Which one of the following players on the floor of the NYSE is obligated to maintain a
two-sided, orderly market for a limited number of securities?
A. Designated market maker
B. Floor sweeper
C. Investment firms
D. Supplemental liquidity provider
E. Floor broker
Operating cash flow is defined as:
A. a firm’s net profit over a specified period of time.
B. the cash that a firm generates from its normal business activities.
C. a firm’s operating margin.
D. the change in the net working capital over a stated period of time.
E. the cash that is generated and added to retained earnings.
What is the maximum average tax rate for corporations?
A. 38 percent
B. 25 percent
C. 33 percent
D. 39 percent
E. 35 percent
Alexis plans to invest $2,500 a year for 30 years starting at the end of this year. How
much will this investment be worth at the end of the 30 years if she earns an average
annual rate of return of 9.6 percent?
A. $387,411.26
B. $417,932.11
C. $403,018.90
D. $311,416.67
E. $381,324.92
When valuing a stock using the constant-growth model, D1 represents the:
A. expected difference in the stock price over the next year.
B. expected stock price in one year.
C. last annual dividend paid.
D. the next expected annual dividend.
E. discount rate.
Which one of the following refers to the option to expand into related businesses in the
future?
A. Strategic option
B. Contingency option
C. Soft rationing
D. Hard rationing
E. Capital rationing option
Rocky Top, Inc., purchased some seven-year MACRS welding equipment six years ago
at a cost of $73,000. Today, the company is selling this equipment for $25,000. The tax
rate is 33 percent. What is the aftertax cash flow from this sale? The MACRS allowance
percentages are as follows, commencing with Year 1: 14.29, 24.49, 17.49, 12.49, 8.93,
8.92, 8.93, and 4.46 percent.
A. $30,024.35
B. $16,152.25
C. $19,975.65
D. $31,075.75
E. $17,824.41
Which one of the following describes a Green Shoe provision?
A. Determination of underwriters’ fees
B. Guarantee of sale for all offered shares
C. Price auction
D. Overallotment option
E. Description of issue excluding the offer price
What was the average annual risk premium on small-company stocks for the period
1926-2014?
A. 12.3 percent
B. 11.2 percent
C. 12.9 percent
D. 13.2 percent
E. 13.5 percent
Research conducted on firms’ dividend policies over time support which one of the
following conclusions?
A. Aggregate dividends and stock repurchases have steadily declined in real terms.
B. Dividends are required to be paid by all public corporations in existence for ten years
or more.
C. Managers tend to smooth dividends.
D. Stock prices react quickly whenever an anticipated dividend amount is paid.
E. Firms generally commence paying dividends prior to doing any stock repurchases.
Sweet Candies reduced its fixed assets this year without affecting the shop’s operations,
sales, or equity. This reduction will increase which of the following ratios?
I. Capital intensity ratio
II. Return on assets
III. Total asset turnover
IV. Return on equity
A. I and II only
B. II and III only
C. II, III, and IV only
D. I, II, and IV only
E. I, II, III, and IV
Santa Claus Enterprises has 87,000 shares of common stock outstanding at a current
price of $39 a share. The firm also has two bond issues outstanding. The first bond issue
has a total face value of $230,000, pays 7.1 percent interest annually, and currently sells
for 103.1 percent of face value. The second bond issue consists of 5,000 bonds that are
selling for $887 each. These bonds pay 6.5 percent interest annually and mature in eight
years. The tax rate is 35 percent. What is the capital structure weight of the firm’s debt?
A. 57.93 percent
B. 51.39 percent
C. 55.50 percent
D. 60.52 percent
E. 71.86 percent
The operating cycle is equal to the:
A. inventory period plus the accounts payable period.
B. accounts receivable period plus the cash cycle.
C. inventory period minus the accounts payable period plus the accounts receivable
period.
D. accounts receivable period plus the inventory period.
E. inventory period plus the cash cycle.
Nu Tek is comprised of four separate operating divisions. For this year, the firm has
decided to allocate capital funds using a soft rationing approach. Which one of the
following applies to this situation?
A. Division managers will be limited to accepting a single new project each.
B. Division managers are being given blanket approval to accept all positive net present
value projects.
C. Division managers should expect to be treated equally, at least initially, in the capital
distribution process.
D. Division managers will not receive any funding for new projects but will be allowed
to expand current operations.
E. Division managers will not receive capital funding for any project.
Which one of the following events must occur before a firm can offer a liquidating
dividend?
A. Bankruptcy filing
B. Insolvency declaration
C. Asset sale
D. Negative equity
E. Failed bond issue
Which one of the following is a payment of either cash or shares of stock that is paid
out of earnings to a firm’s shareholders?
A. Interest
B. Capital surplus
C. Retained earnings
D. Dividend
E. Stock repurchase
This morning, Structural Steel purchased 3,500 of its outstanding shares in the open
market. What type of transaction was this?
