1) Which of these statements is true?
A.The age of a firm’s cash will affect the current ratio level
B.The age of a firm’s accounts receivable will affect the current ratio level
C.The age of a firm’s fixed assets will affect the fixed asset turnover ratio level
D.The age of a firm’s fixed assets will affect the current ratio level
2) Sally is choosing between two bonds both of which mature in 15 years and have the
same level of risk. Bond A is a municipal bond that yields 5.75%. Bond B is a corporate
bond that yields 7.75%. If Sally is in the 28% tax bracket, which bond should she select
and why?
A.Sally should select Bond A because its interest income is not taxable
B.Sally will be indifferent between Bond A and B since the taxable equivalent yield of
Bond A equals the yield of Bond B
C.Sally should select Bond A because its TEY is greater than the yield of Bond B
D.Sally should select Bond B because the TEY of Bond A is less than the yield of Bond
B
3) Town Crier has 10 million shares of common stock outstanding, 2 million shares of
preferred stock outstanding, and 10 thousand bonds. If the common shares are selling
for $28 per share, the preferred shares are selling for $15.50 per share, and the bonds
are selling for 97 percent of par, what would be the weight used for debt in the
computation of Town Crier’s WACC?
A.3.02%
B.3.12%
C.3.20%
D.3.33%
4) Which of the following statements is correct?
A.Sole proprietorships are easy to start
B.If the sole proprietorship gets sued, the owner is not liable
C.It is relatively easy for sole proprietorships to raise money
D.Profits from the sole proprietorship are subject to double taxation
5) This is data that includes past stock prices and volume, financial statements,
corporate news, analyst opinions, etc.
A.audited financial statements
B.generally accepted accounting principles
C.privately held information
D.public information
6) Financial analysts forecast ABC Inc. growth for the future to be 12%. ABC’s recent
dividend was $1.60. What is the value of ABC stock when the required return is 15%?
A.$59.73
B.$63.72
C.$79.81
D.$91.02
7) Suppose a firm has had the historical sales figures shown below. What would be the
forecast for next year’s sales using the average approach?
A.$10,000,000
B.$10,550,000
C.$10,840,000
D.$12,000,000
8) You deposit $20,000 in an account that doubles in 7 years. How many years will it
take the account to double again if it earns 14% per year?
A.4.92 years
B.5.29 years
C.6.62 years
D.8.22 years
9) Convert each of the following indirect quotes to dollar direct quotes:
$1 = 3.05 Saudi Arabian Riyal
$1 = 41.45 Philippine Peso
$1 = 0.52 Latvian Lat
$1 equals:
A..33 Riyal; .02 Peso; 1.92 Lat
B..33 Riyal; .02 Peso; 1.95 Lat
C..38 Riyal; .05 Peso; 1.92 Lat
D..38 Riyal; .02 Peso; 1.95 Lat
10) Market Value versus Book Value Rupert’s Rims balance sheet lists net fixed assets
as $15 million. The fixed assets could currently be sold for $17 million. Rupert’s current
balance sheet shows current liabilities of $5 million and net working capital of $3
million. If all the current accounts were liquidated today, the company would receive $6
million cash after paying $5 million in liabilities. What is the book value of Rupert’s
assets today? What is the market value of these assets?
A.$8 million, $23 million
B.$23 million, $25 million
C.$23 million, $28 million
D.$31 million, $28 million
11) ABC Corp. is expected to pay a dividend of $5.00 per year indefinitely. If the
appropriate rate of return on this stock is 5 percent per year, and the stock consistently
goes ex-dividend 45 days before dividend payment date, what will be the expected
maximum price in light of the dividend payment logistics?
A.$98.83
B.$100.00
C.$103.77
D.$123.29
12) Moving Cash Flows What is the value in year 5 of a $600 cash flow made in year
10 when interest rates are 5 percent?
A.$368.35
B.$450.00
C.$470.12
D.$570.00
13) Silly Putty Inc. has had sales of $12 million, $17 million, and $16 million for each
of the last 3 years. What would be the MAPE if the actual sales were $15 million using
the nave approach?
A.6.71%
B.5.73%
C.-8.14%
D.-6.67%
14) Goldilochs Inc. reported sales of $5 million and net income of $1 million. The firm
has $10.5 million in total assets. The firm’s chief financial officer is projecting a 20%
increase in sales. If the firm’s sales do increase by 20%, it is expected that spontaneous
liabilities will increase by $1 million. The firm currently pays out 30% of its net income
to shareholders. Assuming that all assets are expected to grow with sales, how much in
additional funds will Goldilochs need from external sources to fund the expected
growth?
A.$245,000
B.$197,000
C.$221,000
D.$260,000
15) Studies of investor psychology have discovered that ____________.
A.investors tend to trade too much
B.investors tend to sell their winners too soon
C.investors tend to become overconfident
D.All of these
16) Company Risk Premium A company has a beta of 4.5. If the market return is
expected to be 14 percent and the risk-free rate is 7 percent, what is the company’s risk
premium?
A.7.0%
B.25.5%
C.31.5%
D.38.5%
17) Asset Management and Debt Management Ratios Use the following information to
calculate current assets: Sales = $100 million, capital intensity ratio = .5 times, debt
ratio = 30%, and fixed asset turnover ratio = 5 times.
A.$10m
B.$15m
C.$30m
D.$50m
18) The NASDAQ Composite includes
A.all of the stocks listed on the NASDAQ Stock Exchange
B.30 of the largest (market capitalization) and most active companies in the U.S.
economy
C.500 firms that are the largest in their respective economic sectors
D.500 firms that are the largest as ranked by Fortune Magazine
19) A firm reported sales of $10 million. It had a debt ratio of 40% and total debt
amounted to $3 million. What was the firm’s capital intensity ratio?
A.1.25 times
B.2.02 times
C.0.40 times
D.0.75 times
20) A decision rule and associated methodology for converting the NPV statistic into a
rate-based metric is referred to as _______________________.
A.NPV
B.Profitability Index
C.MIRR
D.Discounted Payback
21) Calculating Costs of Issuing Stock River Valley Corp. recently went public with an
initial public offering in which they received a total of $40 million in new capital
funding. The underwriter used a firm commitment offering in which the offer price was
$10 and the underwriter’s spread was $0.50. River Valley also paid legal and other
administrative costs of $750,000 for the IPO. What is the number of shares issued
through this IPO?
A.3,925,000
B.4,131,579
C.4,075,000
D.4,289,474
22) Which of the following statements is correct?
A.The dollar return is a more useful measure to compare performance because it more
accurately reflects the change in wealth of the investor
B.A dominant portfolio is one that has the highest risk and highest return within a set of
portfolios
C.By adding stocks to your portfolio, it is possible to effectively eliminate nearly all of
the market risk
D.None of these statements are correct
23) Constant Growth Stock Valuation Target Corp (TGT) paid a $0.21 dividend per
share in 2000, which grew to $0.52 in 2007. This growth is expected to continue. What
is the value of this stock at the beginning of 2007 when the required rate of return is
14.77 percent?
A.$3.52
B.$55.32
C.$62.97
D.$63.49
24) No Nuns Cos. has a 20 percent tax rate and has $100 million in assets, currently
financed entirely with equity. Equity is worth $80 per share, and book value of equity is
equal to market value of equity. Also, let’s assume that the firm’s expected values for
EBIT depend upon which state of the economy occurs this year, with the possible
values of EBIT and their associated probabilities as shown below:
The firm is considering switching to a 10 percent debt capital structure, and has
determined that they would have to pay a 9 percent yield on perpetual debt in either
event. What will be the level of expected EPS if they switch to the proposed capital
structure?
A.$6.27
B.$6.83
C.$7.17
D.$7.60
25) From the perspective of ownership risk, the best form of business organization is
the ______.
A.Sole proprietorship
B.Corporation
C.Partnership
D.S Corporation
26) The Net Present Value decision technique uses a statistic denominated in
A.years
B.currency
C.a percentage
D.time lines
27) A large amount of foreign direct investment into a country will most likely result in
______.
A.More jobs
B.Higher inflation
C.Higher tariffs
D.Lower taxes
28) Suppose that Model Nails, Inc.’s capital structure features 60 percent equity, 40
percent debt, and that its before-tax cost of debt is 6 percent, while its cost of equity is
10 percent. If the appropriate weighted average tax rate is 28 percent, what will be
Model Nails’ WACC?
A.7.73%
B.8.00%
C.8.40%
D.16.00%
29) Present Value What is the present value of a $250 deposit in year 1 and another $50
deposit at the end of year 6 if interest rates are 10 percent?
A.$120.00
B.$169.34
C.$255.50
D.$278.22
30) Expected Return A company’s current stock price is $22.00 and its most recent
dividend was $0.75 per share. Since analysts estimate the company will have a 12%
growth rate, what is its expected return?
A.3.00%
B.3.48%
C.12.00%
D.15.82%
31) Value of a Preferred Stock If a preferred stock from Ecology and Environment, Inc.
(EEI) pays $2.50 in annual dividends, and the required return on the preferred stock is
5.8 percent, what’s the value of the stock?
A.$0.15
B.$0.43
C.$14.50
D.$43.10
32) In M&M’s perfect world, their theorem’s two main propositions are referred to as
which of the following?
A.active capital structure management
B.passive capital structure management
C.capital structure irrelevance assertion
D.capital structure relevance assertion