Redneck Farm Equipment owes $48,329 in tax on a taxable income of $549,600. The
company has determined that it will owe $56,211 in tax if its taxable income rises to
$565,000. What is the marginal tax rate at this level of income?
A. 9.95 percent
B. 30.00 percent
C. 30.67 percent
D. 51.03 percent
E. 51.18 percent
The common stock of Up-Towne Movers is selling for $33 a share and has a 10 percent
rate of return. The growth rate of the dividends is 2 percent annually. What is the
amount of the next annual dividend?
A. $2.58
B. $2.61
C. $2.64
D. $2.67
E. $2.70
The price of a stock at year 4 can be expressed as:
A. D0/(R + g4).
B. D0 x (1 + R)5.
C. D1 x (1 + R)5.
D. D4/(R – g).
E. D5/(R – g).
The Golf Range is considering adding an additional driving range to its facility. The
range would cost $76,000, would be depreciated on a straight-line basis over its
seven-year life, and would have a zero salvage value. The anticipated income from the
project is $34,000 a year with $14,400 of that amount being variable cost. The fixed
cost would be $16,200. The firm believes that it will earn an additional $13,000 a year
from its current operations should the driving range be added. The project will require
$2,000 of net working capital, which is recoverable at the end of the project. What is
the internal rate of return on this project at a tax rate of 34 percent?
A. 7.53 percent
B. 9.29 percent
C. 11.47 percent
D. 12.68 percent
E. 14.04 percent
Which one of the following is an example of the political risks associated with foreign
operations?
A. Technological changes
B. Exchange rate fluctuations
C. Translation exposure to exchange rate risk
D. Changes in foreign tax laws
E. Changes in relative wage rates between the home country and the foreign country
Which of the following will increase the present value of an annuity, all else held
constant?I. Increase in the number of paymentsII. Increase in the interest rateIII.
Decrease in the interest rateIV. Decrease in the payment amount
A. I and II only
B. I and III only
C. II and IV only
D. I, II, and IV only
E. I, III, and IV only
Which one of the following statements is correct?
A. The risk premium on a risk-free security is generally considered to be 1 percent.
B. The expected rate of return on any security, given multiple states of the economy,
must be positive.
C. There is an inverse relationship between the level of risk and the risk premium given
a risky security.
D. If a risky security is correctly priced, its expected risk premium will be positive.
E. If a risky security is priced correctly, it will have an expected return equal to the
risk-free rate.
Which one of the following actions will decrease the operating cycle?
A. Increasing inventory
B. Paying suppliers faster
C. Buying more inventory with cash rather than with credit
D. Granting customers more time to pay for their credit purchases
E. Lessening the production time needed to manufacture a good for sale
The Sports Club plans to pay an annual dividend of $1.20 per share next year, $1.00 per
share a year for the following two years, and then cease paying dividends altogether.
How much is one share of this stock worth to you today if you require a 19 percent rate
of return?
A. $2.31
B. $2.36
C. $2.56
D. $2.60
E. $2.64
New Steel Products has total assets of $991,000, a total asset turnover rate of 1.1, a
debt-equity ratio of 0.6, and a return on equity of 8.7 percent. What is the firms net
income?
A. $53,885.63
B. $58,303.33
C. $64,624.14
D. $70,548.09
E. $77,236.67
Which one of the following terms is used to describe international bonds issued in a
single country and generally denominated in that countrys currency?
A. Eurobonds
B. American Depositary Receipts
C. Foreign bonds
D. Swaps
E. Gilts
Which one of the following transactions occurred in the primary market?
A. Maria gave 100 shares of Alto stock to her best friend.
B. Gene purchased 300 shares of Alto stock from Ted.
C. South Wind Products sold 1,000 shares of newly issued stock to Mike.
D. Terry sold 3,000 shares of Uno stock to his brother.
E. The president of Trecco, Inc. sold 500 shares of Trecco stock to his son.
You own a portfolio that is invested 38 percent in Stock A, 43 percent in Stock B, and
the remainder in Stock C. The expected returns on these stocks are 10.9 percent, 15.4
percent, and 9.1 percent, respectively. What is the expected return on the portfolio?
A. 10.55 percent
B. 11.02 percent
C. 11.67 percent
D. 12.49 percent
E. 13.05 percent
Todd and Cathy created a firm that is a separate legal entity and will share ownership of
that firm on a 50-50 basis. Which type of entity did they create if they have no personal
liability for the firms debts?
A. Limited partnership
B. Corporation
C. Sole proprietorship
D. General partnership
E. Public company
Given the following exchange rates, what is the cross-rate for euros in terms of British
pounds?
A. 1.1066 = 1
B. 1.1079 = 1
C. 1.1092 = 1
D. 1.1103 = 1
E. 1.1116 = 1
Which one of the following cannot be computed?
A. Future value of an ordinary annuity
B. Future value of a perpetuity
C. Present value of a perpetuity
D. Present value of an annuity due
E. Present value of an ordinary annuity
Auto Detailers is buying some new equipment at a cost of $228,900. This equipment
will be depreciated on a straight-line basis to a zero book value its eight-year life. The
equipment is expected to generate net income of $36,000 a year for the first four years
and $22,000 a year for the last four years. What is the average accounting rate of
return?
A. 15.48 percent
B. 17.76 percent
C. 18.09 percent
D. 22.68 percent
E. 25.34 percent