Which one of the following will increase cash flow from assets but not affect the
operating cash flow?
A. Increase in depreciation
B. Increase in accounts receivable
C. Sale of a fixed asset
D. Decrease in cost of goods sold
E. Increase in sales
Answer:
You’ve worked out a line of credit arrangement that allows you to borrow up to $55
million at any time. The interest rate is 0.55 percent per month. In addition, 3 percent of
the amount you borrow must be deposited in a non-interest-bearing account. Assume
that your bank uses compound interest on its line-of-credit loans. Suppose you need $12
million today and you repay it in six months. How much interest will you pay?
A. $387,567
B. $413,902
C. $421,028
D. $441,414
E. $442,886
Answer:
The optimal credit policy will do which one of the following?
A. Maximize sales
B. Minimize bad debts
C. Maximize units sold
D. Minimize the total costs of granting credit
E. Minimize carrying costs
Answer:
Children’s Place has a market-to-book ratio of 2.9, net income of $68,400, a book value
per share of $37, and 45,000 shares of stock outstanding. What is the price-earnings
ratio?
A. 24.34
B. 28.16
C. 55.10
D. 63.25
E. 70.59
Answer:
Which one of the following is the most apt to have the largest risk premium in the
future based on the historical record for 1926-2011?
A. U.S. Treasury bills
B. Large-company stocks
C. Long-term government debt
D. Small-company stocks
E. Long-term corporate debt
Answer:
You have agreed to pay a 5 percent commission to your best friend if he can locate a
buyer for your car. This arrangement is most similar to the compensation arrangement
for which one of these individuals who is involved with the stock market?
A. DMM
B. Floor trader
C. Market maker
D. Commission broker
E. Dealer
Answer:
Which one of the following has the narrowest distribution of returns for the period
1926-2011?
A. Long-term corporate bonds
B. Long-term government bonds
C. Intermediate-terms government bonds
D. Large-company stocks
E. Small-company stocks
Answer:
Galaxy Sales has sales of $746,700, cost of goods sold of $603,200, and inventory of
$94,300. How long on average does it take the firm to sell its inventory?
A. 6.40 days
B. 7.23 days
C. 48.68 days
D. 57.06 days
E. 61.10 days
Answer:
Which one of the following can be defined as a benefit-cost ratio?
A. Net present value
B. Internal rate of return
C. Profitability index
D. Accounting rate of return
E. Modified internal rate of return
Answer:
Over the past five years, a stock returned 8.3 percent, -32.5 percent, -2.2 percent, 46.9
percent, and 11.8 percent, respectively. What is the variance of these returns?
A. 0.071188
B. 0.076290
C. 0.081504
D. 0.082547
E. 0.091306
Answer:
Margie opened a used bookstore and is both the 100 percent owner and the store’s
manager. Which type of business entity does Margie own if she is personally liable for
all the store’s debts?
A. Sole proprietorship
B. Limited partnership
C. Corporation
D. Joint stock company
E. General partnership
Answer:
You are analyzing a project and have developed the following estimates: unit sales =
2,600, price per unit = $56, variable cost per unit = $39, fixed costs = $24,700. The
depreciation is $15,800 a year and the tax rate is 35 percent. What effect would a
decrease of $1 in the variable cost per unit have on the operating cash flow?
A. -$2,600
B. -$1,742
C. -$912
D. $1,690
E. $2,600
Answer:
Delta Mu Delta is considering purchasing some new equipment costing $400,000. The
equipment will be depreciated on a straight-line basis to a zero book value over the
four-year life of the project. Projected net income for the four years is $18,900,
$21,300, $26,700, and $25,000. What is the average accounting rate of return?
A. 11.49 percent
B. 11.63 percent
C. 12.01 percent
D. 12.49 percent
E. 13.20 percent
Answer:
A firm has a weighted average cost of capital of 11.68 percent and a cost of equity of
15.5 percent. The debt-equity ratio is 0.65. There are no taxes. What is the firm’s cost of
debt?
A. 5.80 percent
B. 6.27 percent
C. 6.44 percent
D. 7.23 percent
E. 7.81 percent
Answer:
Martha’s Sweet Shop reduced its fixed assets this year without affecting the shop’s
operations, sales, or equity. This reduction will increase which of the following ratios?
I. Capital intensity ratio
II. Return on assets
III. Total asset turnover
IV. Return on equity
A. I and II only
B. II and III only
C. II, III, and IV only
D. I, II, and IV only
E. I, II, III, and IV
Answer:
The net working capital invested in a project is generally:
A. a sunk cost.
B. an opportunity cost.
C. recouped in the first year of the project.
D. recouped at the end of the project.
E. depreciated to a zero balance over the life of the project.
Answer:
You own 100 of the 15,000 outstanding shares of Delta Movers stock. The firm just
announced that it will be issuing an additional 5,000 shares to the general public in a
cash offer at $22 per share. What type of event are you participating in if you opt to
purchase 100 of these additional shares?
A. Dutch auction
B. Seasoned equity offering
C. Private placement
D. IPO
E. Rights offer
Answer: