Decatur Marina has a line of credit with a local bank that permits it to borrow up to $1.3
million at any time. The interest rate is 0.60 percent per month. The bank charges
compound interest and also requires that 5 percent of the amount borrowed be deposited
into a non-interest-bearing account. What is the effective annual interest rate on this
loan?
A. 6.68 percent
B. 7.43 percent
C. 7.74 percent
D. 7.83 percent
E. 8.91 percent
Which one of the following is the price that an investor pays to purchase an outstanding
bond?
A. Dirty price
B. Face value
C. Call price
D. Bid price
E. Clean price
Essary Brothers has 39,000 shares of stock outstanding at a price per share of $59. How
many shares will be outstanding if the firm does a 3-for-2 stock split?
A. 24,000 shares
B. 39,000 shares
C. 55,667 shares
D. 58,500 shares
E. 61,000 shares
Which one of the following is a capital structure decision?
A. Determining the optimal inventory level
B. Establishing the preferred debt-equity level
C. Selecting new equipment to purchase
D. Setting the terms of sale for credit sales
E. Determining when suppliers should be paid
A call provision grants the bond issuer the:
A. right to contact each bondholder to determine if he or she would like to extend the
term of his or her bonds.
B. option to exchange the bonds for equity securities.
C. right to automatically extend the bonds maturity date.
D. right to repurchase the bonds on the open market prior to maturity.
E. option of repurchasing the bonds prior to maturity at a prespecified price.
You have $175,000 on deposit with no outstanding checks or uncleared deposits. One
day you write a check for $18,000. What is your book balance?
A. $157,000
B. $158,500
C. $175,000
D. $178,500
E. $189,000
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 companys 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
Southern Wear stock has an expected return of 14.6 percent. Given the information
below, what is the expected return on this stock if the economy is normal? Round your
answer to the nearest whole percentage.
A. 13 percent
B. 17 percent
C. 18 percent
D. 21 percent
E. 23 percent
Popeyes Fried Chicken just took out an 8 percent interest-only loan of $50,000 for three
years. Payments are to be made at the end of each year. What is the amount of the
payment that will be due at the end of year 3?
A. $19,052.58
B. $20,166.67
C. $50,000.00
D. $54,000.00
E. $61,824.60
Currently, you can exchange $1 for SF 1.14. Assume that the average inflation rate in
the U.S. over the next two years will be 2.5 percent annually as compared to 3 percent
in Switzerland. Based on this information and relative purchasing power parity, which
one of the following assumptions can you make regarding the next two years?
A. The Swiss franc will appreciate against all currencies.
B. The Swiss franc will appreciate against the U.S. dollar.
C. The U.S. dollar will appreciate against all currencies.
D. The U.S. dollar will appreciate against the Swiss franc.
E. Both the U.S. dollar and the Swiss franc will appreciate against all other currencies.
The Tool Box needs to purchase a new machine costing $1.46 million. Management is
estimating the machine will generate cash inflows of $223,000 the first year and
$600,000 for the following three years. If management requires a minimum 12 percent
rate of return, should the firm purchase this particular machine? Why or why not?
A. Yes, because the IRR is 10.75 percent
B. Yes, because the IRR is 12.74 percent
C. No, because the IRR is 10.75 percent
D. No, because the IRR is 12.74 percent
E. The answer cannot be determined as there are multiple IRRs
Great Lakes Packing has two bond issues outstanding. The first issue has a coupon rate
of 9 percent, matures in 3 years, has a total face value of $6 million, and is quoted at
108 percent of face value. The second issue has a 7.5 percent coupon, matures in 16
years, has a total face value of $18 million, and is quoted at 97 percent of face value.
Both bonds pay interest semiannually. What is the firms weighted average aftertax cost
of debt if the tax rate is 35 percent?
A. 4.78 percent
B. 5.12 percent
C. 5.63 percent
D. 5.95 percent
E. 6.08 percent
The stock of Wiley United has a beta of 0.92. The market risk premium is 8.4 percent
and the risk-free rate is 3.2 percent. What is the expected return on this stock?
A. 8.87 percent
B. 10.69 percent
C. 11.11 percent
D. 11.52 percent
E. 12.01 percent
What is LIBOR and what role does it play in international finance?
Explain why the capital structure of a firm is irrelevant to equity investors.
Explain why investors receive exactly what they pay for in a totally efficient market.
You want to have $2.5 million saved on the day you retire. Explain how you can
minimize the amount of cash you must invest in order to achieve this goal.
Explain the differences between a broker market and a dealer market.
Explain why the net present value is considered to be the best method of analyzing an
investment.
What are the differences between a regular cash dividend, a liquidating dividend, a
special dividend, and an extra cash dividend?
Explain the difference between a sunk cost and an opportunity cost and give an example
of each.