A project has earnings before interest and taxes of $5,750, fixed costs of $50,000, a
selling price of $13 a unit, and a sales quantity of 11,500 units. Depreciation is $7,500.
What is the variable cost per unit?
A. $6.75
B. $7.00
C. $7.25
D. $7.50
E. $7.75
Answer:
A bond with a face value of $1,000 that sells for $1,000 in the market is called a _____
bond.
A. par value
B. discount
C. premium
D. zero coupon
E. floating rate
Answer:
The net payoff to creditors in formal bankruptcy may be low in present value terms for
all of these reasons except for the fact that the:
A. financial structure may be complicated with several groups and types of creditors.
B. indirect costs of bankruptcy may have resulted in lost revenues and poor
maintenance.
C. administrative costs may be high due to the length and complexity of the process.
D. absolute priority rule may be violated.
E. creditors may have liens on specific assets.
Answer:
The principal amount of a bond that is repaid at the end of the loan term is called the
bond’s:
A. coupon.
B. face value.
C. maturity.
D. yield to maturity.
E. coupon rate.
Answer:
Comparing long-term bonds with short-term bonds, long-term bonds are _____ volatile
and therefore experience _____ price change than short-term bonds for the same
interest rate shift.
A. less; less
B. less; more
C. more; more
D. more; less
E. more; the same
Answer:
The length of the credit period offered by a firm is influenced by all of the following
except the:
A. level of consumer demand.
B. buyer’s operating cycle.
C. standardization of the goods being sold.
D. FTC guidelines for trade credit.
E. customer type.
Answer:
Aztec’s convertible bonds each have a face value of $1,000 and a market value of
$1,041.25. Each bond can be exchanged 25 shares of stock. The stock is selling for
$41.54 a share. The straight bond value is $1,010. What is the option value per bond?
A. $0
B. $2.75
C. $3.08
D. $38.50
E. $.11
Answer:
Chapter 11 of the Federal Bankruptcy Reform Act of 1978:
A. was replaced by Section 363 in 2009.
B. was expanded to allow liquidations in 2010 as a result of the financial crisis of 2008.
C. underwent a major revision in 2011.
D. was amended in 2005 by the Bankruptcy Abuse Prevention and Consumer Protection
Act.
E. has never been revised or amended.
Answer:
When valuing a firm financed with debt and equity, the cash flows should be discounted
using:
A. the market rate of return.
B. the average of the DDM and CAPM costs of equity.
C. (1 + WACC)T.
D. (1 + CAPM)T.
E. (r – g).
Answer:
Assume that all costs, assets, and accounts payable change spontaneously with sales.
For simplicity’s sake, assume interest expense also changes spontaneously with sales
(even though you know if may not). The tax rate and dividend payout ratios remain
constant. If the firm’s managers project a firm growth rate of 22 percent for next year,
what will be the amount of external financing needed to support this level of growth?
A. $63,200
B. $66,270
C. $47,520
D. $63,200
E. $53,640
F. $47,520
G. $56,400
H. $53,640
I. $56,400
Answer:
The market-to-book ratio is measured as the:
A. market price per share divided by the par value per share.
B. net income per share divided by the market price per share.
C. market price per share divided by the net income per share.
D. market price per share divided by the dividends per share.
E. market value per share divided by the book value per share.
Answer:
Venture capitalists provide financing for new firms from the seed and start-up stage all
the way to mezzanine and bridge financing. In exchange for this financing, venture
capitalists generally receive:
A. the personal financial guarantees of all current owners.
B. an equity position and board of director positions.
C. the right to set the offer price in any future initial public offering.
D. the protection provided by a court-appointed trustee.
E. a government-funded guarantee of repayment for all funds provided.
Answer:
Bob’s Auto Group has 25,000 shares of stock outstanding at a market price of $4.50 a
share. What will be the market price per share if the company does a 1-for-5 reverse
stock split?
A. $.90
B. $1.20
C. $22.50
D. $27.00
E. $29.50
Answer:
The acquisition of a firm whose business is not related to that of the bidder is called a
_____ acquisition.
A. conglomerate
B. forward
C. backward
D. horizontal
E. vertical
Answer:
The depreciation method currently allowed under U.S. tax law governing the
accelerated write-off of property under various lifetime classifications is called _____
depreciation.
A. FIFO
B. MACRS
C. straight-line
D. sum-of-years digits
E. curvilinear
Answer:
One of Modular Products (MP) customers would like to obtain a 6-month option to
purchase 500,000 tables for $119 each. These tables currently sell for $110 each.
Assume u equals 1.0994 and d = .9096. What price should MP charge for this option if
the annual risk-free rate is 3.2 percent?
A. $338,400
B. $421,900
C. $598,100
D. $479,900
E. $533,600
Answer:
Uptown Industries just decided to save $3,000 a quarter for the next three years. The
money will earn 2.75 percent, compounded quarterly, and the first deposit will be made
today. If the company had wanted to deposit one lump sum today, rather than make
quarterly deposits, how much would it have had to deposit today to have the same
amount saved at the end of the three years?
A. $34,441.56
B. $34,678.35
C. $33,428.87
D. $33,687.23
E. $34,998.01
Answer:
The length of time between the acquisition of inventory and its sale is called the:
A. operating cycle.
B. inventory period.
C. accounts receivable period.
D. accounts payable period.
E. cash cycle.
Answer:
Which one of the following is a current liability?
A.amount due to a supplier in 18 months
B.debt payable to a mortgage company in nine months
C.estimated taxes just paid
D.loan payment due in 13 months
E.amount due from a customer in 30 days
Answer:
The holder of a $1,000 face value bond has the right to exchange the bond any time
before maturity for shares of stock priced at $50 per share. The $50 is called the:
A. conversion price.
B. stated price.
C. exercise price.
D. striking price.
E. par value.
Answer:
Which one of these is an example of erosion that should be included in project analysis?
A. The anticipated loss of current sales when a new product is launched.
B. The expected decline in sales as a new product ages.
C. The reduction in your sales that occurs when a competitor introduces a new product.
D. The sudden loss of sales due to a major employer in your community implementing
massive layoffs.
E. The reduction in sales price that will most likely be required to sell inventory that has
aged.
Answer:
Financial executives place the greatest importance on which one of these factors when
setting dividend policy?
A. setting a high-dividend payout ratio even when earnings are unstable
B. maintaining a consistent dividend policy
C. increasing dividends even if they need to be lowered in the near future
D. reducing dividends anytime future earnings are in doubt
E. attracting institutional investors
Answer:
A company owning gold mines will probably have a _____ inflation beta because an
___ increase in inflation is usually associated with an increase in gold prices.
A. negative; anticipated
B. positive; anticipated
C. negative; unanticipated
D. positive; unanticipated
E. zero, anticipated
Answer:
A stock has an expected rate of return of 8.3 percent and a standard deviation of 6.4
percent. Which one of the following best describes the probability that this stock will
lose 4.50 percent or more in any one given year?
A. less than 2.5%
B. less than 1.0%
C. less than 1.5%
D. less than .5%
E. less than 5%
Answer:
The manager responsible for applying payments to customer’s accounts is the:
A. controller.
B. payables manager.
C. credit manager.
D. purchasing manager.
E. production manager.
Answer:
A firm commitment arrangement with an investment banker occurs when the:
A. syndicate is in place to handle the issue.
B. spread between the buying and selling price is less than one percent.
C. issue is solidly accepted in the market as evidenced by a large price increase.
D. investment banker buys the securities for less than the offering price and accepts the
risk of not being able to sell them.
E. investment banker sells as much of the security as the market can bear without a
price decrease.
Answer:
Suppose firms with unexpectedly high earnings earn abnormally high returns for
several months after the earnings announcement. This would be evidence of:
A. efficient markets in the weak form.
B. inefficient markets in the weak form.
C. efficient markets in the semistrong form.
D. inefficient markets in the semistrong form.
E. inefficient markets in the strong form.
Answer:
Christina will receive a 5-year annuity of $1,200 a year, with the first payment
occurring at Date 4. What is the value of this annuity to her today at a discount rate of
7.25 percent?
A. $4,209.19
B. $4,774.04
C. $3,961.80
D. $4,887.48
E. $4,111.08
Answer:
An investment cost $10,000 with expected cash flows of $3,000 a year for 5 years. At
what discount rate will the project’s IRR equal its discount rate?
A. 15.24%
B. 27.22%
C. 0%
D. 16.67%
E. 21.08%
Answer:
The present value of an investment’s future cash flows divided by the initial cost of the
investment is called the:
A. net present value.
B. internal rate of return.
C. average accounting return.
D. profitability index.
E. profile period.
Answer:
Herbal Gardens has a market value of $380 while Veggies has a market value of $530.
Veggies is merging with Herbal Gardens and expects the combined firm to have a
market value of $950. If the current Herbal Garden shareholders obtain $400 of equity
in the new firm, how much synergy was allocated to the Veggies shareholders?
A. $0
B. $20
C. $25
D. $15
E. $40
Answer:
Scott has been offered a 10-year job at a starting salary of $65,000 and guaranteed
annual raises of 5 percent. What is the current value of this offer at a discount rate of 7
percent?
A. $638,724.17
B. $602,409.91
C. $558,845.85
D. $630,500.00
E. $525,000.00
Answer:
Many firms base their capital structure decisions on which two factors?
A. industry averages and tax rates
B. interest and tax rates
C. need for financial slack and current interest rates
D. need for financial slack and industry averages
E. types of assets held and current interest rates
Answer: