1) Glamour Clothing charges a daily rate of 0.05 percent on its store credit cards. What
interest rate is the company required by law to report to potential customers?
A.17.99 percent
B.18.25 percent
C.19.50 percent
D.20.02 percent
E.20.24 percent
2) Anne plans to save $40 a week for the next 5 years. She expects to earn 3 percent for
the first 2 years and 5 percent for the last 3 years. How much will her savings be worth
at the end of the 5 years?
A.$10,215.60
B.$10,684.29
C.$10,983.58
D.$11,014.88
E.$11,708.15
3) Which one of the following is the best definition of Eurocurrency?
A.Any paper money used by a country that has adopted the euro as its common
currency
B.Money deposited in a financial institution outside of the country whose currency is
involved
C.Both paper and coins officially adopted under the euro system of coinage
D.U.S. dollars owned by any country which has adopted the euro as its currency
E.Any exchange of funds between two countries that have adopted the euro as their
official currency
4) Which one of the following is most likely the fastest method of collecting cash?
A.Requiring customers to submit all payments to a lockbox
B.Requiring customers to submit all payments to the home office
C.Initiating a financial electronic data interchange at the time of sale
D.Offer customers credit terms of 1/5, net 15
E.Eliminating all disbursement float
5) A new financial services company just opened in your town. To attract customers, it
is offering a “9-10” loan special. The company will lend $9 today in exchange for a
payment of $10 one year from today. What is the APR on this loan?
A.10.00 percent
B.10.38 percent
C.10.92 percent
D.11.11 percent
E.11.54 percent
6) Which of the following statements concerning the cash flow production cycle is true?
A.The profits reported in a given time period equal the cash flows generated
B.A company’s operations and finances are independent of each other
C.Financial statements have nothing to do with reality
D.The movement of cash to inventory, to accounts receivable, and back to cash is
known as the firm’s working capital cycle
E.A profitable company will always have sufficient cash to meet its obligations
7) The following table presents forecasted financial and other information for Scott’s
Miracle-Gro Co.:
What is an appropriate estimate of Scott’s terminal value of equity as of the end of
2014?
A.$225 million
B.$3,833.0 million
C.$4,205 million
D.$4,365.0 million
E.$6,788.1 million
8) The spot rate on the Hong Kong dollar is 7.75. Interest rates in Hong Kong are
expected to be 6 percent while they are anticipated to be 2.8 percent in the U.S. What is
the expected exchange rate two years from now?
A.HK$8.0000
B.HK$8.1808
C.HK$8.2539
D.HK$8.3778
E.HK$8.4141
9) The market where euros, pesos, dollars, and pounds are traded is referred to as which
one of the following?
A.ADR market
B.LIBOR market
C.Gilt market
D.Euromarket
E.Foreign exchange market
10) Which one of the following methods of analysis ignores the time value of money?
A.Net present value
B.Internal rate of return
C.Discounted cash flow analysis
D.Payback
E.Profitability index
11) Selected information about South, Inc., a restaurant chain, follows.
During 2011, what was the cost of goods (in $ millions) produced by the company?
A.223
B.194
C.252
D.228
E.218
F.None of the above
12) The Sarbanes-Oxley Act in 2002 was prompted by which one of the following from
the 1990’s?
A.Increased stock market volatility
B.Corporate accounting and financial fraud
C.Increased executive compensation
D.Increased foreign investment in U.S. stock markets
E.Increased use of tax loopholes
13) Which one of the following best matches the primary goal of financial
management?
A.Increasing the dollar amount of each sale
B.Increasing traffic flow within the firm’s stores
C.Transforming fixed costs into variable costs
D.Increasing the firm’s liquidity
E.Increasing the market value of firm
14) Scenario analysis is best described as the determination of the:
A.most likely outcome for a project
B.reasonable range of project outcomes
C.variable which has the greatest effect on a project’s outcome
D.effect that a project’s initial cost has on the project’s net present value
E.change in a project’s net present value given a stated change in projected sales
15) Which one of the following is a speculative motive for holding cash?
A.Buying extra inventory because a key supplier offered a special one-time discount
B.Paying a $100 bonus to all employees at year end
C.Paying the annual insurance premium on the firm’s assets
D.Needing to purchase a new delivery truck because the old one was totally destroyed
in an accident
E.Contributing $1,000 to help fund medical care for an uninsured neighbor
16) How are checks which are deposited into a typical lockbox handled?
A.The checks are deposited into a local bank which then overnights one check for the
entire amount to the firm
B.The checks are collected once a day, normally in the early morning, by a bank
employee
C.The checks are posted to the customer’s account prior to being deposited
D.The checks are collected throughout the day and immediately deposited into the
firm’s account
E.The checks are collected and sent overnight to the firm’s main office for processing
17) The level of financial risk to which a firm is exposed is dependent upon the firm’s:
A.tax rate
B.debt-equity ratio
C.return on assets
D.level of earnings before interest and taxes
E.operational level of risk
18) The rate of return on which one of the following is used as the risk-free rate?
A.Long-term government bonds
B.Long-term corporate bonds
C.Inflation, as measured by the Consumer Price Index
D.U.S. Treasury bill
E.Large-company stocks
19) Blasco Printing has net income of $26,310 for the year. At the beginning of the year,
the firm had common stock of $35,000, paid-in surplus of $11,200, and retained
earnings of $48,420. At the end of the year, the firm had total equity of $142,430. The
firm does not pay dividends. What is the amount of the net new equity raised during the
year?
A.$18,000
B.$21,500
C.$32,700
D.$48,900
E.$48,310
20) Deltona Motors just issued 225,000 zero coupon bonds. These bonds mature in 20
years, have a par value of $1,000, and have a yield to maturity of 7.45 percent. What is
the approximate total amount of money the company raised from issuing these bonds?
(Assume semi-annual compounding)
A.$48.20 million
B.$52.10 million
C.$55.14 million
D.$162.08 million
E.$225.00 million
21) Based on the capital asset pricing model, investors are compensated based on which
of the following?
I. market risk premium
II. portfolio standard deviation
III. portfolio beta
IV. risk-free rate
A.I and III only
B.II and IV only
C.I, II, and III only
D.I, III, and IV only
E.I, II, III, and IV
22) Gamma Corp. is expected to pay the following dividends over the next four years:
$5, $12, $18, and $1.80. Afterwards, the company pledges to maintain a constant 4
percent growth rate in dividends, forever. If the required return on the stock is 14
percent, what is the current share price?
A.$37.92
B.$41.06
C.$43.18
D.$46.09
E.$49.31
23) Which one of the following measures the amount of systematic risk present in a
particular risky asset relative to that in an average risky asset?
A.Squared deviation
B.Beta coefficient
C.Standard deviation
D.Mean
E.Variance
24) You want to buy a new sports car from Roy’s Cars for $51,800. The contract is in
the form of a 48-month annuity due at a 9.2 percent APR. What will your monthly
payment be?
A.$1,284.13
B.$1,309.29
C.$1,345.70
D.$1,352.98
E.$1,384.32
25) The Egg House just borrowed $260,000 to build a new restaurant. The loan terms
call for equal annual payments at the end of each year. The loan is for 15 years at an
APR of 8 percent. How much of the first annual payment will be used to reduce the
principal balance?
A.$8,311.62
B.$9,575.68
C.$10,211.08
D.$10,554.60
E.$11,420.90
26) Which one of the following statements matches M&M Proposition I?
A.The cost of equity capital has a positive linear relationship with a firm’s capital
structure
B.The dividends paid by a firm determine the firm’s value
C.The cost of equity capital varies in response to changes in a firm’s capital structure
D.The value of a firm is independent of the firm’s capital structure
E.The value of a firm is dependent on the firm’s capital structure
27) Kyle Electric has three positive net present value opportunities. Unfortunately, the
firm has not been able to find financing for any of these projects. Which one of the
following terms best describes the firm’s situation?
A.Sensitivity analysis
B.Capital rationing
C.Soft rationing
D.Contingency planning
E.Sunk cost
28) Major Manufacturing issued 30-year, 8.5 percent semiannual bonds 6 years ago.
The bonds currently sell at 101 percent of face value. What is the firm’s aftertax cost of
debt if the tax rate is 35 percent?
A.5.46 percent
B.5.62 percent
C.5.76 percent
D.6.59 percent
E.6.83 percent
29) Uptown Construction is comparing two different capital structures. Plan I would
result in 23,000 shares of stock and $320,000 in debt. Plan II would result in 17,000
shares of stock and $260,000 in debt. The interest rate on the debt is 10 percent.
Ignoring taxes, EPS will be identical for Plans I and II when EBIT equals which one of
the following?
A.$8,550
B.$9,000
C.$9,600
D.$10,400
E.$10,750
30) On which one of the following dates is the determination made as to which
shareholders will receive a dividend payment?
A.Date of record
B.Ex-dividend date
C.Payment date
D.Declaration date
E.Public announcement date
31) Kendal placed an order with her broker to purchase 300 shares of each of three
IPOs that are being released this month. Each IPO has an offer price of $22 a share. The
number of shares allocated to Kendal, along with the closing stock price at the end of
the first day of trading for each stock, are as follows:
What is Kendal’s total profit or loss on these three stocks as of the end of the first day of
trading for each stock?
A.-$680
B.-$540
C.-$230
D.$170
E.$540
32) Gorman Distributors shows the following information on its 2010 income
statement: sales = $317,800; costs = $211,400; other expenses = $18,500; depreciation
expense = $31,200; interest expense = $2,100; taxes = $18,600; dividends = $12,000. In
addition, you’re told that the firm issued $4,500 in new equity during 2010, and
redeemed $6,500 in outstanding long-term debt. If net fixed assets increased by $7,400
during the year, what was the addition to net working capital?
A.$17,900
B.$14,600
C.$15,800
D.$16,200
E.$17,400
33) Southern Foods recently liquidated its fast food division. That unit represented 20
percent of the firm’s overall market value. Prior to the liquidation, the firm’s stock was
selling for $43 a share, the annual dividend was steady at $1.20 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.$0.36
C.$6.10
D.$7.40
E.$8.60
34) Peterboro Supply has a current accounts receivable balance of $391,648. Credit
sales for the year just ended were $5,338,411. How long did it take on average for credit
customers to pay off their accounts during the past year?
A.24.78 days
B.26.78 days
C.29.09 days
D.31.15 days
E.33.33 days
35) Lakeside Rides is adding a new roller coaster to its amusement park. The firm
expects this addition to increase its overall ticket sales and increase attendance at its
park. In particular, the firm expects to sell more tickets for its current roller coaster and
experience extremely high demand for its new coaster. Sales for its boat ride are
expected to decline but food and beverage sales are expected to increase significantly.
Which of the following are considered side effects associated with the new roller
coaster?
I. ticket sales for the new roller coaster
II. change in ticket sales for the existing coaster
III. change in ticket sales for the boat ride
IV. change in food and beverage sales
A.I only
B.III only
C.II and III only
D.I, II, and III only
E.II, III, and IV only
36) Which one of the following transactions will increase the liquidity of a firm?
A.Cash purchase of new production equipment
B.Payment of an account payable
C.Cash purchase of inventory
D.Credit sale of inventory at cost
E.Cash payment of employee wages
37) Which one of the following statements is correct?
A.The internal rate of return is the most reliable method of analysis for any type of
investment decision
B.The payback method is biased towards short-term projects
C.The modified internal rate of return is most useful when projects are mutually
exclusive
D.The average accounting return is the most difficult method of analysis to compute
E.The net present value method is only applicable if a project has conventional cash
flows