1) The spot rate between Japan and the U.S. is 100.37 = $1, while the one-year forward
rate is 99.97 = $1. A one-year risk-free security in the U.S. is yielding 3.8 percent. What
is the rate of return on a one-year risk-free security in Japan assuming that interest rate
parity exists?
A.3.32 percent
B.3.39 percent
C.3.44 percent
D.3.49 percent
E.3.56 percent
2) Which one of the following statements is correct?
A.All Chapter 7 bankruptcy filings must include a “workout” agreement
B.Firms must remain in bankruptcy for at least 18 months
C.Key employee retention plans (KERPs) are no longer legal
D.Labor contracts cannot be modified through the bankruptcy process
E.A firm can file for Chapter 11 bankruptcy even if the firm is solvent
3) Green Earth’s monthly purchases are equal to 70 percent of the following month’s
sales. The accounts payable period for purchases is 30 days. All other expenses are paid
when incurred. Assume each month has 30 days and August sales are $18,500. The
company has compiled the following information.
What is the projected amount of disbursements for the month of July?
A.$13,910
B.$14,550
C.$16,100
D.$16,430
E.$16,760
4) A project has the following cash flows. What is the payback period?
A.2.38 years
B.2.49 years
C.2.60 years
D.3.01 years
E.3.33 years
5) You live in the U.S. and want to invest in a Chinese company, which will be referred
to as “CC,” because you believe its stock is uniquely positioned to be unusually
profitable over the next five years. However, you do not have direct access to the
Chinese financial markets. You may be able to indirectly invest in CC by purchasing
which one of the following?
A.Swap
B.ADR
C.Gilt
D.Bulldog bond
E.Samurai bond
6) Which one of the following reports will tell me the percentage of accounts receivable
that are delinquent by 90 days or more?
A.Cash budget
B.5Cs of credit
C.Credit analysis
D.Aging schedule
E.Credit scoring report
7) Assume the total cost of a college education will be $285,000 when your child enters
college in 22 years. You presently have $35,000 to invest. What annual rate of interest
must you earn on your investment to cover the cost of your child’s college education?
A.8.65 percent
B.9.40 percent
C.10.00 percent
D.10.60 percent
E.11.00 percent
8) Which one of the following players on the floor of the NYSE is obligated to maintain
a fair, orderly market for a limited number of securities?
A.DMM
B.Floor trader
C.$2 broker
D.Commission broker
E.Floor broker
9) M&M Proposition II, without taxes, states that the:
A.capital structure of a firm is highly relevant
B.weighted average cost of capital decreases as the debt-equity ratio decreases
C.cost of equity increases as a firm increases its debt-equity ratio
D.return on equity is equal to the return on assets multiplied by the debt-equity ratio
E.return on equity remains constant as the debt-equity ratio increases
10) Laurie’s Ice Rink keeps an extra $1,500 in its checking account simply in case an
emergency arises. Which type of motive for holding cash does this represent?
A.Speculative
B.Float requirement
C.Transaction
D.Precautionary
E.Availability
11) Short-run exposure to exchange rate risk is best illustrated by which one of the
following?
A.Change in book value when the market value of an asset remains constant
B.Daily fluctuations in the spot rate
C.Increases in the forward rate as the time to settlement increases
D.Changes in relative economic conditions between two countries
E.Unrealized foreign exchange gains
12) The treasurer of a major U.S. firm has $12 million to invest for three months. The
interest rate in the U.S. is 0.42 percent per month. The interest rate in the UK is 0.52
percent per month. The spot exchange rate is £0.70, and the three-month forward rate is
£0.71. Ignoring transaction costs, in which country would the treasurer want to invest
the company’s funds? Why?
A.U.S.; earn an additional $47,211.16
B.U.S.; earn an additional $135,325.24
C.UK; earn an additional $9,418.02
D.UK; earn an additional $38,522.47
E.UK; earn an additional $121,510.67
13) Which one of the following will increase the cash flow from assets for a tax-paying
firm, all else constant?
A.An increase in net capital spending
B.A decrease in the cash flow to creditors
C.An increase in depreciation
D.An increase in the change in net working capital
E.A decrease in dividends paid
14) The Greasy Spoon Restaurant is considering a project with an initial cost of
$525,000. The project will not produce any cash flows for the first three years. Starting
in year 4, the project will produce cash inflows of $721,000 a year for three years. This
project is risky, so the firm has assigned it a discount rate of 16 percent. What is the
project’s net present value?
A.$417,294.85
B.$424,591.11
C.$451,786.86
D.$492,255.56
E.$512,408.23
15) This morning, Lambert Materials bought 10,000 of its outstanding shares in the
open market. What type of transaction was this?
A.Stock payout
B.Stock distribution
C.Stock dividend
D.Stock repurchase
E.Stock reversal
16) Which one of the following will increase the present value of a lump sum future
amount? Assume the interest rate is a positive value and all interest is reinvested.
A.Increase in the time period
B.Increase in the interest rate
C.Decrease in the future value
D.Decrease in the interest rate
E.None of these
17) A stock has paid dividends of $1.80, $1.85, $2.00, $2.20, and $2.25 over the past
five years, respectively. What is the average capital gains yield?
A.2.80 percent
B.3.24 percent
C.4.45 percent
D.5.34 percent
E.5.79 percent
18) Which one of the following transactions will increase the liquidity of a firm?
A.Cash purchase of new production equipment
B.Payment of an account payable
C.Cash purchase of inventory
D.Credit sale of inventory at cost
E.Cash payment of employee wages
19) Original Auto Parts has the following estimated sales.
Purchases are equal to 70 percent of the following quarter’s sales. The accounts payable
period is 60 days. Assume there are 30 days in each month. How much will the firm
owe its suppliers at the end of quarter 3?
A.$3,718
B.$3,967
C.$5,502
D.$7,653
E.$8,933
20) A project has the following cash flows. What is the internal rate of return?
A.10.53 percent
B.10.58 percent
C.10.60 percent
D.10.67 percent
E.11.10 percent
21) Lay’s Meat Market has 8,000 shares of stock outstanding at a price per share of $13.
What will the price per share be if the firm declares a 3-for-5 reverse stock split?
A.$7.80
B.$8.50
C.$13.00
D.$15.00
E.$21.67
22) Al’s Bakery has a checkbook balance of $1,650. A $700 deposit was made today
and will be added to the available balance tomorrow. There are two outstanding checks
that total to $623. There are no other outstanding items. Which one of the following
statements accurately reflects this situation?
A.The disbursement float is $1,650
B.The firm’s current available balance is equal to $1,650 plus $700 minus $623
C.The firm’s collection float exceeds its disbursement float
D.The firm’s available balance is greater than its book balance
E.The firm has a net disbursement float
23) Home Supply, Inc. has compiled the following information:
For 2014, the cash flow from assets is _____ and the cash flow to shareholders is
______.
A.$49,100; $62,500
B.$49,100; $76,800
C.$49,100; $81,100
D.$56,400; $76,800
E.$56,400; $79,300
24) A firm has sales of $529,000 for the year. The profit margin is 3.4 percent and the
retention ratio is 60 percent. What is the common-size percentage for the dividends
paid?
A.0.99 percent
B.1.18 percent
C.1.21 percent
D.1.36 percent
E.1.42 percent
25) Which one of the following is a unique characteristic of an income bond?
A.Interest income is tax-free
B.Interest income is paid at the time of issuance
C.Coupon payments are dependent on the issuer’s income
D.Coupon payments are paid on a regular monthly basis
E.Coupon payments can be converted into equity shares
26) Which one of the following will increase the cost of equity, all else held constant?
A.Increase in the dividend growth rate
B.Decrease in beta
C.Decrease in future dividends
D.Increase in stock price
E.Decrease in market risk premium
27) Which one of the following is a payment by a firm to its shareholders from any
source other than current or accumulated retained earnings?
A.Interest
B.Distribution
C.Retained earnings
D.Dividend
E.Stock repurchase
28) A new financial services company just opened in your town. To attract customers, it
is offering a “9-11” loan special. The company will lend $9 today in exchange for a
payment of $11 one year from today. What is the APR on this loan?
A.20.00 percent
B.20.76 percent
C.21.84 percent
D.22.22 percent
E.23.08 percent
29) Which one of the following terms denotes for certain that a bond is unsecured?
A.Debenture
B.Bearer form
C.Call provision
D.Sinking fund
E.Blanket mortgage
30) You have just made your first $5,000 contribution to your individual retirement
account. Assuming you earn a 5 percent rate of return and make no additional
contributions, what will your account be worth when you retire in 35 years? What if
you wait for 5 years before contributing?
A.$26,335.37; $23,011.60
B.$27,311.20; $29,803.04
C.$27,311.20; $22,614.08
D.$27,580.08; 21,609.71
E.$31,241.90; $32,614.08
31) Abbott Co. and Costello Co. have both announced IPOs at $24 per share. One of
these is undervalued by $3, and the other is overvalued by $1.30, but you have no way
of knowing which is which. You plan on buying 1,000 shares of each issue. If an issue
is underpriced, it will be rationed, and only half your order will be filled. What profit do
you actually expect?
A.$175
B.$200
C.$225
D.$350
E.$425
32) The risk premium for an individual security is based on which one of the following
types of risk?
A.Total
B.Surprise
C.Diversifiable
D.Systematic
E.Unsystematic
33) If a project with conventional cash flows has a profitability index of 1.0, the project
will:
A.never pay back
B.have a negative net present value
C.have a negative internal rate of return
D.produce more cash inflows than outflows in today’s dollars
E.have an internal rate of return that equals the required return
34) A firm has a current ratio of 1.4 and a quick ratio of 0.9 . Given this, you know for
certain that the firm:
A.pays cash for its inventory
B.has more than half its current assets invested in inventory
C.has more cash than inventory
D.has more current liabilities than it does current assets
E.has positive net working capital