1) Husker’s Tuxedos, Inc., needs to raise $135 million to finance its plan for nationwide
expansion. In discussions with its investment bank, Husker’s learns that the bankers
recommend an offer price (or gross price) of $43.55 per share and they will charge an
underwriter’s spread of $2.25 per share. Calculate the net proceeds to Husker’s from the
sale of stock. How many shares of stock will Husker’s need to sell in order to receive
the $135 million they need?
A.3,702,742 shares
B.1,965,591 shares
C.2,857,905 shares
D.3,268,766 shares
2) Income Statement You have been given the following information for Kaye’s
Krumpet Corp.:
net sales = $150,000;
gross profit = $100,000;
addition to retained earnings = $20,000;
dividends paid to preferred and common stockholders = $8,000;
depreciation expense = $50,000.
The firm’s tax rate is 30 percent. What are the cost of goods sold and the interest
expense for Kaye’s Krumpet Corp.?
A.$10,000, and $50,000, respectively
B.$50,000, and $10,000, respectively
C.$50,000, and $22,000, respectively
D.$62,000, and $10,000, respectively
3) You are trying to pick the least-expensive machine for your company. You have two
choices: machine A, which will cost $50,000 to purchase and which will have OCF of
-$3,500 annually throughout the machine’s expected life of three years; and machine B,
which will cost $75,000 to purchase and which will have OCF of -$4,900 annually
throughout that machine’s four-year life. Both machines will be worthless at the end of
their life. If you intend to replace whichever type of machine you choose with the same
thing when its life runs out, again and again out into the foreseeable future, and if your
business has a cost of capital of 14 percent, which one should you choose?
A.Machine A
B.Machine B
C.Both Machine A and B
D.Neither Machine A nor B
4) If the spot rate between the U.S. dollar and the Brazilian real is $1 = 2.0895 real and
the 3-month forward rate is $1 = 2.1725 real, is the forward real selling at a discount or
a premium?
A.Discount
B.Premium
C.Unable to determine with the cross-rates
5) Which of the following statements is correct?
A.The WACC is a measure of the before-tax cost of capital
B.The WACC measures the marginal cost of capital
C.It is common that the after-tax cost of debt exceeds the cost of equity
D.None of these statements is correct
6) All of the following are ways to conduct international business except
________________.
A.Direct ownership investment
B.Import/export operations
C.Partnership arrangements
D.All of these
7) ADK has 30,000 15-year 9% semi-annual coupon bonds outstanding. If the bonds
currently sell for 90% of par and the firm pays an average tax rate of 32%, what will be
the before-tax and after-tax component cost of debt?
A.11.19%; 7.61%
B.10.32%; 7.02%
C.9.85%; 6.70%
D.10.12%; 6.88%
8) CJ Corp. is expected to pay a dividend of $10.00 per year indefinitely. If the
appropriate rate of return on this stock is 15 percent per year, and the stock consistently
goes ex-dividend 25 days before dividend payment date, what will be the expected
minimum price in light of the dividend payment logistics?
A.$45.66
B.$66.03
C.$66.67
D.$75.93
9) This is the reward investors require for taking risk.
A.required return
B.risk-free rate
C.risk premium
D.market risk premium
10) Which of these does NOT perform vital functions to securities markets of all sorts
by channeling funds from those with surplus funds to those with shortages of funds?
A.commercial banks
B.secondary markets
C.insurance companies
D.mutual funds
11) Selling Stock with Commissions At your full-service brokerage firm, it costs $120
per stock trade. How much money do you receive after selling 200 shares of Ralph
Lauren (RL), which trades at $85.13?
A.$16,546.00
B.$16,906.00
C.$17,026.00
D.$17,146.00
12) Statement of Retained Earnings TriCycle, Corp. began the year 2008 with $25
million in retained earnings. The firm earned net income of $7 million in 2008 and paid
$1 million to its preferred stockholders and $3 million to its common stockholders.
What is the year-end 2008 balance in retained earnings for TriCycle?
A.$25 million
B.$28 million
C.$32 million
D.$36 million
13) Daddi Mac, Inc., doesn’t face any taxes and has $250 million in assets, currently
financed entirely with equity. Equity is worth $20 per share, and book value of equity is
equal to market value of equity. Also, let’s assume that the firm’s expected values for
EBIT depend upon which state of the economy occurs this year, with the possible
values of EBIT and their associated probabilities as shown below:
The firm is considering switching to a 30 percent debt capital structure, and has
determined that they would have to pay a 10 percent yield on perpetual debt. What will
be the standard deviation in EPS if they switched to the proposed capital structure?
A.$0.37
B.$0.21
C.$0.36
D.$0.29
14) Which of the following actions will cause a firm’s net working capital to increase?
A.The firm uses more trade credit
B.The firm increases its inventory in anticipation of seasonal sales
C.The firm pays off a short-term bank loan with cash
D.All of these will cause a firm’s net working capital to increase
15) A 15-year bond with a 10% coupon has a yield to maturity of 8%. The bond could
be called in 4 years and if called would generate a yield to call of 6%. What is this
bond’s call premium? Assume the coupon payments are made semi-annually and par
value is $1,000.
A.$19.73
B.$81.87
C.$41.20
D.$66.03
16) A firm has been losing sales due to technological obsolescence. It projects growth
for the future to be -3%. Its recent divided was $2.50. What is the value of this stock
when the required return is 7%?
A.$28.17
B.$24.25
C.$17.42
D.$15.53
17) If the firm wants to identify the percentage of accounts receivable that are over 90
days old, the firm should prepare ________________.
A.A detailed analysis of accounts receivable
B.An aging schedule
C.A credit analysis
D.An analysis of the cash cycle
18) If a bond is selling at a discount, which of the following statements is correct?
A.The current yield must be greater than the coupon rate
B.The coupon rate must be greater than the yield to maturity
C.The bond must have a low bond rating
D.All of the statements are correct
19) Which of the following statements is incorrect?
A.The over-the-counter market operates in a fixed location to conduct trades for local
stocks
B.Liquidity is the ease with which an asset can be converted into cash
C.An initial public offering is an example of a primary market transaction
D.Money market instruments have maturities of less than one year
20) Suppose your firm is considering two mutually exclusive, required projects with the
cash flows shown below. The required rate of return on projects of both of their risk
class is 8 percent, and the maximum allowable payback and discounted payback
statistic for the projects are 2 and 3 years, respectively.
Use the IRR decision rule to evaluate these projects; which one(s) should be accepted
or rejected?
A.accept both A and B
B.accept neither A nor B
C.accept A, reject B
D.reject A, accept B
21) Investment grade bonds include those bonds with ratings _____________.
A.From AAA to BB
B.From AAA to BBB
C.From AAA to B
D.From AAA to A
22) You invested $1000 for 5 years in an account that earns 5%. However, today you
learn that you are able to move the account into an investment that earns 10%. Which of
the following statements is correct?
A.If you select the investment earning 10%, you will double your profit
B.If you select the investment earning 10%, you will more than double your profit
C.If you select the investment earning 10%, your profit will be less than double
D.None of these statements is correct
23) Which of the following resemble checks, but differ in that they are payable by the
firm issuing them rather than payable by a bank?
A.drafts
B.concentration banking
C.wire transfers
D.zero-balance account
24) Which of these statements is true?
A.A low inventory turnover ratio or a low days’ sales in inventory is a sign of good
inventory management
B.A high inventory turnover ratio or a low days’ sales in inventory is a sign of good
inventory management
C.A low inventory turnover ratio or a high days’ sales in inventory is a sign of good
inventory management
D.A high inventory turnover ratio or a high days’ sales in inventory is a sign of good
inventory management
25) These are groups or pairs of projects where you can accept one but not all.
A.dependent
B.independent
C.mutually exclusive
D.mutually dependent
26) Calculating Costs of Issuing Stock Computer Technology Corp. recently went
public with an initial public offering of 7 million shares of stock. The underwriter used
a firm commitment offering in which the net proceeds was $8.35 per share and the
underwriter’s spread was 7 percent of the gross proceeds. Computer also paid legal and
other administrative costs of $300,000 for the IPO. Calculate the gross proceeds per
share received by Computer from the sale of the 7 million shares of stock.
A.$8.35
B.$8.39
C.$8.98
D.$9.02
27) Interest rates The Wall Street Journal reports that the rate on 3-year Treasury
securities is 7.00 percent, and the 6-year Treasury rate is 7.25 percent. From discussions
with your broker, you have determined that expected inflation premium is 1.75 percent
next year, 2.25 percent in Year 2, and 2.40 percent in Year 3 and beyond. Further, you
expect that real interest rates will be 3.75 percent annually for the foreseeable future.
What is the maturity risk premium on the 6-year Treasury security?
A.0.83%
B.0.983%
C.1.10%
D.1.233%
28) From the perspective of access to capital, the best form of business organization is
the _______.
A.Sole proprietorship
B.Corporation
C.Partnership
D.S Corporation