Aurand Inc. has outstanding bonds with an 8% coupon paid semiannually. The bonds
have a par value of $1,000, a current price of $904, and will mature in 14 years. What is
their yield?
A.15.80%
B.10.47%
C.9.24%
D.7.90%
E.4.62%
A new replacement machine is being considered that will save $105,000 per year in
labor cost and $20,000 on maintenance. The company€s marginal tax rate is 34%. The
replacement will also generate a tax savings from depreciation of $5,000. Estimate the
incremental cash flow for the first year associated with buying the new machine.
A.$87,500
B.$82,500
C.$42,500
D.$51,100
Ralph has decided to put $2,400 a year (at the end of each year) into an IRA over his 40
year working life and then retire. What will Ralph have at retirement if the account
earns 10 percent compounded annually?
A.$394,786
B.$23,470
C.$1,062,223
D.$810,917
All of the following would be considered benefits of implementing an effective
business plan except:
A.ensuring that the management team has a clear understanding of the goals of the
organization.
B.providing details as to how the goals of the organization are going to be achieved.
C.forecasting external financing requirements.
D.providing a vehicle to share information with investors.
E.all of the above are benefits of business planning.
Which of the following is an overall measure of business performance?
A.Interest coverage ratio
B.ROE
C.Debt to equity ratio
D.Revenue
The SML shifts:
A.indicate an acceptance of beta.
B.parallel to itself in response to changes in the risk-free rate.
C.and rotates around its horizontal intercept.
D.accommodates a decrease in the risk free rate.
If a firm follows a stable dividend policy while its earnings are growing and no new
stock has been issued, what would happen to the firm’s dividend payout ratio over time?
A.The payout ratio will decrease.
B.The payout ratio will increase.
C.The payout ratio will decrease initially and then increase.
D.The payout ratio will remain stable and not change.
Zimmer’s common stock sells for $37 and its dividend is expected to grow at a rate of 8
percent annually. What is the expected dividend (D1) if Zimmer is returning 16%?
A.$2.74
B.$3.20
C.$5.92
D.$2.96
Zimmer Corp. has just declared a 5 for 4 stock split. If the pre-split price of common
stock was $36 a share, what will be the post-split price per share (assuming no other
changes occur)?
A.$30.00
B.$27,00
C.$28.80
D.$32.00
Which of the following does not represent a stakeholder in a corporation?
A.Television media
B.Stockholders
C.Management
D.Suppliers
Which of the following theories depends on the spread between the tax rates on capital
gains and ordinary income?
A.Dividend irrelevance
B.Dividend preference
C.Dividend aversion
D.They all depend to some degree on the spread between these tax rates.
E.None of the theories depend on the spread between these tax rates.
The present value of a future amount is:
A.that sum which if deposited today will grow into the future amount.
B.referred to as the discounted value of the future amount.
C.always smaller than the future amount, for positive interest rates.
D.All of the above
Forecasts tend to be:
A.short-term.
B.focused on making either profit or cash flow projections.
C.filled with supporting documentation.
D.Both a & b
E.All of the above
The following information is available in general and about investments in stocks J and
K.
a. What are the expected returns on Stock J and Stock K individually?
b. What is the expected return on the portfolio?
c. If Stock K just paid a dividend of $2.50, what is Stock K’s intrinsic value?
The vertical intercept of the SML represents:
A.investment in long-term government securities.
B.investment in short-term corporate bonds.
C.investment in short-term market securities.
D.investment in short-term government securities.
Albert Corp. bought a machine for $10,000 thirteen years ago. It has been depreciated
on a straight line basis over a 20 year life with no salvage value. The firm just sold the
machine for $6,000. How much gain/loss should be reported on the sale?
A.$4,000 loss
B.$2,500 loss
C.No gain or loss should be recorded.
D.$2,500 gain
E.$4,000 gain
Which of the following is incorrect about the financial plan in a reasonably well
managed company?
A.The plan should be the result of a combination of top down and bottom up planning.
B.The plan establishes measurable goals which result in bonus compensation if
achieved.
C.Plan goals should always be set well out of reach to motivate stretch performance.
D.Plans generally reflect significant improvements in performance.
Banks pay interest on deposits and lend that money to borrowers at higher rates. This
rate difference is called:
A.a default.
B.a premium.
C.a spread.
D.a quote.
A merger of two airlines is an example of:
A.a vertical merger.
B.a product extension merger.
C.a conglomerate merger.
D.a horizontal merger.
Match the following:
1>Top-down planning A. Planning that tends to overstate achievable
performance.
2>Strategic planning B. A theoretical formulation of a firm’s ability
to grow with constant financial ratios.
3>Sustainable growth rate C. Reflects more qualitatively than
quantitatively the concepts and ideas behind the firm’s mission and goals.
4>Business planning spectrum D. A graphic representation of how plans vary
with respect to time and detail.