You are comparing two possible capital structures for a firm. The first option is an
all-equity firm. The second option involves the use of $3.8 million of debt. The
break-even point between these two financing options occurs when the earnings before
interest and taxes (EBIT) are $428,000. Given this, you know that leverage is beneficial
to the firm:
A. whenever EBIT is less than $428,000.
B. only when EBIT is $428,000.
C. whenever EBIT exceeds $428,000.
D. only if the debt is decreased by $428,000.
E. only if the debt is increased by $428,000.
Answer:
What is the group of underwriters called who share both the risks and the marketing
responsibilities for a securities offering?
A. Syndicate
B. Underwriting cartel
C. Firm commitment group
D. Dutch auction group
E. Venture capitalists
Answer:
Rocket City Space Camp has annual credit sales of $16 million. The average collection
period is 35 days. What is the average investment in accounts receivable as shown on
the balance sheet?
A. $646,000
B. $824,000
C. $1,408,888
D. $1,534,247
E. $1,693,134
Answer:
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
Answer:
A firm offers terms of 2/5, net 30. What effective annual interest rate does the firm earn
when a customer does not take the discount?
A. 21.69 percent
B. 24.42 percent
C. 28.97 percent
D. 31.08 percent
E. 34.31 percent
Answer:
The balance sheet for Quik Treats, Inc. is shown here in market value terms. There are
20,000 shares of stock outstanding.
The company has declared a dividend of $1.40 per share. The stock goes ex-dividend
tomorrow. Ignore any tax effects. What will the firm’s equity value be after the dividend
is paid?
A. $572,000
B. $587,000
C. $603,000
D. $615,000
E. $643,000
Answer:
If a security plots to the right and below the security market line, then the security has
____ systematic risk than the market and is ____.
A. more; overpriced
B. more; underpriced
C. less; overpriced
D. less; underpriced
E. less; correctly priced
Answer:
Andersen’s Nursery has sales of $318,400, costs of $199,400, depreciation expense of
$28,600, interest expense of $1,100, and a tax rate of 34 percent. The firm paid out
$16,500 in dividends. What is the addition to retained earnings?
A. $36,909
B. $42,438
C. $44,141
D. $47,208
E. $47,615
Answer:
The Saw Mill has a return on assets of 6.1 percent, a total asset turnover rate of 1.8, and
a debt-equity ratio of 1.6. What is the return on equity?
A. 4.26 percent
B. 9.76 percent
C. 12.28 percent
D. 15.86 percent
E. 19.03 percent
Answer:
Services United is considering a new project that requires an initial cash investment of
$78,000. The project will generate cash inflows of $29,500, $32,700, $18,500, and
$10,000 over each of the next four years, respectively. How long will it take to recover
the initial investment?
A. 2.74 years
B. 2.85 years
C. 2.99 years
D. 3.27 years
E. 3.68 years
Answer:
A 12-year, semiannual coupon bond is priced at $1,102.60. The bond has a $1,000 face
value and a yield to maturity of 5.33 percent. What is the coupon rate?
A. 5.00 percent
B. 5.25 percent
C. 5.50 percent
D. 6.00 percent
E. 6.50 percent
Answer:
Which of the following are money market securities?
I. Jumbo CDs
II. Short-term municipal debt
III. U.S. Treasury bills
IV. Commercial paper
A. I and IV only
B. II and III only
C. I, II, and IV only
D. II, III, and IV only
E. I, II, III, and IV
Answer:
A portfolio is comprised of 35 securities with varying betas. The lowest beta for an
individual security is 0.74 and the highest of the security betas of 1.51. Given this
information, you know that the portfolio beta:
A. must be 1.0 because of the large number of securities in the portfolio.
B. is the geometric average of the individual security betas.
C. must be less than the market beta.
D. will be between 0 and 1.0.
E. will be greater than or equal to 0.74 but less than or equal to 1.51.
Answer:
The operating cash flows of a project:
A. are unaffected by the depreciation method selected.
B. are equal to the project’s total projected net income.
C. decrease when net working capital increases.
D. include any aftertax salvage values.
E. include erosion effects.
Answer:
Earth Fare Foods has total assets of $229,800, net fixed assets of $71,500, long-term
debt of $52,000, and total debt of $78,700. If inventory is $45,000, what is the current
ratio?
A. 0.20
B. 0.46
C. 0.84
D. 1.18
E. 5.93
Answer:
Adell Furniture has a profit margin of 8.2 percent and a dividend payout ratio of 40
percent. What is the plowback ratio?
A. 8.20 percent
B. 27.33 percent
C. 54.60 percent
D. 60.00 percent
E. 68.20 percent
Answer: