A registration statement is effective on the 20th day after filing unless:
A. the SEC is backlogged with statements.
B. a tombstone ad is issued indicating its demise.
C. a letter of comment suggesting changes is issued by the SEC.
D. a syndicate can be formed sooner.
E. the issue exceeds $50 million in which case the wait period is 30 days.
Answer:
Futures contracts:
A. are traded off-exchange.
B. require delivery on a specific date.
C. are standardized.
D. are individually negotiated.
E. marked to market on a weekly basis.
Answer:
The long-term debt ratio is probably of most interest to a firm’s:
A. credit customers.
B. employees.
C. suppliers.
D. mortgage holder.
E. stockholders.
Answer:
The futures contracts on silver are quoted in dollars per troy ounce with a contract size
of 5,000 troy ounces. Contract quotes for the day included an open value of 16.650, a
high of 16.660, a low of 16.620, and a settle of 16.645.If you purchased three contracts
at the closing price what was the dollar cost of your purchase ignoring all transaction
costs?
A. $83,250
B. $82,500
C. $249,675
D. $249,750
E. $83,225
Answer:
When computing the weighted average cost of capital, which of these are adjusted for
taxes?
A. cost of equity
B. cost of preferred stock
C. both the cost of equity and the cost of preferred stock
D. the costs of all forms of financing
E. cost of debt
Answer:
A decrease in a firm’s current cash flows resulting from the implementation of a new
project is referred to as:
A. salvage value expenses.
B. net working capital expenses.
C. sunk costs.
D. opportunity costs.
E. erosion costs.
Answer:
The Quorum Company has a prospective 6-year project that requires initial fixed asset
costing $962,000, annual fixed costs of $403,400, variable costs per unit of $123.60, a
sales price per unit of $249, a discount rate of 14 percent, and a tax rate of 35 percent.
What is the present value break-even point in units per year?
A. 6,081
B. 4,995
C. 5,563
D. 6,144
E. 5,852
Answer:
The common stock of Fine China sells for $38.42 a share. The stock is expected to pay
an annual dividend of $1.80 next year and increase that amount by 4 percent annually
thereafter. What is the market rate of return on this stock?
A. 9.04%
B. 9.13%
C. 8.69%
D. 9.22%
E. 8.36%
Answer:
According to the pecking-order theory, a firm’s leverage ratio is determined by:
A. the value of the tax benefit of debt.
B. equating the tax benefit of debt to the financial distress costs of debt.
C. the firm’s financing needs.
D. the market rate of interest.
E. the profitability of the firm.
Answer:
For a leveraged firm the equity beta is __________ the asset beta.
A. greater than
B. less than
C. equal to
D. sometimes greater than and sometimes less than
E. unrelated to
Answer:
If you discount a project’s unlevered aftertax cash flows by the _____ and then subtract
the initial investment you will calculate the:
A. cost of capital for the unlevered firm; adjusted present value.
B. cost of equity capital; project NPV.
C. weighted cost of capital; project NPV.
D. cost of capital for the unlevered firm; all-equity net present value.
E. cost of equity capital for the levered firm; all-equity net present value.
Answer:
If Microsoft were to acquire an airline, the acquisition would be classified as a _____
acquisition.
A. horizontal
B. longitudinal
C. conglomerate
D. vertical
E. complementary resources
Answer:
Beau Markets has a beta of 1.12, a cost of debt of 8.6 percent, and a debt-to-value ratio
of .6. The current risk-free rate is 3.22 percent and the market rate of return is 14.47
percent. What is the company’s cost of equity capital?
A. 12.97%
B. 10.95%
C. 15.82%
D. 11.49%
E. 13.96%
Answer:
The appropriate cost of debt to the firm is the:
A. pretax market cost of debt.
B. levered equity rate.
C. aftertax market borrowing rate.
D. pretax coupon rate.
E. aftertax coupon rate.
Answer:
Venture capitalists will frequently:
A. hold voting preferred stock which grants them priorities over common stockholders
in the event of a sale or liquidation.
B. hold voting common stock which grants them priorities over preferred stockholders
in the event of a sale or liquidation.
C. hold nonvoting preferred stock.
D. hold nonvoting common stock.
E. not hold any significant amount of stock.
Answer:
If you consider stockholders to be the owners of a firm, then those stockholders:
A. own a call option on the firm with an exercise price equal to the firm’s total equity.
B. own a put option on the firm with an exercise price equal to the firm’s total debt.
C. have written a put option on the firm with an exercise price equal to the firm’s total
equity.
D. have written a call option on the firm with an exercise price equal to the firm’s total
debt.
E. own a put option on the firm with an exercise price equal to the firm’s total assets.
Answer:
A short-term loan which is secured by inventory that is housed and supervised by a
third party is referred to as:
A. a blanket inventory lien.
B. a secured line of credit.
C. banker’s acceptance.
D. a trust receipt financing arrangement.
E. field warehousing financing.
Answer:
For 2014, Blue Moon had sales of $318,000, cost of goods sold of $249,000 and
inventory of $138,000. For 2015, sales were $349,000, cost of goods sold were
$256,000, and inventory was $151,000. What was the inventory period for 2015?
A. 194.01 days
B. 216.99 days
C. 231.09 days
D. 206.03 days
E. 189.42 days
Answer:
According to the clientele effect, firms can only boost their stock price:
A. by increasing the dividend payout ratio.
B. by increasing their regular cash dividends.
C. by setting their dividend to the level expected by the highest-dividend-receiving
satisfied clientele group.
D. by commencing dividend payments if they are a non-dividend-paying firm.
E. if an unsatisfied clientele group exists.
Answer:
The separation principle states that an investor will:
A. choose between any efficient portfolio and a riskless asset to generate the desired
expected return.
B. choose a portfolio from the efficient set based on individual risk tolerance.
C. never choose to invest in a riskless asset due to the low expected rate of return.
D. combine a riskless asset with the tangency portfolio based on their risk tolerance
level.
E. combine a riskless asset with the minimum variance portfolio based on their risk
tolerance level.
Answer:
What is the present value of $6,811 to be received in one year if the discount rate is 6.5
percent?
A. $6,395.31
B. $6,023.58
C. $6,643.29
D. $6,671.13
E. $7,253.72
Answer:
Neilson’s is a new firm that sells a product with a variable cost of $62 a unit. The firm
has a monthly required return of 1.8 percent. The firm wants to offer all new customers
30 days of credit and expects that if it does so, that 12 percent will default on payment
while the others become repeat customers. What is the minimum price the firm could
charge to break-even on an NPV basis?
A. $82.15
B. $74.09
C. $63.27
D. $98.14
E. $78.40
Answer:
What is the value of one August 25 call option contract?
A. $4.60
B. $.10
C. $615
D. $10
E. $6.15
Answer:
Short-term finance deals with:
A. the timing of cash flows.
B. acquiring and selling fixed assets.
C. financing long-term projects.
D. capital budgeting.
E. issuing additional shares of common stock.
Answer:
In a best efforts offering the investment bank makes its money primarily by earning:
A. the spread between the buying and offering price.
B. a commission on each share sold.
C. a negotiated percentage of the offering price.
D. a flat fee charged for services rendered.
E. the difference between the offer price and the warrant price.
Answer:
It will cost $3,000 to acquire a small ice cream cart. Cart sales are expected to be
$1,400 a year for three years. After the three years, the cart is expected to be worthless
as that is the expected remaining life of the cooling system. What is the payback period
of the ice cream cart?
A. .83 years
B. 1.14 years
C. 1.83 years
D. 2.14 years
E. 2.83 years
Answer:
Tiger’s is merging with Lion’s. Tiger’s has debt with a face value of $80 and Lion’s has
debt with a face value of $50. The pre-merger values of the firms given two economic
states with equal probabilities of occurrence are as follows:
What will be the gain or loss to the current shareholders of Lion’s if the merger provides
no synergy?
A. “$10
B. $0
C. -$5
D. $5
E. $10
Answer:
A firm has an inventory turnover rate of 15.7, a receivables turnover rate of 20.2, and a
payables turnover rate of 14.6. How long is the operating cycle?
A. 28.46 days
B. 16.32 days
C. 32.87 days
D. 13.08 days
E. 23.37 days
Answer:
You want to save sufficient funds to generate an annual cash flow of $55,000 a year for
25 years as retirement income. You currently have no retirement savings but plan to
save an equal amount each year for the next 38 years until your retirement. How much
do you need to save each year if you can earn 7.5 percent on your savings?
A. $3,333.33
B. $2,640.85
C. $3,146.32
D. $2,889.04
E. $3,406.16
Answer:
The By-Way has sales of $435,000, costs of $254,000, depreciation of $35,000, interest
expense of $22,000, and taxes of $43,400. What is the amount of the operating cash
flow?
A. $115,600
B. $157,900
C. $137,600
D. $322,100
E. $114,340
Answer:
Assume the current spot rate is C$1.1415 and the one-year forward rate is C$1.1252.
The nominal risk-free rate in Canada is 7.8 percent while it is 7.2 percent in the U.S.
Using covered interest arbitrage, you can earn a profit of ___ for every $1 invested over
the next year.
A. $.0163
B. $.0216
C. -$.0040
D. -$.0088
E. -$.0840
Answer:
The unexpected return on a security, U, is made up of:
A. market risk and systematic risk.
B. systematic risk and unsystematic risk.
C. idiosyncratic risk and unsystematic risk.
D. expected return and market risk.
E. expected return and idiosyncratic risk.
Answer:
The unbiased forward rate is a:
A. condition where a future spot rate is equal to the current spot rate.
B. guarantee of a future spot rate at one point in time.
C. condition where the spot rate is expected to remain constant over a period of time.
D. relationship between the future spot rate of two currencies at an equivalent point in
time.
E. predictor of the future spot rate at the equivalent point in time.
Answer: