In working on a bid project you have determined that $245,000 of fixed assets will be
required and that they will be depreciated straight-line to zero over the 5-year life of the
project. You have also determined that the discount rate should be 14.5 percent and the
tax rate will be 35 percent. In addition, the annual cash costs will be $68,500. After
considering all of the project’s cash flows you have determined that the required
operating cash flow is $68,700. What is the amount of annual sales revenue that is
required?
A. $162,515.75
B. $142,018.27
C. $157,202.19
D. $147,807.69
E. $152,311.89
Answer:
Bryan invested in Bryco stock when the firm was financed solely with equity. The firm
now has a debt-equity ratio of .3. To maintain the same level of leverage he originally
had, Bryan needs to:
A. borrow some money and purchase additional shares of Bryco stock.
B. maintain his current position in Bryco stock.
C. sell some shares of Bryco stock and hold the proceeds in cash.
D. sell some shares of Bryco stock and loan out the proceeds.
E. sell half of his Bryco stock and invest the proceeds in risk-free securities.
Answer:
Sensitivity analysis is conducted by:
A. holding all variables at their base level and changing the required rate of return.
B. changing the value of two variables to determine their interdependency.
C. changing the value of a single variable and computing the change in the project’s
NPV.
D. assigning either the best or the worst possible value to every variable and comparing
the results to those achieved by the base case.
E. reviewing a project after implementation to determine how the actual results are
comparing to the predicted results.
Answer:
A dissident group solicits votes in an attempt to replace existing management. This is
called a:
A. tender offer.
B. shareholder derivative action.
C. proxy contest.
D. management freeze-out.
E. shareholder’s revenge.
Answer:
The holders of Mikayla Corporation’s bond with a face value of $1,000 can exchange
that bond for 20 shares of stock. The stock is selling for $49.40 a share. What is the
conversion premium?
A. 0%
B. 3.23%
C. 1.20%
D. -3.23%
E.
Answer:
Which one of the following statements concerning a sole proprietorship is correct?
A. The life of the firm is limited to the life span of the owner.
B. The owner can generally raise large sums of capital quite easily.
C. The ownership of the firm is easy to transfer to another individual.
D. The company must pay separate taxes from those paid by the owner.
E. The legal costs to form a sole proprietorship are quite substantial.
Answer:
Critics of behavioral finance use which one of these as an argument for market
efficiency?
A. research papers supporting market efficiency tend to end up “in file drawers”
B. underreactions fail to exist in actual studies
C. the overall community of financial economists firmly decided the markets are
efficient
D. overreactions offset underreactions in almost every market study conducted to date
E. conservatism has been found to be absent in studies under actual market conditions
Answer:
A standby underwriting arrangement in conjunction with a rights offering provides the:
A. issuer with methods to cancel the offering should they so desire.
B. issuer with an alternate investment banker if a conflict between the issuer and the
original investment banker arises.
C. investment banker with an oversubscription privilege to ensure profits are earned.
D. issuer with an alternative avenue of sale to ensure success of the rights offering.
E. investment bankers with a means of withdrawing from their firm offer.
Answer:
Matt is analyzing two mutually exclusive projects of similar size. Both projects have
5-year lives. Project A has an NPV of $18,389, a payback period of 2.38 years, an IRR
of 15.9 percent, and a discount rate of 13.6 percent. Project B has an NPV of $19,748, a
payback period of 2.69 years, an IRR of 13.4 percent, and a discount rate of 12.8
percent. He can afford to fund either project, but not both. Matt should accept:
A. Project A because of its payback period.
B. both projects as they both have positive NPVs.
C. Project B based on its NPV.
D. Project A because of its IRR.
E. neither project based on their IRRs.
Answer:
A stock with a beta of zero would be expected to have a rate of return equal to:
A. the risk-free rate.
B. the market rate.
C. the prime rate.
D. the market rate less the risk-free rate.
E. zero.
Answer:
Which one of the following is a use of cash?
A. selling goods from inventory
B. sale of a marketable security held by the firm
C. submitting taxes to the government
D. obtainment of a long-term loan
E. collection of a past-due accounts receivable
Answer:
Allison’s has a market value equal to its book value. Currently, the firm has excess cash
of $1,100 and other assets of $12,400. Equity is worth $13,500. The firm has 2,500
shares of stock outstanding and net income of $10,800. What will be the new earnings
per share if the firm uses its excess cash to complete a stock repurchase?
A. $4.32
B. $4.50
C. $4.82
D. $4.70
E. $4.40
Answer:
A general partner:
A. has less legal liability than a limited partner.
B. can end the partnership by withdrawing.
C. faces double taxation whereas a limited partner does not.
D. cannot lose more than the amount of his/her equity investment.
E. is the term applied only to corporations which invest in partnerships.
Answer:
Generous compensation packages paid to a firm’s top management in the event of a
takeover are referred to as:
A. golden parachutes.
B. poison puts.
C. white knights.
D. shark repellents.
E. bear hugs.
Answer:
A major network for foreign transactions is operated by a Belgian non-profit
cooperative known as:
A. EURX.
B. BELX.
C. SWIFT.
D. LIBOR.
E. GLOBEX.
Answer:
Agency costs refer to:
A. the total dividends paid to stockholders over the lifetime of a firm.
B. the costs that result from default and bankruptcy of a firm.
C. corporate income subject to double taxation.
D. the costs of any conflicts of interest between stockholders and management.
E. the total interest paid to creditors over the lifetime of the firm.
Answer:
What is the sustainable growth rate for 2015?
A. 13.97%
B. 14.46%
C. 15.54%
D. 12.63%
E. 10.91%
Answer:
Six months ago, you purchased 1,200 shares of ABC stock for $21.20 a share and have
received total dividend payments of $.60 a share. Today, you sold all of your shares for
$22.20 a share. What is your total dollar return on this investment?
A. $720
B. $1,200
C. $1,440
D. $1,920
E. $3,840
Answer:
You just sold 900 shares of Alcove stock at a price of $34.08 a share. Last year you paid
$39.20 a share to buy this stock. You received dividends totaling $1.04 per share. What
is your total capital gain on this investment?
A. -$4,608
B. -$3,672
C. -$5,544
D. $5,544 44
E. $4,608
Answer:
One characteristic of the payback method of project analysis is the:
A. use of variable discount rates.
B. standardized cutoff point for cash flow consideration.
C. bias towards liquidity.
D. consideration of the risk level of each project.
E. discounting of all cash flows.
Answer:
Net capital spending is equal to the:
A.net change in total assets plus depreciation.
B.net change in fixed assets plus depreciation.
C.net income plus depreciation.
D.difference between the market and book values of the total assets.
E.change in total assets.
Answer:
The interest tax shield has no value for a firm when:
A. the firm’s debt-equity ratio is exactly equal to 1.
B. the firm’s debt-equity ratio is exactly .5.
C. the firm is unlevered.
Answer:
A business created as a distinct legal entity is called a:
A. corporation.
B. sole proprietorship.
C. general partnership.
D. limited partnership.
E. unlimited liability company.
Answer:
Jensen’s has a market value equal to its book value, excess cash of $500, other assets of
$9,500, and equity worth $10,000. The firm has 250 shares of stock outstanding and net
income of $1,400. What will the stock price per share be if the firm pays out its excess
cash as a cash dividend?
A. $36
B. $38
C. $40
D. $42
E. $44
Answer:
The home currency approach:
A. generally produces more reliable results than those found using the foreign currency
approach.
B. requires an applicable exchange rate for every time period for which there is a cash
flow.
C. uses the current risk-free nominal rate to discount all of the cash flows related to a
project.
D. stresses the use of the real rate of return to compute the net present value (NPV) of a
project.
E. converts the foreign-denominated NPV into the dollar-denominated NPV.
Answer:
How many euros can you get for $2,500 if the USD equivalent is 1.1684?
A. €2,847.08
B. €2,139.68
C. €2,309.11
D. €2,658.62
E. €2,921.00
Answer:
The short-term financial policy a firm adopts will be reflected in:
A. the size of the firm’s investment in current assets.
B. the financing of current assets.
C. the financing of fixed assets.
D. both the size and the financing of current assets.
E. both the size and the financing of fixed assets.
Answer:
ABC Co. expects to sell 2,200 units, give or take 10 percent. The expected variable cost
per unit is $8.43 and the expected fixed costs are $9,500. Cost estimates are considered
accurate within a plus or minus 5 percent range. The depreciation expense is $4,000.
The sale price is estimated at $16 a unit, give or take 2 percent. The company bases its
sensitivity analysis on the expected case scenario. If the company conducts a sensitivity
analysis on the sales price using a price estimate of $16.25, what will be the earnings
before interest and taxes?
A. $4,265
B. $3,704
C. $3,500
D. $4,709
E. $4,510
Answer:
The two fatal flaws of the internal rate of return decision rule are the:
A. arbitrary determination of a discount rate and the failure to consider initial
expenditures.
B. arbitrary determination of a discount rate and the failure to correctly analyze
mutually exclusive investment projects.
C. arbitrary determination of a discount rate and the multiple rate of return problem.
D. failure to consider initial expenditures and failure to correctly analyze mutually
exclusive investment projects.
E. failure to correctly analyze mutually exclusive investment projects and the multiple
rate of return problem.
Answer:
Which one of these statements related to “junk” bonds is false?
A. Investors’ appetite for “junk” bonds increases when market interest rates are low.
B. Internationally, new issues of “junk” bonds have been prohibited since the financial
crisis of 2008.
C. “Junk” bonds have low credit ratings.
D. “Junk” bonds are more apt to default.
E. “Junk” bonds are also called high yield bonds.
Answer:
Jaxon’s has total revenue of $418,300, earnings before interest and taxes of $102,600,
depreciation of $59,200, and a tax rate of 30 percent. The firm is all-equity financed
with 15,000shares outstanding at a book value of $38.03 a share and a price-to-book
ratio of 3.2. What is the firm’s EV/EBITDA ratio if the firm has excess cash of
$49,300?
A. 9.67
B. 11.28
C. 8.39
D. 9.15
E. 10.97
Answer:
Murphy’s has shares of stock outstanding with a par value of $1 per share and a market
value of $24.60 per share. The balance sheet shows $32,500 in the capital in excess of
par account, $12,000 in the common stock account, and $68,700 in the retained
earnings account. The firm just announced a 10 percent stock dividend. What will the
balance be in the retained earnings account after the dividend?
A. $39,180
B. $48,300
C. $59,120
D. $67,520
E. $40,380
Answer:
Net working capital is defined as:
A.current assets plus fixed assets.
B.current assets plus stockholders’ equity.
C.fixed assets minus long-term liabilities.
D.total assets minus total liabilities.
E.current assets minus current liabilities.
Answer:
There are three seats on the board of directors of MMT, Inc. up for election. The firm
has 175,000 shares of stock outstanding and uses cumulative voting. Each share is
granted one vote per open seat. You currently own 10,000 shares that have a market
value of $23 each. How much must you spend, if anything, to acquire sufficient shares
to guarantee your election to the board?Assume no one else votes for you.
A. $1,111,690
B. $776,273
C. $830,814
D. $1,006,273
E. $688,230
Answer:
A corporate bond has a coupon of 7.5 percent and pays interest annually. The face value
is $1,000 and the current market price is $1,108.15. The bond matures in 14 years.
What is the yield to maturity?
A. 6.31%
B. 7.82%
C. 8.00%
D. 8.04%
E. 8.12%
Answer: