The common stock of The Burger Hut is selling for $16.25 a share. The company has
earnings per share of $0.42 and a book value per share of $9.28. What is the
market-to-book ratio?
A. 1.58
B. 1.69
C. 1.75
D. 1.87
E. 1.92
Answer:
The transaction motive for holding cash refers to the need to have cash for which one of
the following purposes?
A. Safety margin
B. Investment opportunities
C. Daily operations
D. Financial reserve
E. Bargain opportunities
Answer:
Sherpa Movers has just gone public. Under a firm commitment agreement, the firm
received $34.40 for each of the 3.5 million shares sold. The initial offering price was
$37 per share, and the stock rose to $43 per share in the first few minutes of trading.
Sherpa Movers paid $896,000 in legal and other direct costs and $225,000 in indirect
costs. What was the flotation cost as a percentage of the funds raised?
A. 22.91 percent
B. 23.85 percent
C. 24.49 percent
D. 26.17 percent
E. 28.60 percent
Answer:
For which one of the following instruments does a bank guarantee payment by the
buyer?
A. Money market preferred stock
B. Commercial paper
C. Banker’s acceptance
D. Invoice
E. Time draft
Answer:
Which one of the following statements is correct?
A. Firms should generally finance all of their assets with long-term debt.
B. Firms that follow restrictive financial policies can generally avoid short-term debt
financing.
C. Short-term borrowing is generally more expensive than long-term borrowing.
D. Long-term interest rates tend to be more volatile than short-term rates.
E. A firm is less apt to face financial distress if it adopts a flexible financial policy
rather than a restrictive policy.
Answer:
All else constant, which one of the following will decrease the cash cycle?
A. Decreasing the credit period granted to a customer
B. Decreasing the inventory turnover rate
C. Decreasing the accounts payable period
D. Decreasing the accounts receivable turnover rate
E. Increasing the receivables period
Answer:
Hercules Movers pays a constant annual dividend of $1.75 per share on its stock. Last
year at this time, the market rate of return on this stock was 14.8 percent. Today, the
market rate has fallen to 11.2 percent. What would your capital gains yield have been if
you had purchased this stock one year ago and then sold the stock today?
A. 18.78 percent
B. 22.03 percent
C. 28.16 percent
D. 30.00 percent
E. 32.14 percent
Answer:
Which one of the following statements concerning issue costs is correct?
A. The underwriters pay the spread.
B. Taxes are an indirect underwriting cost.
C. Seasoned equity offerings (SEOs) tend to be less costly than IPOs.
D. Straight bonds are more costly to issue than convertible bonds.
E. The total direct cost as a percentage of gross proceeds for an IPO tends to decrease as
the size of the offer decreases.
Answer:
Fred is the owner of a local feed store. Which one of the following ratios should he
compute if he wants to know how long the store can pay its bills given the amount of
cash the store currently has?
A. Current ratio
B. Debt ratio
C. Cash coverage ratio
D. Quick ratio
E. Cash ratio
Answer:
The expected return on a security is currently based on a 22 percent chance of a 15
percent return given an economic boom and a 78 percent chance of a 12 percent return
given a normal economy. Which of the following changes will decrease the expected
return on this security?
I. An increase in the probability of an economic boom
II. A decrease in the rate of return given a normal economy
III. An increase in the probability of a normal economy
IV. An increase in the rate of return given an economic boom
A. I and II only
B. I and IV only
C. II and III only
D. I, III, and IV only
E. I, II, III, and IV
Answer:
You want to borrow $40,000 from your local bank to buy a new sailboat. You can afford
to make monthly payments of $775, but no more. Assuming monthly compounding,
what is the highest rate you can afford on a 60-month APR loan?
A. 5.9 percent
B. 6.0 percent
C. 6.1 percent
D. 6.2 percent
E. 7.2 percent
Answer:
The Brown Jug has compiled the following information:
What is the operating cash flow for 2014?
A. $21,900
B. $26,700
C. $42,100
D. $48,300
E. $52,600
Answer:
Turner’s Store had a profit margin of 6.8 percent, sales of $898,200, and total assets of
$798,000. If management set a goal of increasing the total asset turnover to 1.40 times,
what would the new sales figure need to be, assuming no increase in total assets?
A. $860,333
B. $984,320
C. $1,088,500
D. $1,117,200
E. $1,257,480
Answer:
Harvest generally receives three checks a month in the amounts of $46,500, $32,000,
and $63,800. On average, it takes two days for the funds from these checks to be added
to the firm’s available balance at the bank once they have been deposited. What is the
amount of the average daily float?
A. $4,743
B. $9,487
C. $14,209
D. $21,506
E. $56,750
Answer:
The Green Balloon just paid its first annual dividend of $0.12 a share. The firm plans to
increase the dividend by 3.5 percent per year indefinitely. What is the firm’s cost of
equity if the current stock price is $6.50 a share?
A. 5.35 percent
B. 5.41 percent
C. 14.42 percent
D. 18.79 percent
E. 19.98 percent
Answer: