USA Manufacturing issued 30-year, 8.5 percent semiannual bonds 6 years ago. The
bonds currently sell at 101 percent of face value. What is the firms aftertax cost of debt
if the tax rate is 30 percent?
A. 5.88 percent
B. 5.62 percent
C. 5.76 percent
D. 6.59 percent
E. 8.40 percent
Which of the following will increase the value of a levered firm according to M&M
Proposition I, with taxes?I. Decrease in the amount of the debtII. Increase in the value
of the unlevered firmIII. Decrease in the tax rateIV. Increase in the interest rate on the
debt
A. II only
B. I and IV only
C. II and III only
D. II and IV only
E. II, III, and IV only
All else constant, which one of the following will decrease if a firm increases its net
income?
A. Return on assets
B. Profit margin
C. Return on equity
D. Price-sales ratio
E. Price-earnings ratio
The Piano Movers can borrow at 7.5 percent. The firm currently has no debt, and the
cost of equity is 16 percent. The current value of the firm is $540,000. What will the
value be if the firm borrows $160,000 and uses the proceeds to repurchase shares? The
corporate tax rate is 40 percent.
A. $528,000
B. $540,000
C. $552,000
D. $571,000
E. $604,000
Which one of the following is the best example of an announcement that is most apt to
result in an unexpected return?
A. A news bulletin that the anticipated layoffs by a firm will occur as expected on
December 1
B. Announcement that the CFO of the firm is retiring June 1 as previously announced
C. Announcement that a firm will continue its practice of paying a $3 a share annual
dividend
D. Statement by a firm that it has just discovered a manufacturing defect and is
recalling its product
E. The verification by senior management that the firm is being acquired as had been
rumored
The Braxton Co. has beginning long-term debt of $64,500, which is the principal
balance of a loan payable to Centre Bank. During the year, the company paid a total of
$16,300 to the bank, including $4,100 of interest. The company also borrowed $11,000.
What is the value of the ending long-term debt?
A. $45,100
B. $53,300
C. $58,200
D. $63,300
E. $85,900
Given the following information, what is the variance of the returns on this stock?
A. 0.002453
B. 0.002663
C. 0.002691
D. 0.002759
E. 0.002914
Which of the following ratings indicate that a bond is low quality?I. BaaII. BBIII. BIV.
Ba
A. II only
B. II and III only
C. II, III, and IV only
D. I, II, and III only
E. I, II, III, and IV
The Outlet Mall has a cost of equity of 16.8 percent, a pretax cost of debt of 8.1
percent, and a return on assets of 14.5 percent. Ignore taxes. What is the debt-equity
ratio?
A. 0.18
B. 0.39
C. 0.44
D. 0.52
E. 0.57
Given the following partial stock quote, what is the amount of the next annual dividend
if yesterdays closing price was $23.60?
A. $0.78
B. $0.81
C. $1.15
D. $1.19
E. $1.23
Marti had an unexpected surprise when she ate her Lotsa Good cereal this morning. She
found a piece of metal mixed in her cereal. The potential claim that Marti has against
this firm is that of a(n):
A. general creditor.
B. debtholder.
C. shareholder.
D. stakeholder.
E. agent.
Which of the following will decrease the future value of a lump sum investment made
today assuming that all interest is reinvested? Assume the interest rate is a positive
value.I. Increase in the interest rateII. Decrease in the lump sum amountIII. Increase in
the investment time periodIV. Decrease in the investment time period
A. I and III only
B. I and IV only
C. I, II, and III only
D. II and III only
E. II and IV only
Which one of the following terms is used to identify the concept that exchange rates
vary to keep purchasing power constant among currencies?
A. Exchange rate equilibrium
B. Exchange rate parity
C. Universal parity
D. Market equilibrium
E. Purchasing power parity
High Mountain Gear issued 240,000 shares of stock last week. The underwriters
charged a 7.85 percent spread in exchange for agreeing to a firm commitment. The legal
and accounting fees were $385,000. The company incurred $98,000 in indirect costs
related to management time and other internal expenses. The offer price was $21 a
share. Within the first hour of trading, the stock was selling for $23.20 a share. What
was the flotation cost as a percentage of the funds raised?
A. 21.53 percent
B. 25.29 percent
C. 27.46 percent
D. 33.80 percent
E. 41.22 percent
Which one of the following best describes an initial public offering?
A. Shares held by a firms founder
B. Any newly issued shares offered to the general public
C. Shares issued to the public on a cash basis
D. The first sale of equity shares to the general public
E. Any shares initially offered to a firms existing shareholders