1) Delfino’s expects to pay an annual dividend of $1.50 per share next year. What is the
anticipated dividend for year 5 if the firm increases its dividend by 2 percent annually?
A.$1.50 (1.02)1
B.$1.50 (1.02)2
C.$1.50 (1.02)3
D.$1.50 (1.02)4
E.$1.50 (1.02)5
2) Selected financial data for Link, Inc. follows: ($ in thousands)
The gross margin for 2012 is:
A.-94%
B.13%
C.26%
D.31%
E.None of the above
3) Electronics and More offers credit terms of 1/5, net 20. What is the effective annual
rate on a $12,000 purchase if you forgo the discount?
A.0 percent
B.8.59 percent
C.14.99 percent
D.27.71 percent
E.32.58 percent
4) Sue needs to invest $3,626 today in order for her savings account to be worth $5,000
six years from now. Which one of the following terms refers to the $3,626?
A.Present value
B.Compound value
C.Future value
D.Complex value
E.Factor value
5) Jamie earned $180 in interest on her savings account last year. She has decided to
leave the $180 in her account so that she can earn interest on the $180 this year. The
interest Jamie earns this year on this $180 is referred to as:
A.simple interest
B.complex interest
C.accrued interest
D.interest on interest
E.discounted interest
6) Which one of the following statements is correct concerning both the dollar return
and the percentage return on a stock investment?
A.The dollar return is dependent on the size of the investment while the percentage
return is not
B.The dollar return is more accurate than the percentage return because the dollar return
includes dividend income while the percentage return does not
C.The dollar return considers the time value of money while the percentage return does
not
D.Dollar returns are based on capital gains while percentage returns are based on the
total rate of return.
E.Dollar returns must either be zero or a positive value while percentage returns can be
negative, zero, or positive
7) An unexpected decrease in market interest rates will cause a:
A.coupon bond’s current yield to increase
B.zero coupon bond’s price to decrease
C.fixed-rate bond’s coupon rate to decrease
D.zero-coupon bond’s current yield to decrease
E.coupon bond’s yield-to-maturity to decrease
8) The Walters Co. has beginning long-term debt of $54,500, which is the principal
balance of a loan payable to Centre Bank. During the year, the company paid a total of
$16,300 to the bank, including $4,100 of interest. The company also borrowed $11,000.
What is the value of the ending long-term debt?
A.$45,100
B.$53,300
C.$58,200
D.$65,500
E.$85,900
9) You are planning an extended trip to Hong Kong. You have located some housing
that you can lease for 10,500 Hong Kong dollars per month. What is the cost per month
in U.S. dollars if the exchange rate is HK$1 = $0.1290?
A.$1,208.15
B.$1,354.50
C.$78,311.27
D.$81,395.35
E.$84,206.19
10) Selected financial data for Link, Inc. follows: ($ in thousands)
Assume a 365-day year for your calculations. The collection period in days, based on
sales, at the end of 2012 is:
A.24.3
B.219.6
C.35.7
D.28.8
E.None of the above
11) The Next Life has sales of $428,300, total assets of $389,100, and a profit margin of
6.2 percent. What is the return on assets?
A.6.29 percent
B.6.54 percent
C.6.83 percent
D.7.01 percent
E.7.27 percent
12) You expect to receive $12,000 at graduation one year from now. You plan on
investing it at 8 percent until you have $100,000. How long will you wait from now?
A.27.47 years
B.27.51 years
C.27.55 years
D.28.47 years
E.28.55 years
13) You are the beneficiary of a life insurance policy. The insurance company informs
you that you have two options for receiving the insurance proceeds. You can receive a
lump sum of $200,000 today or receive payments of $1,400 a month for 20 years. You
can earn a 6 percent annual rate on your money, compounded monthly. Which option
should you take and why?
A.You should accept the monthly payments because they are worth $209,414 to you
B.You should accept the $200,000 lump sum because the monthly payments are only
worth $16,057 to you today
C.You should accept the monthly payments because they are worth $336,000 to you
D.You should accept the $200,000 lump sum because the monthly payments are only
worth $189,311 to you today
E.You should accept the $200,000 lump sum because the monthly payments are only
worth $195,413 to you today
14) The financial statements for Limited Brands, Inc. follow (fiscal years ending
January):
Use Limited Brands, Inc.’s financial statements, above, to answer the following
question. Use the company’s operating profit as an approximation of its EBIT, and
assume a 40% tax rate for your calculations. What percentage decline in earnings before
interest and taxes could Limited Brands have sustained in fiscal years 2006 and 2007
before failing to cover:
a) Interest and principal repayment requirements;
b) Interest, principal and common dividend payments?
15) Which of the following should be included in the analysis of a proposed
investment?
I. erosion effects
II. opportunity costs
III. sunk costs
IV. side effects
A.I only
B.II only
C.I and IV only
D.I, II, and IV only
E.I, II, III, and IV
16) A particular set of golf clubs in the U.S. costs $990. According to absolute
purchasing power parity, what should the identical set of clubs cost in the U.K. when
the spot rate is 0.6703 = $1?
A.1,476.95
B.1,428.08
C.633.80
D.647.50
E.663.60
17) A 4-year annuity of eight $6,200 semiannual payments will begin 6 years from now,
with the first payment coming 6.5 years from now. If the discount rate is 7 percent
compounded semiannually, what is the value of this annuity 4 years from now?
A.$37,139.58
B.$38,399.20
C.$40,687.14
D.$41,811.67
E.$42,618.52
18) Todd will be receiving a $10,000 bonus one year from now. The process of
determining how much that bonus is worth today is called:
A.aggregating
B.discounting
C.simplifying
D.compounding
E.extrapolating
19) Lester’s Fried Chick’n purchased its building 11 years ago at a cost of $139,000.
The building is currently valued at $179,000. The firm has other fixed assets that cost
$66,000 and are currently valued at $58,000. To date, the firm has recorded a total of
$79,000 in depreciation on the various assets. The company has current liabilities of
$36,600 and net working capital of $18,400. What is the total book value of the firm’s
assets?
A.$181,000
B.$241,000
C.$331,000
D.$339,000
E.$379,000
20) Candy and More stock is expected to produce the following returns given the
various states of the economy. What is the expected return on this stock?
A.7.89 percent
B.8.56 percent
C.9.43 percent
D.9.90 percent
E.10.02 percent
21) You are given the exchange rate between the U.S. dollar and the Canadian dollar.
You are also given the exchange rate between the U.S. dollar and the Mexican peso.
What is the name given to the Canadian dollar per Mexican peso exchange rate derived
from the information that was provided?
A.Swap rate
B.Depositary rate
C.Forward rate
D.London Interbank rate
E.Cross-rate
22) Which of these ratios, or levers of performance, are the determinants of ROE?
I. profit margin
II. financial leverage
III. times interest earned
IV. asset turnover
A.I and IV only
B.II and IV only
C.I, II, and IV only
D.I, II, and III only
E.I, III, and IV only
23) A firm has a cost of debt of 7.5 percent and a cost of equity of 16.2 percent. The
debt-equity ratio is 0.45. There are no taxes. What is the firm’s weighted average cost of
capital?
A.11.75 percent
B.12.29 percent
C.13.50 percent
D.14.47 percent
E.16.20 percent
24) Rainy City Coffee’s (RCC) free cash flow next year will be $100 million and it is
expected to grow at a 4 percent annual rate indefinitely. The company’s weighted
average cost of capital is 10 percent, the market value of its liabilities is $1 billion, and
it has 20 million shares outstanding.
a. Estimate the price per share of RCC’s common stock.
b. A hedge fund believes that by selling the company’s private jet and instituting other
cost savings, it can increase RCC’s free cash flow next year to $110 million and can add
a full percentage point to RCC’s growth rate without affecting its cost of capital. What
is the maximum price per share the hedge fund can justify bidding for control of RCC?
25) 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
26) Lester’s Meat Market has 7,000 shares of stock outstanding at a price per share of
$11. What will the price per share be if the firm declares a 3-for-5 reverse stock split?
A.$6.60
B.$7.50
C.$11.00
D.$15.00
E.$18.33
27) The best financing choice is the one that:
A.sets the debt-to-assets ratio equal to 1
B.trades off the tax disadvantage of debt against the signaling effects of equity
C.maximizes expected cash flows
D.ignores the false comfort of financial flexibility
E.results in the lowest possible financial distress costs
28) A note is:
A.unsecured debt that is generally payable within the next ten years
B.a formal type of loan that is secured by real estate
C.long-term debt secured by part, or all, of the assets of the borrower
D.debt that is secured by a borrower’s accounts receivables
E.the written agreement which details the information relative to a bond issue
29) Lester’s Feed Mill is spending $230,000 to update its facility. The company
estimates that this investment will improve its cash inflows by $46,500 a year for 10
years. What is the payback period?
A.4.03 years
B.4.95 years
C.5.39 years
D.5.67 years
E.The project never pays back
30) Financial statement analysis:
A.is primarily used to identify account values that meet the normal standards
B.is limited to internal use by a firm’s managers
C.provides useful information that can serve as a basis for forecasting future
performance
D.provides useful information to shareholders but not to debt holders
E.is enhanced by comparing results to those of a firm’s peers but not by comparing
results to prior periods
31) Which one of the following will decrease the present value of an annuity?
A.Increase in the annuity’s future value
B.Increase in the payment amount
C.Increase in the time period
D.Decrease in the discount rate
E.Decrease in the annuity payment