1) Turner Industries started a new project three months ago. Sales arising from this
project are exceeding all expectations. Given this, which one of the following is
management most apt to implement?
A.Option to wait
B.Soft rationing
C.Strategic option
D.Option to abandon
E.Option to expand
2) Burke’s Corner currently sells blue jeans and T-shirts. Management is considering
adding fleece tops to its inventory to provide a cooler weather option. The tops would
sell for $49 each with expected sales of 3,600 tops annually. By adding the fleece tops,
management feels the firm will sell an additional 220 pairs of jeans at $59 a pair and
350 fewer T-shirts at $18 each. The variable cost per unit is $36 on the jeans, $9 on the
T-shirts, and $21 on the fleece tops. With the new item, the depreciation expense is
$27,000 a year and the fixed costs are $62,000 annually. The tax rate is 34 percent.
What is the project’s operating cash flow?
A.$27,789
B.$34,708
C.$36,049
D.$38,419
E.$40,201
3) Better Berries has a new project that requires $869,000 of equipment. What is the
depreciation in year 6 of this project if the equipment is classified as 7-year property for
MACRS purposes? The MACRS allowance percentages are as follows, commencing
with year one: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46 percent.
A.$17,294
B.$17,301
C.$32,988
D.$77,515
E.$77,602
4) Given the following partial stock quote, what was the closing price on the previous
trading day if the firm’s earnings per share are $1.85?
A.$16.71
B.$16.77
C.$16.89
D.$17.09
E.$17.40
5) Hi Tech Products has 35,000 bonds outstanding that are currently quoted at 102.3.
The bonds mature in 11 years and carry a 9 percent annual coupon. What is the firm’s
aftertax cost of debt if the applicable tax rate is 35 percent?
A.4.47 percent
B.4.79 percent
C.5.63 percent
D.5.98 percent
E.6.31 percent
6) Which one of the following will decrease the net working capital of a firm?
A.Obtaining a 3-year loan and using the proceeds to buy inventory
B.Collecting a payment from a credit customer
C.Obtaining a 5-year loan to buy equipment
D.Selling inventory at a profit
E.Making a payment on a long-term debt
7) Which of the following will increase the sustainable rate of growth for a firm?
I. Decreasing the profit margin
II. Increasing the dividend payout ratio
III. Decreasing the capital intensity ratio
IV. Increasing the target debt-equity ratio
A.I and II only
B.III and IV only
C.II and IV only
D.I, III, and IV only
E.I, II, III, and IV
8) The following table presents forecasted financial and other information for Scott’s
Miracle-Gro Co.:
What is an appropriate estimate of Scott’s terminal value as of the end of 2014, using a
warranted multiple of free cash flow as your estimate?
A.$155 million
B.$2,895 million
C.$3,007.0 million
D.$4,365.0 million
E.$7,042.2 million
9) The profitability index reflects the value created per dollar:
A.invested
B.of sales
C.of net income
D.of taxable income
E.of shareholders’ equity
10) A firm uses its weighted average cost of capital to evaluate the proposed projects for
all of its varying divisions. By doing so, the firm:
A.automatically gives preferential treatment in the allocation of funds to its riskiest
division
B.encourages the division managers to only recommend their most conservative
projects
C.maintains the current risk level and capital structure of the firm
D.automatically maximizes the total value created for its shareholders
E.allocates capital funds evenly amongst its divisions
11) A firm’s float management policy is most apt to include which one of the following
statements?
A.All invoices are to be paid the same day they are received
B.All outgoing checks are to be delivered by the fastest means possible
C.The depository bank needs to process all deposits in accordance with the Check
Clearing Act for the 21st Century
D.Any check received is to be held until the customer’s account has been updated to
record the payment
E.Accounts payables processing should be given priority over accounts receivables
processing
12) The ex-dividend date is defined as _____ day(s) before the date of record.
A.three business
B.three
C.two business
D.two
E.one
13) Which one of the following statements concerning issue costs is correct?
A.The underwriters pay the spread
B.Taxes are an indirect underwriting cost
C.SEOs tend to be less costly than IPOs
D.Straight bonds are more costly to issue than convertible bonds
E.The total direct cost as a percentage of gross proceeds for an IPO tends to decrease as
the size of the offer decreases
14) Which one of the following has the highest effective annual rate?
A.6 percent compounded annually
B.6 percent compounded semi-annually
C.6 percent compounded quarterly
D.6 percent compounded monthly
E.All the other answers have the same effective annual rate
15) The Pizza Parlor paid $3,500 in dividends and $17,600 in interest over the past year.
Sales totaled $211,800 with costs of $167,900. The depreciation expense was $16,500.
The applicable tax rate is 34 percent. What is the amount of the operating cash flow?
A.$14,232
B.$15,306
C.$28,222
D.$39,988
E.$40,568
16) A firm has inventory of $11,400, accounts payable of $9,800, cash of $850, net
fixed assets of $12,150, long-term debt of $9,500, accounts receivable of $6,600, and
total equity of $11,700. What is the common-size percentage for the net fixed assets?
A.19.60 percent
B.26.67 percent
C.39.19 percent
D.42.08 percent
E.48.75 percent
17) A firm has net income of $31,300, depreciation of $5,100, taxes of $14,600, and
interest paid of $3,100. What is the cash coverage ratio?
A.8.78
B.10.10
C.14.14
D.16.32
E.17.45
18) Travis invests $10,000 today into a retirement account. He expects to earn 8
percent, compounded annually, on his money for the next 26 years. After that, he wants
to be more conservative, so only expects to earn 5 percent, compounded annually. How
much money will he have in his account when he retires 38 years from now, assuming
this is the only deposit he makes into the account?
A.$129,411.20
B.$132,827.88
C.$134,616.56
D.$141,919.67
E.$142,003.12
19) The U.S. dollar equivalent is 0.4502 for the Brazilian real and 1.4729 for the U.K.
pound. Which one of the following statements is correct given this information?
A.One U.S. dollar will buy 0.4502 Brazilian reals
B.If you have 0.4502 Brazilian reals, they are worth 1.4729 U.K. pounds
C.One U.K. pound will buy 1.4729 U.S. dollars
D.One Brazilian real will buy 1.4729 U.K. pounds
E.One U.S. dollar will buy 1.4729 U.K. pounds
20) Keyser Trucking just paid its annual regular cash dividend of $1.22 a share, along
with a special dividend of $0.25 a share. The company follows a policy of increasing its
dividend by 2 percent annually. Which one of the following is the best estimate of the
firm’s next annual dividend payment?
A.$1.22
B.$1.24
C.$1.49
D.$1.50
E.$1.54
21) You bought a yen-denominated corporate bond at the beginning of the year for
100,000. The bond paid 3 percent annual interest and was trading for 110,000 at
year-end. The exchange rate was $1 = 100 at the beginning of the year and $1 = 122 at
year-end. What was your U.S. dollar holding period return on the bond?
A.3%
B.7%
C.10%
D.13%
E.30%
22) Kate is the CFO of a major firm and has the job of assigning discount rates to each
project that is under consideration. Kate’s method of doing this is to assign an
incrementally higher rate as the risk level of the project increases over that of the
current firm. Likewise, she assigns lower rates as the risk level declines. Which one of
the following approaches is Kate using to assign the discount rates?
A.Pure play approach
B.Divisional rating
C.Subjective approach
D.Straight WACC approach
E.Equity rating
23) Suppose the spot exchange rate for the Hungarian forint is HUF 238. Interest rates
in the United States are 4.1 percent per year. They are 3.6 percent in Hungary. What do
you predict the exchange rate will be in three years?
A.HUF 234.45
B.HUF 236.90
C.HUF 241.59
D.HUF 236.81
E.HUF 239.19
24) Miller’s, Inc. is considering a new 4-year expansion project that requires an initial
fixed asset investment of $3.6 million. The fixed asset will be depreciated straight-line
to zero over its 4-year life, after which time it will be worthless. The project is
estimated to generate $3.9 million in annual sales, with costs of $2.6 million. If the tax
rate is 34 percent, what is the OCF for this project?
A.$1,164,000
B.$997,720
C.$684,280
D.$858,000
E.$911,760
25) Which one of the following is the best example of unsystematic risk?
A.Inflation exceeding market expectations
B.A warehouse fire
C.Decrease in corporate tax rates
D.Decrease in the value of the dollar
E.Increase in consumer spending
26) You want to buy a new sports coupe for $84,600, and the finance office at the
dealership has quoted you a 7.1 percent APR loan for 48 months to buy the car. What
will your monthly payments be? What is the effective annual rate on this loan?
A.$2,017.84; 7.24 percent
B.$2,017.84; 7.29 percent
C.$2,017.84; 7.34 percent
D.$2,029.78; 7.29 percent
E.$2,029.78; 7.34 percent
27) What is the goal of financial management for a sole proprietorship?
A.Maximize net income given the current resources of the firm
B.Decrease long-term debt to reduce the risk to the owner
C.Minimize the tax impact on the proprietor
D.Maximize the market value of the equity
E.Minimize the reliance on fixed costs
28) You find a certain stock that had returns of 14 percent, -27 percent, 19 percent, and
21 percent for four of the last five years. The average return of the stock over this
period was 9.5 percent. What is the standard deviation of the stock’s returns?
A.11.67 percent
B.12.90 percent
C.14.14 percent
D.18.47 percent
E.20.59 percent
29) Stellar Technologies has 48,000 shares of stock outstanding at a market price of $6
a share. Which one of the following stock splits should the firm declare if it wants to
increase the stock price to exactly $20 a share? Ignore any taxes or market
imperfections.
A.10-for-3 stock split
B.3-for-1 stock split
C.1-for-3-reverse stock split
D.2-for-7 reverse stock split
E.3-for-10 reverse stock split
30) Contingency planning focuses on the:
A.opportunity costs involved with a project
B.sunk costs related to a project
C.economic effects on a project’s profitability
D.managerial options implicit in a project
E.optional capital requirements of a project