February 27, 2019

The incremental cash flows of a merger can relate to changes in which of the

following?

I. revenue

II. capital requirements

III. operating costs

IV. income taxes

A. I and II only

B. II, III, and IV only

C. I, III, and IV only

D. I, II, and III only

E. I, II, III, and IV

What is the value of a 6-month put with a strike price of $27.50 given the

Black-Scholes option pricing model and the following information?

A. $6.71

B. $6.88

C. $7.24

D. $7.38

E. $7.62

The Chandler Group wants to set up a private cemetery business. According to the

CFO, Barry M. Deep, business is "looking up". As a result, the cemetery project will

provide a net cash inflow of $57,000 for the firm during the first year, and the cash

flows are projected to grow at a rate of 7 percent per year forever. The project requires

an initial investment of $759,000. The firm requires a 14 percent return on such

undertakings. The company is somewhat unsure about the assumption of a 7 percent

growth rate in its cash flows. At what constant rate of growth would the company just

break even?

A. 4.48 percent

B. 5.29 percent

C. 5.61 percent

D. 6.49 percent

E. 6.75 percent

Jane's Floor Care is contemplating the acquisition of some new equipment for

refinishing wood floors. The purchase price is $74,000. The firm uses MACRS

depreciation which allows for 33.33 percent, 44.44 percent, 14.82 percent, and 7.41

percent depreciation over years 1 to 4, respectively. The equipment can be leased for

$24,600 a year. The firm can borrow money at 9.5 percent and has a 34 percent tax rate.

What is the amount of the depreciation tax shield in year 4?

A. $1,758.09

B. $1,864.36

C. $1,940.80

D. $2,011.67

E. $2,221.08

U.S. dollars deposited in a bank in Switzerland are called:

A. foreign depository receipts.

B. international exchange certificates.

C. francs.

D. Eurocurrency.

E. Eurodollars.

Which one of the following best defines synergy given the following?

VA = Value of firm A

VB = Value of firm B

VAB = Value of merged firm AB

A. (VA + VB) - VAB

B. VAB - (VA + VB)

C. greater of 0 or (VA + VB) - VAB

D. greater of 0 or VAB - (VA + VB)

E. greater of 0 or VAB

Which one of the following is a source of cash?

A. increase in accounts receivable

B. decrease in notes payable

C. decrease in common stock

D. increase in accounts payable

E. increase in inventory

The 7 percent, semi-annual coupon bonds offered by House Renovators are callable in 2

years at $1,054. What is the amount of the call premium on a $1,000 par value bond?

A. $52

B. $54

C. $72

D. $84

E. $89

A put option that expires in eight months with an exercise price of $57 sells for $3.85.

The stock is currently priced at $59, and the risk-free rate is 3.1 percent per year,

compounded continuously. What is the price of a call option with the same exercise

price and expiration date?

A. $6.67

B. $7.02

C. $7.34

D. $7.71

E. $7.80

What is the return on equity for 2009? (Use 2009 values)

A. 15.29 percent

B. 16.46 percent

C. 17.38 percent

D. 18.02 percent

E. 18.12 percent

Your great aunt left you an inheritance in the form of a trust. The trust agreement states

that you are to receive $3,600 on the first day of each year, starting immediately and

continuing for 20 years. What is the value of this inheritance today if the applicable

discount rate is 6.75 percent?

A. $38,890.88

B. $40,311.16

C. $41,516.01

D. $42,909.29

E. $43,333.33

Stop and Go has a 4.5 percent profit margin and a 15 percent dividend payout ratio. The

total asset turnover is 1.6 and the debt-equity ratio is 0.60. What is the sustainable rate

of growth?

A. 9.13 percent

B. 9.54 percent

C. 9.89 percent

D. 10.26 percent

E. 10.85 percent

Central Supply purchased a toboggan for inventory this morning and paid cash for it.

The time period between today and the day Central Supply will receive cash from the

sale of this toboggan is called the:

A. operating cycle.

B. inventory period.

C. accounts receivable period.

D. accounts payable period.

E. cash cycle.

Gerold invested $6,200 in an account that pays 5 percent simple interest. How much

money will he have at the end of ten years?

A. $8,710

B. $9,000

C. $9,300

D. $9,678

E. $10,099

If the variability of the returns on large-company stocks were to increase over the

long-term, you would expect which of the following to occur as a result?

I. decrease in the average rate of return

II. increase in the risk premium

III. increase in the 68 percent probability range of the frequency distribution of returns

IV. decrease in the standard deviation

A. I only

B. IV only

C. II and III only

D. I and III only

E. II and IV only

The condition stating that the interest rate differential between two countries is equal to

the percentage difference between the forward exchange rate and the spot exchange rate

is called:

A. the unbiased forward rates condition.

B. uncovered interest rate parity.

C. the international Fisher effect.

D. purchasing power parity.

E. interest rate parity.

Which one of the following risk premiums compensates for the possibility of

nonpayment by the bond issuer?

A. default risk

B. taxability

C. liquidity

D. inflation

E. interest rate risk

A project has earnings before interest and taxes of $14,600, fixed costs of $52,000, a

selling price of $29 a unit, and a sales quantity of 16,000 units. All estimates are

accurate within a plus/minus range of 3 percent. Depreciation is $12,000. What is the

base case variable cost per unit?

A. $22.16

B. $23.84

C. $24.09

D. $24.23

E. $25.18

Assume the following balance sheets are stated at book value.

Suppose the fair market value of Loaf's fixed assets is $7,200 versus the $3,300 book

value shown. Meat pays $10,200 for Loaf and raises the needed funds through an issue

of long-term debt. Assume the purchase method of accounting is used. The post-merger

balance sheet of Meat Co. will have total debt of ______ and total equity of ______.

A. $1,600; $11,500

B. $1,600; $15,400

C. $10,200; $15,400

D. $14,500; $11,500

E. $14,500; $15,400

A firm sells 4,500 units of an item each year. The carrying cost per unit is $2.15 and the

fixed costs per order are $67. What is the economic order quantity?

A. 374 units

B. 421 units

C. 497 units

D. 530 units

E. 623 units

What is the expected return of an equally weighted portfolio comprised of the following

three stocks?

A. 16.33 percent

B. 18.60 percent

C. 19.67 percent

D. 20.48 percent

E. 21.33 percent

Which one of the following statements correctly states a relationship?

A. Time and future values are inversely related, all else held constant.

B. Interest rates and time are positively related, all else held constant.

C. An increase in the discount rate increases the present value, given positive rates.

D. An increase in time increases the future value given a zero rate of interest.

E. Time and present value are inversely related, all else held constant.

A financial lease:

I. is generally a fully amortized lease.

II. usually requires the lessee to insure the asset.

III. is generally cancelable without penalty if the lessee provides 30 days advance

notice.

IV. is referred to as a capital lease by accountants.

A. I and III only

B. II and IV only

C. I and II only

D. II, III, and IV only

E. I, II, and IV only

Over the past year, the quick ratio for a firm increased while the current ratio remained

constant. Given this information, which one of the following must have occurred?

Assume all ratios have positive values.

A. current assets increased

B. current assets decreased

C. inventory increased

D. inventory decreased

E. accounts payable increased

The depreciation tax shield is best defined as the:

A. amount of tax that is saved when an asset is purchased.

B. tax that is avoided when an asset is sold as salvage.

C. amount of tax that is due when an asset is sold.

D. amount of tax that is saved because of the depreciation expense.

You purchased six call option contracts on ABC stock with a strike price of $32.50

when the option was quoted at $1.80. The option expires today when the value of ABC

stock is $34.60. Ignoring trading costs and taxes, what is the net profit or loss on this

investment?

A. $0

B. $180

C. $210

D. $840

E. $1,260

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.

Nelson's Landscaping has 1,200 bonds outstanding that are selling for $990 each. The

company also has 2,500 shares of preferred stock at a market price of $28 a share. The

common stock is priced at $37 a share and there are 28,000 shares outstanding. What is

the weight of the common stock as it relates to the firm's weighted average cost of

capital?

A. 43.08 percent

B. 45.16 percent

C. 47.11 percent

D. 54.00 percent

E. 55.45 percent

The zero coupon bonds of D&L Movers have a market price of $319.24, a face value of

$1,000, and a yield to maturity of 9.17 percent. How many years is it until these bonds

mature?

A. 11.92 years

B. 12.28 years

C. 12.73 years

D. 13.01 years

E. 13.47 years

A stock had annual returns of 3.6 percent, -8.7 percent, 5.6 percent, and 11.1 percent

over the past four years. Which one of the following best describes the probability that

this stock will produce a return of 20 percent or more in a single year?

A. less than 0.1 percent

B. less than 0.5 percent but greater than 0.1 percent

C. less than 1.0 percent but greater the 0.5 percent

D. less than 2.5 percent but greater than 1.0 percent

E. less than 5 percent but greater than 2.5 percent

Verbal Communications, Inc., has 14,000 shares of stock outstanding with a par value

of $1 per share and a market value of $46 per share. The firm just announced a 100

percent stock dividend. What is the market value per share after the dividend?

A. $23.00

B. $34.50

C. $46.00

D. $69.00

E. $92.00

You want to buy a new sports coupe for $41,750, and the finance office at the

dealership has quoted you an 8.6 percent APR loan compounded monthly for 48 months

to buy the car. What is the effective interest rate on this loan?

A. 8.28 percent

B. 8.41 percent

C. 8.72 percent

D. 8.87 percent

E. 8.95 percent