If a product has a contribution margin of 40% and has a price of $5.00 per unit, how
many units must be sold to breakeven assuming a fixed cost of $800,000.00?
A.1.6 million
B.0.4 million
C.0.6 million
D.0.9 million
A capital budgeting project is expected to generate earnings before taxes (EBT) of
$60,000 per year. Annual depreciation from the project is $30,000 and the firm’s tax rate
is 40 percent. Determine the project’s annual net cash flows.
A.$48,000
B.$66,000
C.$36,000
D.None of the above
Each year a company is required to place money into a bank account to retire its bond’s
principal at maturity. If the bond’s principal is $10 million, and bank interest is
estimated at 8%, how much are the annual payments if they are to be made over the last
20 years of the bond’s life?
A.$101,853
B.$218,522
C.$462,950
D.$425,387
Interest rates are quoted by stating the ____ followed by the compounding period.
A.effective annual rate
B.nominal rate
C.yield
D.coupon rate
E.none of the above
____ markets deal in short-term securities having maturities of one year or less.
A.Credit
B.Money
C.Capital
D.a and b only
The increased variability in earnings per share due to the use of debt is:
A.combined leverage.
B.business risk.
C.financial risk.
D.operating risk.
If the forward (direct quote) exchange rate is lower than the spot rate, the forward
currency is said to be trading at a:
A.premium.
B.gain.
C.discount.
D.loss.
An abandonment option will have an upfront cost of $1.0 million. There is a 40%
chance that the abandonment option would be used, in which case cash outflows of
$800,000 in Year 4, $1,400,000 in Year 5 and $1,200,000 in Year 6 will be avoided. If
the discount rate is 7.0%, should the abandonment option be exercised?
A.Yes because its impact on expected NPV about $101,000.
B.No because its impact on expected NPV is about ($37,000).
C.Yes because its impact on expected NPV is about $47, 600.
D.No because its impact on expected NPV is about ($23,700).
Generally, the return on an equity investment is higher than the return on debt or
preferred stock because:
A.equity’s risk is higher.
B.people are more willing to invest in debt.
C.the cost of preferred stock is usually between the cost of debt and that of equity.
D.All of the above
The practice that gives minority stockholders a chance to elect at least one director is
called:
A.pre-emptive rights of stockholders.
B.maintaining proportionate ownership.
C.voting rights of stockholders.
D.cumulative voting.
Using the Gordon Model,estimate the cost of retained earnings for a firm whose stock is
currently selling for $40, paid a dividend of $.75 last year, and whose growth is
expected to be 6% indefinitely.
A.7.25%
B.7.99%
C.10.62%
D.4/80%
Assume the following facts about a firm that borrows by pledging its receivables:
What is the effective cost of financing stated as an annual rate?
A.23.5%
B.13%
C.13.5%
D.16.83%
You are considering purchasing a share of Cass Inc. stock today for $75.00. You
forecast no dividend payment this year but two years from today, you expect a $10
dividend. You plan to sell the stock immediately after receiving the dividend. If you
want a return of 15% on the investment, how much must your forecast of the stock
price be two years from today?
A.$ 89.19
B.$ 92.57
C.$ 99.19
D.$102.57
E.$112.57
Under which compounding frequency will you earn the most on an investment
receiving 12% APR in interest?
A.Monthly
B.Quarterly
C.Semi-annually
D.Annually
Which of the following is correct?
A.Capital structure affects both financial leverage and operating leverage.
B.Cost structure affects both financial leverage and operating leverage.
C.Capital structure affects financial leverage and cost structure affects operating
leverage.
D.Capital structure affects operating leverage and cost structure affects financial
leverage.
E.None of the above is correct.
If a firm has no debt and EBIT increases by 10%, then one can expect ____.
A.EPS to increase by more than 10%
B.ROE to increase by less than 10%
C.net income to increase by 10%
D.ROCE to be less than ROE
Riordan Inc. has a bond outstanding that has a $1,000 par value, semiannual coupon
rate of 4% and a current yield of 7.9%. What is the price of the bond? (Round to nearest
$)
A.$605
B.$867
C.$1,013
D.$1,152
E.$1,457
Holding all other variables constant, which of the following will increase the
sustainable growth rate? An increase in ____.
A.dividend payout ratio
B.return on sales
C.total asset turnover
D.Both b & c
E.All of the above