Don has $3,000 invested in AT&T with an expected return of 11.6 percent; $10,000 in
IBM with an expected return of 12.8 percent; and $6,000 in GM with an expected
return of 12.2 percent. What is Don’s expected return on his portfolio?
A.12.42%
B.12.20%
C.11.81%
D.Cannot be determined
Porter Productions sells video tapes for $15.00 each. Their variable cost per unit is
$9.00. In addition, they incur $180,000 in fixed costs each year. At 40,000 units of sale,
what is Porter’s degree of operating leverage (DOL)?
A.1.33
B.2.50
C.3.00
D.4.00
E.6.00
ROE can be converted to EPS by multiplying ROE by ____.
A.the equity multiplier
B.ROA
C.equity / number of shares
D.1 / number of shares
The net book value of an asset is:
A.original cost less the current year’s depreciation expense.
B.original cost less accumulated depreciation.
C.current market value of the asset less associated selling expense.
D.current market value of the asset.
Which of the following is an example of financing?
A.An investor purchases stocks and bonds
B.A company issues stock to raise money to purchase assets
C.An investors buys shares in a mutual fund to earn a return
D.An investor sells stocks and bonds
Ignoring ____ in capital budgeting can lead to incorrect decisions and change the
character of the firm.
A.liability
B.risk
C.working capital
D.opportunity costs
Assume that Herron, Inc. has a degree of financial leverage of 1.50. If EBIT increases
from $150,000 this year to $165,000 next year, how much will earnings per share (EPS)
increase, assuming no change in capital structure?
A.6.7%
B.10.0%
C.15.0%
D.22.5%
E.Cannot be determined from the information given.
Which of the following is not a consequence of too high a level of accounts receivable?
A.Higher financing cost on money needed to support the higher level of current assets
B.Larger bad debt losses
C.Poorer relations with customers
D.A reputation of having a poor collection policy
E.c and d
Determine the cost of sales for a firm with the following financial ratios and data:
Current ratio = 3.0; Quick ratio = 2.0; Current liabilities $1,000,000;
Inventory turnover = 6 times.
A.$2,000,000
B.$6,000,000
C.$3,000,000
D.$1,000,000
The size of a firm’s investment in working capital is a function of all of the following
factors except:
A.sales level.
B.inventory policies.
C.credit policies.
D.stockholders equity.
Functions that can be performed by a factor include:
A.perform credit analysis.
B.collect accounts receivable.
C.assume bad debt risk.
D.b and c
E.All of the above
Flotation costs are administrative fees and expenses incurred in:
A.the process of issuing and selling securities
B.listing the company’s stock on a stock exchange
C.lawsuits alleging fraud in the issue of securities
D.None of the above
A short average collection period (ACP) could indicate that the firm:
A.offers unusually large discounts.
B.is tough in its credit policy.
C.has a very efficient credit and collection department.
D.All of the above
E.a and b
Which of the following theories can be used to explain the shape of both inverted and
normal yield curves?
A.The expectations theory only
B.The liquidity preference theory only
C.The market segmentation theory only
D.Both the expectations theory and the liquidity preference theory
E.Both the expectations theory and the market segmentation theory
A recent direct quote for the Japanese yen was $.009622. How many Japanese yen can
be purchased with 10 American dollars?
A.9.622
B.1,039.28
C.0.09622
D.10.39
The principle of risk aversion can best be described as:
A.the observation that investors are unwilling to acquire very risky securities regardless
of their risk premiums.
B.the hypothesis that people always prefer investments with less risk to those with more
risk if the expected returns are equal.
C.the observation that risky securities usually offer unattractive expected returns when
the possibility of loss is considered.
D.All of the above
If their bonuses are based on net income, managers may:
A.postpone writing off bad debts.
B.increase depreciation.
C.postpone dividend payments.
D.hold more inventory.
The present value of the cash flows expected to come from owning a share of stock:
A.is the maximum price an investor should be willing to pay for the share.
B.is the minimum price an investor should be willing to pay for the share.
C.is not related to the price that an investor should be willing to pay for the share.
D.All of the above
Which statement is true about institutional investors?
A.Institutional investors are responsible for the majority of trading on major exchanges.
B.Institutional investors own the majority of stock listed on the major exchanges.
C.Institutional investors tend to not be financial intermediaries.
D.Institutional investors are not influential in setting prices in the secondary market.