Your firm receives 46 checks per month. Of these, 13 are for $1,250 and 33 are for
$870. The delay for the $1,250 checks is 1.5 days; the $870 checks are delayed 2 days.
What is the weighted average delay?
A. 1.96 days
B. 1.93 days
C. 1.91 days
D. 1.86 days
E. 1.82 days
Answer:
A new sweater costs SF67 in Switzerland. Assume SF1 = $1.0298 and €1 = $1.1238.
How much will the identical sweater cost in euros if absolute purchasing power parity
exists?
A. €61.40
B. €43.08
C. €73.12
D. €58.25
E. €60.75
Answer:
A stock’s PE ratio is primarily affected by which three factors?
A. accounting practices, opportunities, and the market rate of return
B. dividend yield, capital gains yield, and opportunities
C. market rate of return, risk, opportunities
D. accounting practices, market rate of return, risk
E. risk, opportunities, accounting practices
Answer:
A preliminary prospectus contains:
A. exactly the same information as the final prospectus except for the SEC approval.
B. the same information as the final prospectus but has bold red letters on the cover.
C. only a brief synopsis of the final prospectus.
D. only a description of how the funds raised will be used.
E. information very similar to the final prospectus but excludes the selling price.
Answer:
Schraeder Corporation has 20,000 shares outstanding at $30 each. The firm expects to
raise $200,000 via a rights offering at a subscription price of $25. How many rights are
required for each new share?
A. 1.25
B. 1.50
C. 2.00
D. 2.50
E. 2.25
Answer:
Anna has $38,654 in a savings account that pays 2.3 percent interest. Assume she
withdraws $10,000 today and another $10,000 one year from today. If she waits and
withdraws the remaining entire balance four years from today, what will be the amount
of that withdrawal?
A. $20,916.78
B. $20,109.08
C. $20,676.53
D. $19,341.02
E. $19,608.07
Answer:
If you consider the equity of a firm to be an option on the firm’s assets then the act of
paying off debt is comparable to _____ on the assets of the firm.
A. purchasing a put option
B. purchasing a call option
C. exercising an in-the-money put option
D. exercising an in-the-money call option
E. selling a call option
Answer:
With an open account the formal instrument of credit is the:
A. purchase order.
B. invoice.
C. promissory note.
D. banker’s acceptance.
E. secured loan document.
Answer:
The firm’s capital structure refers to the:
A. mix of current and fixed assets a firm holds.
B. amount of capital invested in the firm.
C. amount of dividends a firm pays.
D. mix of debt and equity used to finance the firm’s assets.
E. amount of cash versus receivables the firm holds.
Answer:
The minimum level of inventory that a firm wants to keep on hand at all times is
referred to as:
A. the base level.
B. safety stock.
C. the opportunity cost.
D. the reorder point.
E. keiretsu.
Answer:
Stu is working on a bid for a contract. Thus far, he has determined that he will need
$218,000 for fixed assets and another $41,000 for net working capital at Time 0. He had
also determined that he can recover $79,900 aftertax for the combined fixed assets and
net working capital at the end of the 3-year project. What operating cash flow will be
required each year for the project to return 14 percent in nominal terms?
A. $116,079.42
B. $97,487.79
C. $110,220.48
D. $88,330.01
E. $113,360.69
Answer:
The use of leverage:
A. increases both the asset and the equity betas.
B. decreases both the asset and the equity betas.
C. decreases the equity beta and increases the asset beta.
D. increases the equity beta but does not affect the asset beta.
E. decreases the equity beta but does not affect the asset beta.
Answer:
DDamp;L has a market value equal to its book value, excess cash of $400, other assets
of $7,600, equity of $8,000, 200 shares of stock outstanding, and net income of $900.
The firm has decided to pay out all of its excess cash as a cash dividend. What will the
earnings per share be after the dividend is paid?
A. $4.68
B. $4.74
C. $4.59
D. $4.80
E. $4.50
Answer:
Tech Enterprises is considering a new project that will require $325,000 for fixed
assets, $160,000 for inventory, and $35,000 for accounts receivable. Short-term debt is
expected to increase by $100,000. The project has a 5-year life. The fixed assets will be
depreciated straight-line to a zero book value over the life of the project. At the end of
the project, the fixed assets can be sold for 25 percent of their original cost and the net
working capital will return to its original level. The project is expected to generate
annual sales of $554,000 and costs of $430,000. The tax rate is 35 percent and the
required rate of return is 15 percent. What is the net present value of this project?
A. $3,026.45
B. −$65.83
C. $4,138.25
D. −$2,318.29
E. $6,202.48
Answer:
If a bond provides a real rate of return of 2.89 percent at a time when inflation is 3.21
percent, what is the nominal rate of return on the bond?
A. 6.10%
B. 6.13%
C. 6.16%
D. 6.19%
E. 6.22%
Answer:
To collect on the accounts receivable due to the firm, a firm can do all of the following
except:
A. send a delinquency letter of past due status to the customer.
B. make personal contact by telephone.
C. employ a collection agency.
D. take legal action against the customer as necessary.
E. forcibly remove property from the buyer’s premises.
Answer:
The rate of return required by investors in the market for owning a bond is called the:
A. coupon.
B. face value.
C. maturity.
D. yield to maturity.
E. coupon rate.
Answer:
A stock had annual returns of 3 percent, 18 percent, and -24 percent over a three-year
period. Based on this information, what is the 68 percent probability range for any one
given year?
A. -40.53 to 38.53%
B. “16.10 to 14.10%
C. -24.53 to 22.53%
D. -22.28 to 20.28%
E. -43.56 to 41.56%
Answer:
Samoa’s Tools has sales of $760,000 and a profit margin of 8 percent. The annual
depreciation expense is $50,000. What is the amount of the operating cash flow if the
company has no long-term debt?
A. $50,000
B. $60,800
C. $110,800
D. $810,000
E. $930,000
Answer:
Your firm has total sales of $22,980, costs of $14,715, and depreciation of $6,045. The
tax rate is 34 percent. There are no interest expenses or other income. What is the
operating cash flow?
A.$1,465.20
B.$2,410.80
C.$8,340.00
D.$7,510.20
E.$9,019.80
Answer:
Tin Roof’s net cash flows for the next three years are projected at $72,000, $78,000, and
$84,000, respectively. After that the cash flows are expected to increase by 3.2 percent
annually. The aftertax cost of debt is 6.2 percent and the cost of equity is 11.4 percent.
What is the value of the firm if it is financed with 40 percent debt and 60 percent
equity?
A. $1,215,650
B. $1,328,141
C. $1,461,439
D. $1,575,941
E. $1,279,623
Answer:
The internal rate of return for a project will increase if:
A. the initial cost of the project can be reduced.
B. the total amount of the cash inflows is reduced.
C. each cash inflow is moved such that it occurs one year later than originally projected.
D. the required rate of return is reduced.
E. the discount rate is increased.
Answer:
You can realize the same value as that derived from stock ownership if you:
A. sell a put option and invest at the risk-free rate of return.
B. buy a call option and write a put option on a stock and also borrow funds at the
risk-free rate.
C. sell a put and buy a call on a stock as well as invest at the risk-free rate of return.
D. lend out funds at the risk-free rate of return and sell a put option on the stock.
E. borrow funds at the risk-free rate of return and invest the proceeds in equivalent
amounts of put and call options.
Answer:
The market for venture capital refers to the:
A. private financial marketplace for servicing small, young firms.
B. corporate bond market.
C. market for selling unsubscribed rights.
D. market for selling seasoned equity securities.
E. market for all private issues.
Answer:
The accounting break-even production quantity for a project is 35,173 units. The fixed
costs are $318,290 and the contribution margin is $13.27. What is the projected
depreciation expense?
A. $142,734
B. $148,456
C. $110,025
D. $113,053
E. $122,082
Answer:
Altman’s revised Z-score predicts the likelihood of bankruptcy within:
A. five years.
B. three years.
C. two years.
D. one year.
E. six months.
Answer:
If a firm produces a return on assets of 15 percent and also a return on equity of 15
percent, then the firm:
A. has no debt of any kind.
B. is using its assets as efficiently as possible.
C. has no net working capital.
D. also has a current ratio of 15.
E. has an equity multiplier of 2.
Answer:
Last year, a bond yielded a nominal return of 7.37 percent while inflation averaged 3.26
percent. What was the real rate of return?
A. 3.42%
B. 3.2 7%
C. 3.98%
D. 3.71%
E. 3.86%
Answer:
The combination of the efficient set of portfolios with a riskless lending and borrowing
rate results in the:
A. capital market line which shows that all investors will only invest in the riskless
asset.
B. capital market line which shows that all investors will invest in a combination of the
riskless asset and the tangency portfolio.
C. security market line which shows that all investors will invest in the minimum
variance portfolio.
D. security market line which shows that all investors will invest only in the riskless
asset.
E. characteristic line which shows that all investors will invest in the same combination
of securities.
Answer:
The dividend yield on Alpha’s common stock is 5.2 percent. The company just paid a
$2.10 dividend. The rumor is that the dividend will be $2.30 next year. The dividend
growth rate is expected to remain constant at the current level. What is the required rate
of return on Alpha’s stock?
A. 14.72%
B. 12.31%
C. 18.29%
D. 20.01%
E. 24.21%
Answer:
All of the following are political risks associated with international investing except:
A. nationalization.
B. decreasing consumer demand.
C. blocking of funds.
D. tax law changes.
E. contract abrogation.
Answer:
Wild Flowers Express has a debt-equity ratio of .60. The pretax cost of debt is 9 percent
while the unlevered cost of capital is 14 percent. What is the cost of equity if the tax
rate is 34 percent?
A. 7.52%
B. 8.78%
C. 15.98%
D. 16.83%
E. 17.30%
Answer:
An in-the-money put option is one that:
A. has an exercise price greater than the underlying stock price.
B. has an exercise price less than the underlying stock price.
C. expires today.
D. should not be exercised at expiration.
E. should not be exercised at any time.
Answer:
Security issues that are governed by Regulation A are:
A. distributed solely among current company employees and directors.
B. sold in full to a single purchaser.
C. those that only include securities currently held by corporate insiders.
D. limited such that only current shareholders can purchase them.
E. valued at less than $5 million.
Answer:
Which type of bond only pays coupon payments if it can do so from the income earned
by the firm?
A. No bond
B. readi-cash bond
C. floater bond
D. LIBOR-based bond
E. income bond
Answer: