Which one of the following is an advantage of being a limited partner?
A. Nontaxable share of any profits
B. Control over the daily operations of the firm
C. Losses limited to capital invested
D. Unlimited profits without risk of incurring a loss
E. Active market for ownership interest
The rate of return on which one of the following is used as the risk-free rate?
A. Long-term government bonds
B. Long-term corporate bonds
C. Inflation, as measured by the Consumer Price Index
D. U.S. Treasury bill
E. Large-company stocks
Which one of the following must equal zero if a firm pays a constant annual dividend?
A. Dividend yield
B. Capital gains yield
C. Total return
D. Market value per share
E. Book value per share
West Coast Builders is offering preferred stock for sale with a 6.75 percent rate of
return. What is the amount of the annual dividend on this stock if the current market
price per share is $83.87?
A. $5.66
B. $6.09
C. $6.53
D. $7.50
E. $7.75
Which one of the following is the pretax cost of debt?
A. Average coupon rate on the firms outstanding bonds
B. Coupon rate on the firms latest bond issue
C. Weighted average yield to maturity on the firms outstanding debt
D. Average current yield on the firms outstanding debt
E. Annual interest divided by the market price per bond for the latest bond issue
Miller Brothers is considering a project that will produce cash inflows of $61,500,
$72,800, $84,600, and $68,000 a year for the next four years, respectively. What is the
internal rate of return if the initial cost of the project is $225,000?
A. 9.39 percent
B. 10.22 percent
C. 11.47 percent
D. 11.62 percent
E. 12.24 percent
The Three Stooges has the following estimated sales.
Purchases are equal to 75 percent of the following quarters sales. The accounts payable
period is 45 days. Assume each month has 30 days. What is the estimated accounts
payable balance at the end of quarter 2?
A. $6,300
B. $6,520
C. $6,624
D. $4,901
E. $4,200
The Fried Green Tomatoes Restaurant increased its operating cycle from 140 days to
148 days while the cash cycle decreased by 3 days. How have these changes affected
the accounts payable period?
A. Decreased by 11 days
B. Decreased by 5 days
C. Decreased by 1 day
D. Increased by 5 day
E. Increased by 11 days
A project has an annual operating cash flow of $45,000. Initially, this four-year project
required $3,800 in net working capital, which is recoverable when the project ends. The
firm also spent $21,500 on equipment to start the project. This equipment will have a
book value of $4,300 at the end of year 4. What is the cash flow for year 4 of the project
if the equipment can be sold for $5,400 and the tax rate is 34 percent?
A. $51,724
B. $52,038
C. $53,826
D. $53,862,900
E. $53,900
Which one of the following is an argument that dividend policy is irrelevant?
A. Flotation costs as they apply to equities
B. Tax laws as they currently exist
C. An unsatisfied demand for high-dividend-paying stocks
D. Current equilibrium in the clientele dividend market
E. The current tax exclusion available to corporate investors
The Sausage Hut is looking at a new sausage system with an installed cost of $438,000.
This cost will be depreciated straight-line to zero over the projects four-year life, at the
end of which the sausage system can be scrapped for $69,000. The sausage system will
save the firm $129,000 per year in pretax operating costs, and the system requires an
initial investment in net working capital of $29,000, which will be recouped at project
end. If the tax rate is 35 percent and the discount rate is 9 percent, what is the NPV of
this project?
A. -$18,870
B. -$6,320
C. $2,560
D. $14,410
E. $26,880
The Underground Cafe has an operating cash flow of $187,000 and a cash flow to
creditors of $71,400 for the past year. During that time, the firm invested $28,000 in net
working capital and incurred net capital spending of $47,900. What is the amount of the
cash flow to stockholders for the last year?
A. -$171,500
B. -$86,700
C. $21,200
D. $39,700
E. $111,100
You are considering the following two mutually exclusive projects. The crossover point
is _____ and Project _____ should be accepted if the discount rate is 14 percent.
A. 12.79 percent; B
B. 13.28 percent; A
C. 13.28 percent; B
D. 15.96 percent; A
E. 15.96 percent; B
A security produced returns of 13 percent, 18 percent, 9 percent, 23 percent, and -17
percent over the past five years, respectively. Based on these five years, what is the
probability that this stock will earn more than 24.76 percent in any one given year?
A. 0.5 percent
B. 1.0 percent
C. 2.5 percent
D. 5.0 percent
E. 16.0 percent
Many of the smaller sell orders sent to the floor of the NYSE are:
A. handled by the floor traders.
B. purchased by the commission brokers.
C. electronically transmitted to the DMMs.
D. executed on an ECN.
E. executed in the primary market.
The sustainable growth rate is defined as the maximum rate at which a firm can grow
given which of the following conditions?
A. No new external financing of any kind
B. No new debt but additional external equity equal to the increase in retained earnings
C. New debt and external equity in equal proportions
D. New debt and external equity, provided the debt-equity ratio remains constant
E. No new equity and a constant debt-equity ratio
Currently, you own a portfolio comprised of the following three securities. How much
of the riskiest security should you sell and replace with risk-free securities if you want
your portfolio beta to equal 90 percent of the market beta?
A. $7,023.15
B. $7,811.29
C. $8,666.67
D. $9,613.64
E. $10,318.50
A recent alumnus of your university gifted money to the school to fund annual
scholarships for students in need. The school expects to earn an average rate of return of
5.5 percent and distribute $50,000 annually in scholarships. What was the amount of the
gift?
A. $384,090.91
B. $485,293.05
C. $615,384.62
D. $658,929.38
E. $909,090.91
For the past year, LP Gas, Inc. had cash flow from assets of $38,100 of which $21,500
flowed to the firms stockholders. The interest paid was $2,300. What is the amount of
the net new borrowing?
A. -$14,300
B. -$9,700
C. $12,300
D. $14,300
E. $18,900
Electronic 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 firms
aftertax cost of debt if the applicable tax rate is 30 percent?
A. 4.47 percent
B. 4.79 percent
C. 6.07 percent
D. 6.98 percent
E. 8.67 percent