If the tax rate is 34 percent, what is
the company’s WACC?
A.10.20 percent
B.10.72 percent
C.10.91 percent
D.11.48 percent
E.11.76 percent
35) Which one of the following correctly defines the retention ratio?
A.one plus the dividend payout ratio
B.additions to retained earnings divided by net income
C.additions to retained earnings divided by dividends paid
D.net income minus additions to retained earnings
E.net income minus cash dividends
36) A project has the following cash flows. What is the internal rate of return?
A.12.21 percent
B.12.47 percent
C.13.46 percent
D.13.82 percent
E.14.19 percent
37) The Men’s Store charges 1.5 percent interest per month. What rate of interest are its
credit customers actually paying?
A.18.00 percent
B.18.92 percent
C.19.56 percent
D.19.90 percent
E.20.23 percent
38) You own a $210,000 portfolio that is invested in stock A and B. The portfolio beta is
equal to the market beta. Stock A has an expected return of 18.7 percent and has a beta
of 1.42. Stock B has a beta of 0.88. What is the value of your investment in stock A?
A.$38,600
B.$42,333
C.$44,500
D.$46,667
E.$47,200
39) Which one of the following is a disbursement account into which funds are
transferred from a master account only as the funds are needed to cover checks
presented for payment?
A.Lockbox account
B.Cash concentration account
C.Ledger account
D.Zero-balance account
E.Cash clearing account
40) The aftertax cost of which of the following are affected by a change in a firm’s tax
rate?
I. preferred stock
II. debt
III. equity
IV. capital
A.I and III only
B.II and IV only
C.I, II, and IV only
D.II, III, and IV only
E.I, II, III, and IV