You are considering the following two mutually exclusive projects. The crossover point
is _____ and Project _____ should be accepted if the discount rate is 14 percent.
A. 12.79 percent; B
B. 13.28 percent; A
C. 13.28 percent; B
D. 15.96 percent; A
E. 15.96 percent; B
Answer:
Brown’s Ferry Furniture Outlet has an accounts receivable period of 45 days and an
accounts payable period of 96 days. The company turns over its inventory 2.8 times per
year and marks up the inventory an average of 45 percent over its wholesale cost. What
is the length of the firm’s operating cycle?
A. 85.36 days
B. 175.36 days
C. 189.22 days
D. 201.33 days
E. 205.68 days
Answer:
The Medicine Shoppe has a return on equity of 19.2 percent, a profit margin of 11.6
percent, and total equity of $738,000. What is the net income?
A. $85,608
B. $113,875
C. $141,696
D. $146,542
E. $149,897
Answer:
Which one of the following is an example of systematic risk?
A. Major layoff by a regional manufacturer of power boats
B. Increase in consumption created by a reduction in personal tax rates
C. Surprise firing of a firm’s chief financial officer
D. Closure of a major retail chain of stores
E. Product recall by one manufacturer
Answer:
What is the net present value of the following cash flows if the relevant discount rate is
9.0 percent?
A. $3,374.11
B. $5,006.19
C. $8,215.46
D. $13,058.39
E. $18,519.71
Answer:
Which of the following are cash inflows from net working capital?
I. Increase in accounts payable
II. Increase in inventory
III. Decrease in accounts receivable
IV. Decrease in fixed assets
A. II only
B. III only
C. I and III only
D. III and IV only
E. I, II, and III only
Answer:
Both Projects A and B are acceptable as independent projects. However, the selection of
either one of these projects eliminates the option of selecting the other project. Which
one of the following terms best describes the relationship between Project A and Project
B?
A. Mutually exclusive
B. Conventional
C. Multiple choice
D. Dual return
E. Crosswise
Answer:
The common stock of The Garden of Eden is selling for $42 a share. The company pays
a constant annual dividend and has a total return of 5.8 percent. What is the amount of
the dividend?
A. $1.02
B. $2.04
C. $2.44
D. $3.70
E. $6.81
Answer:
Global Trade, Inc. has $1,000 face value bonds outstanding with a market price of
$1,013. The bonds pay interest annually, mature in 11 years, and have a yield to
maturity of 5.34 percent. What is the current yield?
A. 5.39 percent
B. 5.43 percent
C. 5.50 percent
D. 5.61 percent
E. 5.77 percent
Answer:
Which one of the following best defines a regular cash dividend?
A. Distribution by a firm to its shareholders
B. Payment from any source by a firm to its owners
C. One-time payment of cash by a firm to its shareholders
D. Cash payment by a firm to its owners as part of a firm’s normal operations
E. Distribution of the proceeds from the sale of a portion of a firm’s operations
Answer:
Eric is considering an investment that will pay $5,000 a year for seven years, starting
one year from today. How much should she pay for this investment if she wishes to earn
a 13 percent rate of return?
A. $17,899.08
B. $18,023.88
C. $20,186.75
D. $22,113.05
E. $23,749.24
Answer:
Assume you can exchange $1 for either 1.0 or €0.50 in the U.S. In the London
market, you can exchange 1 for €0.52. This situation creates an opportunity to profit
immediately from which one of the following?
A. Futures arbitrage
B. Currency hedge
C. Interest rate swap
D. Absolute purchasing power parity
E. Triangle arbitrage
Answer:
A preferred stock pays an annual dividend of $6. What is one share of this stock worth
to you today if you require a 12 percent rate of return?
A. $6.14
B. $7.98
C. $43.00
D. $50.00
E. $98.00
Answer:
Today, Stacy is investing $26,000 at 6.0 percent, compounded annually, for 4 years.
How much additional income could he earn if he had invested this amount at 7 percent,
compounded annually?
A. $1,043.11
B. $1,256.30
C. $1,401.16
D. $1,442.79
E. $1,484.08
Answer:
The average accounting return:
A. measures profitability rather than cash flow.
B. discounts all values to today’s dollars.
C. is expressed as a percentage of an investment’s current market value.
D. will equal the required return when the net present value equals zero.
E. is used more often by CFOs than the internal rate of return.
Answer:
Your German friend has decided to come and visit you in the U.S. You estimate the cost
of her trip at $2,600. What is the cost to her in euros if the U.S. dollar equivalent of the
euro is 1.3266?
A. €1,566.67
B. €1,959.90
C. €1,908.50
D. €2,716.34
E. €3,449.16
Answer: