1) What is the annually compounded rate of interest on an account with an APR of 10%
and monthly compounding?
A.10.00%
B.10.47%
C.10.52%
D.11.05%
2) Which of the following cash outflows does not reduce a firm’s net income?
A.Income taxes
B.Interest expense
C.Dividends
D.Depreciation expense
3) How much can be accumulated for retirement if $2,000 is deposited annually,
beginning 1 year from today, and the account earns 9% interest compounded annually
for 40 years?
A.$87,200.00
B.$675,764.89
C.$736,583.73
D.$802,876.27
4) Which of the following statements seems most correct about a firm that has made a
cash tender offer for 2 million shares of ABC Corp. at a price of $20, which is $6 higher
than ABC’s current value?
A.The economic gain of the merger exceeds $40 million
B.The economic gain of the merger exceeds $28 million
C.The economic gain of the merger exceeds $12 million
D.The economic gain of the merger would be zero after accounting for merger cost
5) What is the percentage return on a stock that was purchased for $40.00, paid no
dividend after one year, and was then sold for $39.00?
A.-2.50%
B.2.50%
C.5.00%
D.7.50%
6) During the Financial Crisis of 2007-2009, the U.S. government bailed out the
following firms except:
A.AIG
B.Fannie Mae
C.Lehman Brothers
D.all of these
7) Which of the following is correct for the owner of a September put, valued at $20, on
CBA Corp. with a strike price of $80? CBA currently trades at $67.
A.The option will continue to gain value until its September expiration
B.The owner profits $13 per share by exercising now
C.Further decreases in CBA stock price will be translated directly into additional option
value
D.$20 is the maximum value for this option
8) Use of a profitability index to select projects in the absence of capital rationing:
A.will provide the same rankings as an NPV criterion
B.will maximize NPV, but not IRR
C.can result in misguided selections
D.is technically impossible
9) A share of stock is currently priced at $20 and will change with equal likelihood to
either $50 or $10. A call option with a $25 exercise price is available on the stock. How
many shares of stock must be purchased to replicate the payoff from owning one call
option?
A..50 share
B..75 share
C..80 share
D.1.25 shares
10) According to the statement of cash flows, cash flows from financing could be
positive if:
A.the firm repaid more debt than it added
B.the firm added more debt than it repaid
C.interest rates were low on outstanding debt
D.the firm sold portions of its plant and equipment
11) The reason that financial leverage increases shareholder risk is that there is:
A.more debt which increases the operating risk
B.less equity to absorb the operating risk
C.less business risk to be spread around
D.more financial risk due to reduced business risk
12) WorldCom’s failure to report $3.8 billion of operating expenses is an example of:
A.an effort to conform to changed accounting rules
B.an attempt to maximize the value of the shareholders’ investment in the firm
C.an effort to serve the needs of the customer
D.an attempt to increase the company’s market value in an unethical way
13) If a corporation has more shares issued than outstanding, then:
A.the Board of Directors is holding shares
B.there are preferred shares outstanding
C.the corporation has treasury stock
D.unexercised stock warrants exist
14) Which of the following choices would be guaranteed to increase a firm’s ROE if the
ROA is currently 10% and the leverage ratio equals 1.0?
A.Decrease the leverage ratio
B.Increase the debt burden from its current level
C.Decrease assets from the current level
D.Decrease the debt burden from its current level
15) What is the WACC for a firm with 50% debt and 50% equity that pays 12% on its
debt, 20% on its equity, and has a 40% tax rate?
A.9.6%
B.12.0%
C.13.6%
D.16.0%
16) How much will a firm receive in net funding from a firm commitment underwriting
of 250,000 shares priced to the public at $40 if a 10% underwriting spread has been
added to the price paid by the underwriter? Additionally, the firm pays $600,000 in
legal fees.
A.$8,400,000
B.$8,460,000
C.$8,490,000
D.$8,545,455
17) What is the standard deviation of return of a four-stock portfolio (each stock being
equally weighted) that produced returns of 20%, 20%, 25%, and 30%?
A.2.15%
B.3.15%
C.4.15%
D.5.15%
18) When market interest rates exceed a bond’s coupon rate, the bond will:
A.sell for less than par value
B.sell for more than par value
C.decrease its coupon rate
D.increase its coupon rate
19) Other things equal, a firm’s sustainable growth rate could increase as a result of:
A.increasing the plowback ratio
B.increasing the payout ratio
C.decreasing the return on equity
D.increasing total assets
20) “Dow up 14. Story at 6:00 p.m.” This means that:
A.the Dow was up 14% during today’s trading
B.14 of the Dow’s 30 stocks increased in price today
C.a share of Dow stock went up by $14 today
D.the Dow index increased by 14 points in today’s trading
21) Net working capital is a measure of the company’s:
A.goodwill
B.short-term liabilities
C.estimated liquidity
D.shareholders’ equity
22) Contingency planning is:
A.forecasting the most likely outcomes
B.worrying about unlikely events
C.working through the consequences of the plan under different scenarios
D.formulating responses to inevitable surprises
23) What is the sustainable growth rate for a firm with net income of $2.5 million, cash
dividends of $1.5 million, and return on equity of 18%?
A.3.0%
B.5.4%
C.7.2%
D.10.8%
24) The flexibility of financial plans is evident in the extent that:
A.actual profits will deviate from projected profits
B.the plans can be adapted when conditions change
C.use of the plans can be extended
D.planning output is the same regardless of economic conditions
25) If a company’s cost of capital is less than the required return on equity, then the
firm:
A.is financed with more than 50% debt
B.is perceived to be safe
C.has debt in its capital structure
D.cannot be using any debt
26) Which of the following would you expect to have more impact on a
dividend-based-stock-valuation model?
A.Special dividend
B.Regular dividend
C.Extra dividend
D.Stock dividend
27) What are the expected annual savings from a lock-box system that collects 150
checks per day averaging $500 each, and reduces mailing and processing times by 2.5
and 1.5 days, respectively, if the annual interest rate is 7%?
A.$5,250
B.$13,125
C.$21,000
D.$300,000
28) Interest expense appears in the operations section of the cash-flow statement
because:
A.firms cannot operate without incurring interest expense
B.its payment is not within managerial discretion
C.it is paid to finance a firm’s inventory
D.none of these; interest expense appears in the financing section of the cash-flow
statement
29) Given that a company has a healthy current ratio but a significantly lower quick
ratio, which of the following may not be true?
A.The company may have an inventory problem
B.The numerator of the quick ratio includes cash, marketable securities, and receivables
C.The quick ratio is always smaller than the current ratio
D.The company is rich in cash and receivables
30) Which of the following variables would you suspect to be least significant in a
sensitivity analysis of a fast-food establishment?
A.Sales
B.Depreciation schedule
C.Labor cost
D.Food cost
31) A forward market contract to buy Japanese yen three months in the future at a price
of 105/$ will:
A.insulate the buyer from changes in interest rates
B.protect the buyer from changes in exchange rates
C.lock in a profit based on current exchange rates
D.require delivery of the yen at the Chicago Board of Trade
32) An indirect exchange rate can be converted to a direct exchange rate by:
A.dividing the indirect rate by number of U.S. dollars required to purchase one unit of
the other currency
B.dividing the indirect rate by 100
C.multiplying the indirect rate by the spot rate
D.taking the inverse of the indirect rate
33) Which of the following is correct for a bond currently selling at a premium to par?
A.Its current yield is higher than its coupon rate
B.Its current yield is lower than its coupon rate
C.Its yield to maturity is higher than its coupon rate
D.Its default risk is extremely low
34) A share of IBM stock is purchased by an individual investor for $75 and later sold
to another investor for $125. Who profits from this sale?
A.IBM
B.The first investor
C.The second investor
D.Profit is split between IBM and the investor
35) Energetic, Inc. believes that it can acquire Satisfied Industries and improve
efficiency to the extent that the market value of Satisfied will increase by $5 million.
Satisfied currently sells for $20 a share, and there are 1 million shares outstanding.
a. Satisfied’s management is willing to accept a cash offer of $25 a share. Can the
merger be accomplished on a friendly basis?
b. What will happen if Satisfied’s management holds out for an offer of $28 a share?
36) A break-down of accounts receivable according to the length of time outstanding is
known as a(n):
A.amortization schedule
B.sources of cash flow statement
C.receivables inventory
D.aging schedule
37) Automatic dividend reinvestment plans allow firms to:
A.pay dividends on a more frequent schedule
B.reduce their cash outflow to shareholders
C.transform regular dividends into stock dividends
D.avoid the ex-dividend date reduction in stock price
38) Firms can alter their capital structure by:
A.not accepting any capital budgeting projects
B.investing in intangible assets
C.issuing stock to repay debt
D.becoming a limited liability company