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The most recent financial statements for Moose Tours, Inc. follow. Sales for 2009 are
projected to grow by 16 percent. Interest expense will remain constant; the tax rate and
dividend payout rate will also remain constant. Costs, other expenses, current assets,
and accounts payable increase spontaneously will sales. If the firm is operating at full
capacity and no new debt or equity is issued, how much external financing is needed to
support the 16 percent growth rate in sales?
A. $-10,246
B. -$8,122
C. -$6,708
D. $2,407
E. $3,309
You are considering two projects with the following cash flows:
Which of the following statements are true concerning these two projects?
I. Both projects have the same future value at the end of year 4, given a positive rate of
return.
II. Both projects have the same future value given a zero rate of return.
III. Project X has a higher present value than Project Y, given a positive discount rate.
IV. Project Y has a higher present value than Project X, given a positive discount rate.
A. II only
B. I and III only
C. II and III only
D. II and IV only
E. I, II, and IV only
The secondary market is best defined by which one of the following?
A. market in which subordinated shares are issued and resold
B. market conducted solely by brokers
C. market dominated by dealers
D. market where outstanding shares of stock are resold
E. market where warrants are offered and sold
KL Airlines paid an annual dividend of $1.42 a share last month. The company is
planning on paying $1.50, $1.75, and $1.80 a share over the next 3 years, respectively.
After that, the dividend will be constant at $2 per share per year. What is the market
price of this stock if the market rate of return is 10.5 percent?
A. $15.98
B. $16.07
C. $18.24
D. $21.16
E. $24.10
A Treasury bond is quoted at a price of 105:15. What is the market price of this bond if
the face value is $5,000?
A. $5,005.15
B. $5,105.15
C. $5,257.50
D. $5,273.44
E. $5,515.00
The Harvester collects 25 percent of sales in the month of sale, 60 percent of sales in
the month following the month of sale, and 15 percent of sales in the second month
following the month of sale. During the month of April, the firm will collect:
A. 60 percent of February sales.
B. 15 percent of April sales.
C. 60 percent of March sales.
D. 15 percent of March sales.
E. 25 percent of February sales.
Which of the following are uses of cash?
I. collecting a receivable
II. increasing inventory
III. obtaining a bank loan
IV. paying a supplier for previous purchases
A. I and III only
B. II and IV only
C. I and II only
D. I, II, and IV only
E. II, III, and IV only
The fact that flotation costs can be significant is an argument for:
A. a firm to issue larger dividends than its closest competitors.
B. a firm to maintain a constant dividend policy even if it frequently has to issue new
C. shares.
D. maintaining a constant dividend policy even when profits decline significantly.
E. maintaining a high dividend policy.
An operating lease has which of the following characteristics?
I. lessee has responsibility for the maintenance and insurance
II. lease payments cover the full cost of the asset
III. economic life of the asset exceeds the lease term
IV. lessee can cancel the lease prior to the expiration date
A. I and III only
B. II and IV only
C. I and II only
D. III and IV only
E. I, II, and III only
Bechtel Machinery stock currently sells for $50 per share. The market requires a 15
percent return on the firm's stock. The company maintains a constant 8 percent growth
rate in dividends. What was the most recent annual dividend per share paid on this
stock?
A. $3.00
B. $3.24
C. $3.50
D. $3.67
E. $3.91
Which of the following correctly describe U.S. Treasury bonds?
I. have a "tick" size of 1/32
II. highly liquid
III. quoted in dollars and cents
IV. quoted at the dirty price
A. I and II only
B. I and IV only
C. II and III only
D. II and IV only
E. I, II, and III only
Today, you can get either 121 Canadian dollars or 1,288 Mexican pesos for 100 U.S.
dollars. Last year, 100 U.S. dollars was worth 115 Canadian dollars or 1,291 Mexican
pesos. Which one of the following statements is correct given this information?
A. $100 converted into Canadian dollars last year would now be worth $105.22.
B. $100 converted into Mexican pesos last year would now be worth $99.77.
C. $100 converted into Mexican pesos last year would now be worth $100.36.
D. $100 converted into Canadian dollars last year would now be worth $95.05.
E. $100 invested in Canadian dollars last year would now be worth $100.
The Glass House has total assets currently valued at $17,200. These assets are expected
to increase in value to either $18,000 or $21,000 by next year. The company has a pure
discount bond outstanding with a face value of $20,000. This bond matures in one year.
Currently, U.S. Treasury bills are yielding 5.4 percent. What is the value of the equity in
this firm?
A. -$3,000.00
B. -$908.00
C. $0
D. $40.73
E. $122.20
Kwik ‘n Hot Dogs is considering the installation of a new computerized pressure
cooker that will cut annual operating costs by $23,000. The system will cost $39,900 to
purchase and install. This system is expected to have a 4-year life and will be
depreciated to zero using straight-line depreciation. What is the amount of the earnings
before interest and taxes for this project?
A. $10,525
B. $13,025
C. $15,525
D. $16,900
E. $19,400
Boulder Furniture has bonds outstanding that mature in 13 years, have a 6 percent
coupon, and pay interest annually. These bonds have a face value of $1,000 and a
current market price of $1,040. What is the company's aftertax cost of debt if its tax rate
is 32 percent?
A. 2.97 percent
B. 3.24 percent
C. 3.78 percent
D. 5.21 percent
E. 5.53 percent
The profitability index is most closely related to which one of the following?
A. payback
B. discounted payback
C. average accounting return
D. net present value
E. modified internal rate of return
How much will you pay to purchase five August 125 orange juice futures put option
contracts?
Orange juice - 15,000 lbs: U.S. cents per lb.
A. $1,200.00
B. $2,362.50
C. $4,162.50
D. $6,637.50
E. $6,750.00
This morning, you borrowed $150,000 to buy a house. The mortgage rate is 7.35
percent. The loan is to be repaid in equal monthly payments over 20 years. The first
payment is due one month from today. How much of the second payment applies to the
principal balance? (Assume that each month is equal to 1/12 of a year.)
A. $268.84
B. $277.61
C. $917.06
D. $925.83
E. $1,194.67
Sleep Tight is acquiring Restful Inns for $52,500 in cash. Sleep Tight has 3,000 shares
of stock outstanding at a market price of $38 a share. Restful Inns has 2,100 shares of
stock outstanding at a market price of $24 a share. Neither firm has any debt. The
incremental value of the acquisition is $1,700. What is the price per share of Sleep
Tight after the acquisition?
A. $36.92
B. $37.30
C. $37.87
D. $39.19
E. $39.29
Butter & Jelly reduced its taxes last year by $350 by increasing its interest expense by
$1,000. Which of the following terms is used to describe this tax savings?
A. interest tax shield
B. interest credit
C. financing shield
D. current tax yield
E. tax-loss interest
Here are some important figures from the budget of Nashville Nougats, Inc., for the
second quarter of 2009:
The company predicts that 3 percent of its credit sales will never be collected, 36
percent of its sales will be collected in the month of sale, and the remaining 61 percent
will be collected in the following month. Credit purchases will be paid in the month
following the purchase.
In March 2009, credit sales were $302,400, and credit purchases were $224,640. The
April 1 cash balance was $403,200. What is the cash balance at the end of May?
A. $348,887
B. $366,846
C. $414,141
D. $457,777
E. $477,374
Which one of the following will increase a firm's investment in accounts receivables?
A. a decrease in the number of days for which credit is granted
B. a decrease in credit sales
C. an increase in cash sales
D. a decrease in the average collection period
E. an increase in average daily credit sales
The ABC approach to inventory management is based on the concept that:
A. inventory should arrive just in time to be used.
B. the inventory period should be constant for all inventory items.
C. basic inventory items that are essential to production and also inexpensive should be
ordered in small quantities only.
D. a small percentage of the inventory items probably represents a large percentage of
the inventory cost.
E. one-third of a year's inventory need should be on hand, another third should be on
order, and the last third should not be ordered yet.
Which of the following variables are included in the Black-Scholes call option pricing
formula?
I. put premium
II. N(d1)
III. exercise price
IV. stock price
A. III and IV only
B. I, II, and IV only
C. II, III, and IV only
D. I, III, and IV only
E. I, II, III, and IV
A firm's external financing need is financed by which of the following?
A. retained earnings
B. net working capital and retained earnings
C. net income and retained earnings
D. debt or equity
E. owners' equity, including retained earnings
The common set of standards and procedures by which audited financial statements are
prepared is known as the:
A. matching principle.
B. cash flow identity.
C. Generally Accepted Accounting Principles.
D. Financial Accounting Reporting Principles.
E. Standard Accounting Value Guidelines.
Winston Co. has a dividend-paying stock with a total return for the year of -6.5 percent.
Which one of the following must be true?
A. The dividend must be constant.
B. The stock has a negative capital gains yield.
C. The dividend yield must be zero.
D. The required rate of return for this stock increased over the year.
E. The firm is experiencing supernormal growth.
Western Bank offers you a $21,000, 6-year term loan at 8 percent annual interest. What
is the amount of your annual loan payment?
A. $4,228.50
B. $4,542.62
C. $4,666.67
D. $4,901.18
E. $5,311.07
The common stock of Hazelton Refiners is selling for $72.30 a share. U.S. Treasury
bills are currently yielding 4.8 percent. What is the current value of a one-year call
option on this stock if the exercise price is $70 and you assume the option will finish in
the money?
A. $0
B. $1.20
C. $3.00
D. $4.20
E. $5.51
The Corner Store has $219,000 of sales and $187,000 of total assets. The firm is
operating at 87 percent of capacity. What is the capital intensity ratio at full capacity?
A. 0.62
B. 0.68
C. 0.74
D. 1.35
E. 1.47
Sue recently purchased a right to buy 100 shares of ABC stock for $27.50 a share if she
so chooses at any time within the next four months. Which one of the following does
Sue own?
A. futures contract
B. call option
C. put option
D. straddle
E. strangle
Geoff Industries offers its credit customers a 2 percent discount if they pay within 10
days. This discount is referred to as a:
A. cash discount.
B. purchase discount.
C. collection discount.
D. market discount.
E. receivables discount.
