Manning, Inc. originally issued bonds that were rated investment grade. These bonds
have now been downgraded to junk status. Which one of the following terms applies to
this situation?
A. Called bond
B. Converted bond
C. Protected covenant
D. Fallen angel
E. Floating bond
Debbies Cookies has a return on assets of 15.3 percent and a cost of equity of 16.9
percent. What is the pretax cost of debt if the debt-equity ratio is 0.54? Ignore taxes.
A. 8.87 percent
B. 9.29 percent
C. 9.64 percent
D. 11.31 percent
E. 12.33 percent
A firm has a return on equity of 16 percent, a return on assets of 11 percent, and a 30
percent dividend payout ratio. What is the sustainable growth rate?
A. 5.72 percent
B. 6.84 percent
C. 7.12 percent
D. 11.38 percent
E. 12.61 percent
You are making a $120,000 investment and feel that a 20 percent rate of return is
reasonable given the nature of the risks involved. You feel you will receive $48,000 in
the first year, $54,000 in the second year, and $56,000 in the third year. You expect to
pay out $12,000 as an additional investment in the fourth year. What is the net present
value of this investment given your expectations?
A. -$15,879.63
B. -$4,305.56
C. $15,879.63
D. $16,233.33
E. $18,534.25
Your firm is contemplating the purchase of a new $674,000 computer-based order entry
system. The system will be depreciated straight-line to zero over its six-year life. It will
be worth $58,000 at that time. You will save $185,000 before taxes per year in order
processing costs, and you will be able to reduce working capital by $29,000 at the
beginning of the project. Working capital will revert back to normal at the end of the
project. If the tax rate is 34 percent, what is the IRR for this project?
A. 12.51 percent
B. 12.79 percent
C. 13.01 percent
D. 13.53 percent
E. 14.20 percent
The December 31, 2013, balance sheet of Suzettes Market showed long-term debt of
$638,100 and the December 31, 2014, balance sheet showed long-term debt of
$574,600. The 2010 income statement showed an interest expense of $42,300. What
was the firms cash flow to creditors during 2014?
A. $21,200
B. $26,700
C. $54,900
D. $102,400
E. $105,800
The net present value of a projects cash inflows is $8,216 at a 14 percent discount rate.
The profitability index is 1.03 and the firms 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
The say on pay” portion of the Dodd-Frank Wall Street Reform and Consumer
Protection Act requires corporations to do which one of the following?
A. Give the chair of the board the final say on executive pay
B. Give the firms creditors a nonbinding say on executive pay
C. Give the firms creditors a binding say on executive pay
D. Give shareholders a nonbinding vote on executive pay
E. Give shareholders a binding vote on executive pay
An agent who buys and sells securities from inventory is called a:
A. floor trader.
B. dealer.
C. commission broker.
D. broker.
E. floor broker.
Andersens Nursery has sales of $318,400, costs of $199,400, depreciation expense of
$28,600, interest expense of $1,100, and a tax rate of 34 percent. The firm paid out
$16,500 in dividends. What is the addition to retained earnings?
A. $36,909
B. $42,438
C. $44,141
D. $47,208
E. $47,615
Kate could not attend the last shareholders meeting and thus she granted the authority to
vote on her behalf to the managers of the firm. Which one of the following terms is
used to describe the method by which Kates shares were voted?
A. Straight
B. Cumulative
C. Consent-form
D. Proxy
E. In absentia
The computation of which one of the following requires assigning every proposed
investment to a particular risk class?
A. Pure play cost of capital
B. Cost of equity
C. Aftertax cost of debt
D. WACC
E. Subjective cost of capital
Sixty years ago, your grandparents opened two savings accounts and deposited $200 in
each account. The first account was with City Bank at 3 percent, compounded annually.
The second account was with Country Bank at 3.5 percent, compounded annually.
Which one of the following statements is true concerning these accounts?
A. The City Bank account is currently worth $1,201.54.
B. The City Bank account has earned $211.19 more in interest than the Country Bank
account.
C. The Country Bank account is currently worth $1,526.08.
D. The Country Bank account has paid $367.48 more in interest than the City Bank
account.
E. The Country Bank account has paid $397.30 more in interest than the City Bank
account.
Delmont Movers has a profit margin of 6.2 percent and net income of $48,900. What is
the common-size percentage for the cost of goods sold if that expense amounted to
$379,000 for the year?
A. 12.90 percent
B. 23.50 percent
C. 33.25 percent
D. 41.06 percent
E. 48.05 percent
The 6 percent coupon bonds of Precision Engineering are selling for 98 percent of par
value. The bonds mature in eight years and pay interest semiannually. These bonds have
current yield of _____ percent, a yield to maturity of _____ percent, and an effective
annual yield of _____ percent.
A. 6.12; 6.32; 6.36
B. 6.12; 6.32; 6.42
C. 6.12; 6.36; 6.42
D. 6.23; 6.32; 6.36
E. 6.23; 6.36; 6.42
A firm has inventory of $11,400, accounts payable of $9,800, cash of $850, net fixed
assets of $12,150, long-term debt of $9,500, accounts receivable of $6,600, and total
equity of $11,700. What is the common-size percentage for the net fixed assets?
A. 19.60 percent
B. 26.67 percent
C. 39.19 percent
D. 42.08 percent
E. 48.75 percent
Lee pays 1 percent per month interest on his credit card account. When his monthly rate
is multiplied by 12, the resulting answer is referred to as the:
A. annual percentage rate.
B. compounded rate.
C. effective annual rate.
D. perpetual rate.
E. simple rate.
You have just won the lottery! You can either receive $5,000 a year for 15 years or
$50,000 as a lump sum payment today. What is the interest rate on the annuity option?
A. 5.56 percent
B. 5.68 percent
C. 6.20 percent
D. 6.39 percent
E. 6.50 percent
Identify four ways that you can use annuity computations in your everyday life.
Explain how the forward exchange market can help reduce short-run exposure to
exchange rate risk.
Identify the relationship (direct or inverse) between each of the following pairs of
variables as they relate to the time value of money:
(Assume all else constant)
Present value and future value _________
Present value and interest rate _________
Present value and time _________
Time and interest rate _________
Time and future value _________
Interest rate and future value _________
Explain the similarities and differences among an ordinary annuity, an annuity due, and
a perpetuity.
Which is more important from a finance perspective€net income or operating cash
flow? What is the difference between these two values?