A. Stock payout
B. Stock distribution
C. Stock dividend
D. Stock repurchase
E. Stock reversal
The level of financial risk to which a firm is exposed is dependent on the firm’s:
A. tax rate.
B. debt-equity ratio.
C. return on assets.
D. level of earnings before interest and taxes.
E. operational level of risk.
Which one of the following statements is correct?
A. The internal rate of return is the most reliable method of analysis for any type of
investment decision.
B. The payback method is biased toward short-term projects.
C. The modified internal rate of return is most useful when projects are mutually
exclusive.
D. The average accounting return is the most difficult method of analysis to compute.
E. The net present value method is applicable only if a project has conventional cash
flows.
The stock of Wiley United has a beta of .98. The market risk premium is 7.6 percent
and the risk-free rate is 3.9 percent. What is the expected return on this stock?
A. 7.53 percent
B. 7.69 percent
C. 11.35 percent
D. 11.52 percent
E. 12.01 percent
Which of these tends to create an unexpected increase in a firm’s average collection
period?
A. Increased credit sales
B. The implementation of a cash discount
C. Increased customer delinquencies
D. Increased dollar value per each sale
E. Increased collection efforts
Jeffries & Sons is borrowing $95,000 for four years at an APR of 7.05 percent. The
principal is to be repaid in equal annual payments over the life of the loan with interest
paid annually. Payments will be made at the end of each year. What is the total payment
due for Year 3 of this loan?
A. $28,224.90
B. $27,098.75
C. $25,424.38
D. $30,447.50
E. $28,773.13
You have $1,500 today in your savings account. How long must you wait for your
savings to be worth $4,000 if you are earning 1.1 percent interest, compounded
annually?
A. 76.68 years
B. 79.69 years
C. 72.13 years
D. 80.57 years
E. 89.66 years
Old Town Industries has three divisions. Division X has been in existence the longest
and has the most stable sales. Division Y has been in existence for five years and is
slightly less risky than the overall firm. Division Z is the research and development side
of the business. Given this, the firm should probably:
A. require the highest rate of return from Division X since it has been in existence the
longest.
B. assign the highest cost of capital to Division Z because it is most likely the riskiest of
the three divisions.
C. use the firm’s WACC as the cost of capital for Division Z as it provides analysis for
the entire firm.
D. use the firm’s WACC as the cost of capital for Divisions A and B because they are
part of the revenue-producing operations of the firm.
E. allocate capital funds evenly amongst the divisions to maintain the current capital
structure of the firm.
Adell Furniture has a profit margin of 8.2 percent on sales of $211,000. The common
size ratio of dividends is .03 and total assets are $196,000. What is the plowback ratio?
A. 58.20 percent
B. 27.33 percent
C. 54.60 percent
D. 63.41 percent
E. 68.20 percent
The financial statements of Blue Fin Marina reflect depreciation expenses of $41,600
and interest expenses of $27,900 for the year. The current assets increased by $31,800
and the net fixed assets increased by $28,600. What is the amount of the net capital
spending for the year?
A. $13,000
B. $21,600
C. $28,600
D. $60,400
E. $70,200
In the process of liquidation, some types of claims receive preference over other claims.
Which one of the following determines which type of claim is paid first?
A. Technical insolvency definition
B. Absolute priority rule
C. Accounting insolvency definition
D. Chapter 7 of the Federal Bankruptcy Reform Act of 1978
E. Securities and Exchange Commission
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 term applies to this granting of
authority?
A. Straight
B. Cumulative
C. Consent-form
D. Proxy
E. In absentia
Travis is buying a car and will finance it with a loan that requires monthly payments of
$265 for the next four years. His car payments can be described by which one of the
following terms?
A. Perpetuity
B. Annuity
C. Consol
D. Lump sum
E. Present value
Capital budgeting includes the evaluation of which of the following?
A. Size of future cash flows only
B. Size and timing of future cash flows only
C. Timing and risk of future cash flows only
D. Risk and size of future cash flows only
E. Size, timing, and risk of future cash flows
A firm is considering two different capital structures. The first option is an all-equity
firm with 40,000 shares of stock. The second option is 28,000 shares of stock plus some
debt. Ignoring taxes, the break-even level of earnings before interest and taxes between
these two options is $52,000. How much money is the firm considering borrowing if
the interest rate is 9 percent?
A. $175,000
B. $173,333
C. $208,333
D. $216,667
E. $225,000
According to M&M Proposition I with taxes, the value of a levered firm will increase
when the:
A. value of the unlevered firm increases.
B. tax rate is decreased.
C. debt-equity ratio is lowered.
D. interest rate on the debt is lowered.
E. interest rate on the debt is increased.
When a firm faces hard rationing,:
A. all positive net present value projects will be accepted.
B. each division within a firm will be allocated an amount for capital expenditures that
will be less than the total value of its positive net present value projects.
C. there will be no available funds for capital expenditures.
D. the firm will fund only those projects that create value for its shareholders.
E. the firm will finance only the projects that have the highest profitability index values.
