ADP, Inc. needs to raise $43 million to finance its expansion into new markets. The
company will sell new shares of equity via a general cash offering to raise the needed
funds. The SEC filing fee and associated administrative expenses of the offering are
$389,000. If the offer price is $38 per share and the companys underwriters charge a
spread of 9 percent, how many shares need to be sold?
A. 1,254,743 shares
B. 1,354,743 shares
C. 1,406,211 shares
D. 1,514,141 shares
E. 1,587,923 shares
Wilsons Realty has total assets of $46,800, net fixed assets of $37,400, current
liabilities of $6,100, and long-term liabilities of $24,600. What is the total debt ratio?
A. 0.41
B. 0.60
C. 0.66
D. 0.78
E. 0.86
Madison Corner writes 20 checks a day for an average amount of $630 each. These
checks generally clear the bank 2.5 days after they are written. In addition, the firm
generally receives an average of $18,400 a day in checks. Deposited amounts are
available after 2 days. What is the amount of the firms disbursement float?
A. $12,600
B. $25,800
C. $28,350
D. $29,840
E. $31,500
The Sarbanes-Oxley Act of 2002 has:
A. reduced the annual compliance costs of all publicly traded firms in the U.S.
B. decreased senior managements involvement in the corporate annual report.
C. greatly increased the number of U.S. firms that are going public for the first time.
D. decreased the number of U.S. firms going public on foreign exchanges.
E. made officers of publicly traded firms personally responsible for the firms financial
statements.
Able Co. has $218,000 in taxable income and Bravo Co. has $5,600,000 in taxable
income. Suppose both firms have identified a new project that will increase taxable
income by $12,000. The additional project will increase Able Co.s taxes by _____ and
Bravo Co.s taxes by ____.
A. $1,800; $1,800
B. $4,080; $4,080
C. $4,080; $4,680
D. $4,680; $4,080
E. $4,680; $4,680
Lauries 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
Valentinos maintains a constant debt-equity ratio of 0.45. The firm had net income of
$11,800 for the year and paid $6,500 in dividends. The firm has total assets of $92,000.
What is the sustainable growth rate?
A. 7.38 percent
B. 8.27 percent
C. 9.11 percent
D. 9.62 percent
E. 10.38 percent
Common-size financial statements present all balance sheet account values as a
percentage of:
A. the forecasted budget.
B. sales.
C. total equity.
D. total assets.
E. last years account value.
Payback is best used to evaluate which type of projects?
A. Low-cost, short-term
B. High-cost, short-term
C. Low-cost, long-term
D. High-cost, long-term
E. Any size of long-term project
Lesters Dry Goods paid $1.10 per share in dividends last year. The company currently
has excess cash and would like to distribute $0.40 a share to its shareholders. However,
the company is concerned about increasing the dividend by that amount as it will not be
able to afford any increase in the future and doesnt want to lower the dividend once it
has been raised. Which one of the following is probably the best suggestion for
distributing the $0.40 per share?
A. Pay a special dividend of $0.40 per share
B. Pay an extra cash dividend of $0.40 per share
C. Pay a liquidating dividend of $0.40 per share
D. Increase the regular dividend by $0.11 and pay a special dividend of $0.29
E. Increase the regular dividend by $0.11 and pay an extra cash dividend of $0.29
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
A registered form bond is defined as a bond that:
A. is a bearer bond.
B. is held in street name.
C. pays coupon payments directly to the owner of record.
D. is listed with the Securities and Exchange Commission (SEC).
E. is unsecured.
Diamond Enterprises is considering a project that will produce cash inflows of
$238,000 a year for three years followed by $149,000 in year 4. What is the internal
rate of return if the initial cost of the project is $749,000?
A. 3.43 percent
B. 4.29 percent
C. 5.81 percent
D. 6.32 percent
E. 7.55 percent
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
Forbidden Fruit Extracts expects its earnings before interest and taxes to be $325,000 a
year forever. Currently, the firm has no debt. The cost of equity is 16.3 percent and the
tax rate is 35 percent. The company is in the process of issuing $2 million of bonds at
par that carry a 6.5 percent annual coupon. What is the unlevered value of the firm?
A. $371,429
B. $431,971
C. $747,485
D. $969,325
E. $1,296,012
The expected return on a security is currently based on a 22 percent chance of a 15
percent return given an economic boom and a 78 percent chance of a 12 percent return
given a normal economy. Which of the following changes will decrease the expected
return on this security?I. An increase in the probability of an economic boomII. A
decrease in the rate of return given a normal economyIII. An increase in the probability
of a normal economyIV. An increase in the rate of return given an economic boom
A. I and II only
B. I and IV only
C. II and III only
D. I, III, and IV only
E. I, II, III, and IV
To ensure an unsecured line of credit is used solely for short-term purposes, the loan
arrangement frequently includes which one of the following?
A. Cleanup period
B. Grace period
C. Revolver
D. Factoring arrangement
E. Lien on the borrowers inventory
Miller Lite, Inc. is considering a new four-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 four-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 35 percent, what is the OCF for this project?
A. $1,160,000
B. $997,720
C. $684,280
D. $845,000,000
E. $911,760
Morgantown Movers has net working capital of $11,300, current assets of $31,200,
equity of $53,400, and long-term debt of $11,600. What is the amount of the net fixed
assets?
A. $31,800
B. $32,900
C. $45,500
D. $48,100
E. $53,700
The Rent-to-Own Store has a six-year, interest-only loan at 12 percent interest. The firm
originally borrowed $125,000. How much will the firm pay in total interest over the life
of the loan?
A. $15,000.00
B. $53,666.67
C. $67,500.00
D. $69,000.00
E. $90,000.00