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1) Which one of the following is a speculative motive for holding cash?
A.Buying extra inventory because a key supplier offered a special one-time discount
B.Paying a $100 bonus to all employees at year-end
C.Paying the annual insurance premium on the firm's assets
D.Needing to purchase a new delivery truck because the old one was totally destroyed
in an accident
E.Contributing $1,000 to help fund medical care for an uninsured neighbor
2) A firm has the following account balances. Which one of the following statements is
correct concerning those balances?
A.Accounts receivable is a $900 source of cash
B.Common stock is a $1,500 source of cash
C.Net working capital, excluding cash, is a $1,500 use of cash
D.Long-term debt is a $5,800 source of cash
E.Total debt is a $6,100 use of cash
3) Computing the present value of a growing perpetuity is most similar to computing
the current value of which one of the following?
A.Non-dividend-paying stock
B.Stock with a constant dividend
C.Stock with irregular dividends
D.Stock with a constant growth dividend
E.Stock with growing dividends for a limited period of time
4) Julie is borrowing $12,800 to purchase a car. The loan terms are 36 months at 7.5
percent interest. How much interest will she pay on this loan if she pays the loan as
agreed? Round your answer to the nearest whole dollar.
A.$1,338
B.$1,414
C.$1,459
D.$1,506
E.$1,534
5) Anne plans to save $40 a week for the next five years. She expects to earn 3 percent
for the first two years and 5 percent for the last three years. How much will her savings
be worth at the end of the five years?
A.$10,215.60
B.$10,684.29
C.$10,983.58
D.$11,014.88
E.$11,708.15
6) A firm has net income of $31,300, depreciation of $5,100, taxes of $14,600, and
interest paid of $3,100. What is the cash coverage ratio?
A.8.78
B.10.10
C.14.14
D.16.32
E.17.45
7) Which one of the following statements is correct, all else held constant?
A.Beta is used to compute the return on equity and the standard deviation is used to
compute the return on preferred
B.A decrease in a firm's WACC will increase the attractiveness of the firm's investment
options
C.The aftertax cost of debt increases when the market price of a bond increases
D.If you have both the dividend growth and the security market line's costs of equity,
you should use the higher of the two estimates when computing WACC
E.WACC is applicable only to firms that issue both common and preferred stock
8) One year ago, you purchased a 5 percent coupon bond with a face value of $1,000
when it was selling for 101.2 percent of par. Today, you sold this bond for 99.8 percent
of par. What is your total dollar return on this investment?
A.$36
B.$60
C.$64
D.$74
E.$82
9) Which one of the following is a noncash payment made by a firm to its shareholders
and is a payment that lessens the value of each outstanding share?
A.Reverse stock split
B.Cash distribution
C.Stock dividend
D.Regular dividend
E.Liquidating dividend
10) The Sarbanes-Oxley Act:
A.makes the officers of a public corporation personally responsible for the firm's
financial statements
B.requires all corporations to fully disclose its financial dealings to the general public
C.places the responsibility for a firm's financial statements solely on the chief financial
officer
D.requires that the board of directors be solely responsible for the firm's financial
dealings
E.places total responsibility for the financial statements of a firm on the auditor who
certifies the statements
11) Which one of the following indicates that a project is expected to create value for its
owners?
A.Profitability index less than 1.0
B.Payback period greater than the requirement
C.Positive net present value
D.Positive average accounting rate of return
E.Internal rate of return that is less than the requirement
12) Shoreline Foods pays a constant annual dividend of $1.60 a share and currently
sells for $28.50 a share. What is the rate of return?
A.4.56 percent
B.5.39 percent
C.5.61 percent
D.6.63 percent
E.6.91 percent
13) You own a portfolio that is invested as follows: $11,400 of Stock A, $8,800 of Stock
B, $14,900 of Stock C, and $3,200 of Stock D. What is the portfolio weight of Stock C?
A.38.47 percent
B.38.90 percent
C.39.80 percent
D.41.94 percent
E.43.08 percent
14) A project requires $360,000 of equipment that is classified as seven-year property.
What is the depreciation expense in year 3 given the following MACRS depreciation
allowances, starting with year 1: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46
percent?
A.$38,033
B.$41,267
C.$51,444
D.$62,964
E.$88,164
15) Berzett Industrial Products has both common and noncumulative preferred stock
outstanding. The dividends on these stocks are $1.10 per quarter per share of common
and $3.50 per quarter per share of preferred. The company has not paid any dividends
for the past two quarters but is expected to pay dividends on both the common and the
preferred stock next quarter. What is the minimum amount the firm must pay per share
to its preferred stockholders next quarter if it plans to pay a common dividend?
A.$0
B.$1.10
C.$3.50
D.$5.00
E.$7.00
16) Karl can afford car payments of $235 a month for 48 months. The bank will lend
him money to buy a car at 7.75 percent interest. How much money can he afford to
borrow?
A.$9,672.48
B.$9,734.95
C.$9,899.60
D.$10,022.15
E.$10,422.09
17) The net present value of a project's cash inflows is $8,216 at a 14 percent discount
rate. The profitability index is 1.03 and the firm's tax rate is 34 percent. What is the
initial cost of the project?
A.$6,900.00
B.$7,018.50
C.$7,428.32
D.$7,976.70
E.$8,066.67
18) What is the price of a $1,000 face value bond if the quoted price is 102.1?
A.$102.10
B.$1,002.10
C.$1,020.01
D.$1,020.10
E.$1,021.00
19) Three years ago, Stock Tek purchased some five-year MACRS property for
$67,400. Today, it is selling this property for $28,000. How much tax will the firm owe
on this sale if the tax rate is 35 percent? The MACRS allowance percentages are as
follows, commencing with year 1: 20.00, 32.00, 19.20, 11.52, 11.52, and 5.76 percent.
A.-$3,006
B.-$1,480
C.$0
D.$1,480
E.$3,006
20) The next dividend payment by Swenson, Inc. will be $1.80 per share. The dividends
are anticipated to maintain a 5.5 percent growth rate, forever. If the stock currently sells
for $48.50 per share, what is the required return?
A.8.20 percent
B.8.88 percent
C.9.21 percent
D.9.74 percent
E.10.02 percent
21) The optimal credit policy will do which one of the following?
A.Maximize sales
B.Minimize bad debts
C.Maximize units sold
D.Minimize the total costs of granting credit
E.Minimize carrying costs
22) Today is your 21st birthday and you just decided to start saving money so you can
retire early. Thus, you are going to save $500 a month starting one month from now.
You plan to retire as soon as you can accumulate $1 million. If you can earn an average
of 8 percent on your savings, how old will you be when you retire?
A.33.39 years old
B.42.87 years old
C.54.39 years old
D.64.71 years old
E.63.87 years old
23) The Space and Rocket Center takes an average of 55 days to sell its inventory and
an average of 2.5 days to collect payment on its sales. What is the inventory turnover
rate?
A.6.64
B.7.29
C.8.68
D.10.18
E.22.00
24) Kline Construction is an all-equity firm that has projected perpetual earnings before
interest and taxes of $879,000. The current cost of equity is 18.3 percent and the tax
rate is 34 percent. The company is in the process of issuing $6.2 million of 8.5 percent
annual coupon bonds at par. What is the levered value of the firm?
A.$5,278,164
B.$5,541,085
C.$6,422,225
D.$6,713,185
E.$7,385,695
25) Joseph Schmidt and Co. has the following estimated sales.
Purchases are equal to 64 percent of the following quarter's sales. What is the cash
outlay for accounts payable for quarter 3 if the firm has a 30-day accounts payable
period? Assume each month has 30 days.
A.$9,938
B.$10,539
C.$3,488
D.$6,977
E.$7,503
26) Which one of the following is the set of procedures used to determine the inventory
levels for demand-dependent inventory?
A.Inventory flow log
B.Materials requirements planning
C.Just-in-time inventory system
D.Kanban
E.Keiretsu
27) Which one of the following types of bonds should an investor purchase if he or she
is primarily concerned about ensuring that bond ownership will increase his or her
purchasing power?
A.OTC
B.Death
C.CAT
D.PETS
E.TIPS
28) Alicia placed an order with her broker to purchase 500 shares of each of three IPOs
that are being released this month. Each IPO has an offer price of $16 a share. The
number of shares allocated to Alicia along with the closing stock price at the end of the
first day of trading for each stock, are as follows:
What is Alicia's total profit or loss on these three stocks as of the end of the first day of
trading for each stock?
A.-$425
B.-$260
C.-$150
D.$375
E.$550
29) Lakeside Winery is considering expanding its winemaking operations. The
expansion will require new equipment costing $649,000 that would be depreciated on a
straight-line basis to a zero balance over the four-year life of the project. The estimated
salvage value is $187,000. The project requires $38,000 initially for net working
capital, all of which will be recouped at the end of the project. The projected operating
cash flow is $198,500 a year. What is the net present value of this project if the relevant
discount rate is 14 percent and the tax rate is 35 percent?
A.-$14,162
B.-$8,309
C.-$2,747
D.$2,311
E.$3,615
