Weston Steel purchased a new coal furnace six years ago at a cost of $2.2 million. Last
year, the government changed the emission requirements and this furnace cannot meet
those standards. Thus, Weston can no longer use the furnace, nor has it been able to
locate anyone willing to purchase the furnace. Given the current situation, the furnace is
best described as which type of cost?
A. Erosion
B. Book
C. Sunk
D. Market
E. Opportunity
You have an outstanding loan with an EAR of 14.6 percent. What is the APR if interest
is compounded monthly?
A. 13.48 percent
B. 13.71 percent
C. 14.60 percent
D. 15.41 percent
E. 15.62 percent
For the year, Movers United has net income of $31,800, net new equity of $7,500, and
an addition to retained earnings of $24,200. What is the amount of the dividends paid?
A. $100
B. $7,500
C. $7,600
D. $15,100
E. $16,700
Chevelle, Inc. has sales of $487,000 and costs of $394,500. The depreciation expense is
$43,800. Interest paid equals $18,200 and dividends paid equal $6,500. The tax rate is
35 percent. What is the addition to retained earnings?
A. $10,775
B. $11,460
C. $13,120
D. $13,325
E. $15,450
Which one of the following statements is correct?
A. Firms cannot use lockboxes if they use cash concentration accounts.
B. Firms prefer to increase processing delay on disbursements.
C. Firms prefer to eliminate all types of float.
D. Firms open regional offices so their employees can pick up lockbox payments
throughout the day.
E. The Check Clearing Act for the 21st Century is designed to reduce the collection time
to one day.
Lays Meat Market has 8,000 shares of stock outstanding at a price per share of $13.
What will the price per share be if the firm declares a 3-for-5 reverse stock split?
A. $7.80
B. $8.50
C. $13.00
D. $15.00
E. $21.67
You purchase a bond with an invoice price of $1,120. The bond has a coupon rate of 8.5
percent, semiannual coupons, and there are three months to the next coupon date. What
is the clean price of the bond?
A. $1,086.35
B. $1,098.75
C. $1,105.20
D. $1,132.50
E. $1,157.50
Assume a canned soft drink costs $1 in the U.S. and $1.30 in Canada. At the same time,
the currency per U.S. dollar is Can$1.30. Which one of the following conditions exists
in this situation?
A. Absolute purchasing power parity
B. Interest rate parity
C. Relative purchasing power parity
D. Translation exposure
E. Equal spot and forward rates
Your parents spent $6,200 to buy 500 shares of stock in a new company 13 years ago.
The stock has appreciated 9 percent per year on average. What is the current value of
those 500 shares?
A. $18,824.17
B. $19,007.99
C. $19,580.92
D. $20,515.08
E. $22,449.92
New Century Products is a company that was founded last year. While the outlook for
the company is positive, it currently has negative earnings. If you wanted to measure
the progress of this firm, which one of the following ratios would probably be best to
monitor given the firms current situation?
A. Price-sales ratio
B. Market-to-book ratio
C. Profit margin
D. ROE
E. ROA
Which one of the following tends to be the primary attitude of firms toward their
dividend policy?
A. Dividends should be increased annually no matter what.
B. Dividends should be flexible and adjusted annually in response to changes in the
firms earnings.
C. The costs associated with cutting dividends are perceived to be less than the costs of
obtaining external financing.
D. Once a dividend is increased, it should not be decreased.
E. Dividend smoothing is talked about but is not really a factor that affects dividend
decisions.
Which one of the following is the computation of the risk premium for an individual
security? E(R) is the expected return on the security, Rf is the risk-free rate, ² is the
securitys beta, and E(RM) is the expected rate of return on the market.
A. E(RM) – Rf
B. E(R) – E(RM)
C. E(R) – [E(RM) + Rf]
D. ²[E(RM) – Rf]
E. ²[E(R) – Rf]