1) For the past year, LP Gas, Inc. had cash flow from assets of $38,100 of which
$21,500 flowed to the firm’s stockholders. The interest paid was $2,300. What is the
amount of the net new borrowing?
A.-$14,300
B.-$9,700
C.$12,300
D.$14,300
E.$18,900
2) Earth Fare Foods has total assets of $229,800, net fixed assets of $71,500, long-term
debt of $52,000, and total debt of $78,700. If inventory is $45,000, what is the current
ratio?
A.0.20
B.0.46
C.0.84
D.1.18
E.5.93
3) ADP, Inc. needs to raise $32 million to finance its expansion into new markets. The
company will sell new shares of equity via a general cash offering to raise the needed
funds. If the offer price is $45 per share and the company’s underwriters charge an 8.25
percent spread, how many shares need to be sold?
A.648,729 shares
B.691,208 shares
C.723,467 shares
D.775,053 shares
E.775,323 shares
4) Letitia borrowed $6,000 from her bank two years ago. The loan term is four years.
Each year, she must repay the bank $1,500 plus the annual interest. Which type of loan
does she have?
A.Amortized
B.Blended discount
C.Interest-only
D.Pure discount
E.Complex
5) Best Western has $1,000 face value bonds outstanding. These bonds pay interest
semiannually, mature in six years, and have a 5 percent coupon. The current price is
quoted at 101 . What is the yield to maturity?
A.2.32 percent
B.4.64 percent
C.5.00 percent
D.5.13 percent
E.5.27 percent
6) The Three Stooges has the following estimated sales.
Purchases are equal to 75 percent of the following quarter’s sales. The accounts payable
period is 45 days. Assume each month has 30 days. What is the estimated accounts
payable balance at the end of quarter 2?
A.$6,300
B.$6,520
C.$6,624
D.$4,901
E.$4,200
7) Which one of the following is the risk arising from changes in value caused by
political actions?
A.Exchange rate risk
B.Political risk
C.Translation risk
D.LIBOR risk
E.Cross-rate risk
8) 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
9) Which of the following should be included in the analysis of a proposed investment?
I. Erosion effects
II. Opportunity costs
III. Sunk costs
IV. Side effects
A.I only
B.II only
C.I and IV only
D.I, II, and IV only
E.I, II, III, and IV
10) When issuing securities, which of the following can occur prior to receiving the
approval by the SEC of a registration statement?
I. Oral offer to buy shares
II. Written offer to buy shares
III. Final determination of the offer price
IV. Distribution of a preliminary prospectus
A.I only
B.III only
C.III and IV only
D.I and IV only
E.None of the listed activities can occur until after the SEC approval is received
11) Whole Foods has a book value per share of $13.50, earnings per share of $1.21, and
a price-earnings ratio of 17.6 . What is the market-to-book ratio?
A.1.08
B.1.58
C.1.99
D.2.47
E.11.16
12) Last year, when the stock of Alpha Minerals was selling for $55 a share, the
dividend yield was 3.2 percent. Today, the stock is selling for $41 a share. What is the
total return on this stock if the company maintains a constant dividend growth rate of
2.5 percent?
A.6.13 percent
B.6.58 percent
C.6.90 percent
D.7.47 percent
E.7.40 percent
13) What is the beta of the following portfolio?
A.0.98
B.1.02
C.1.11
D.1.14
E.1.20
14) Joe and Rich are both considering investing in a project with the following cash
flows. Joe is content earning a 9 percent return, but Rich desires a return of 16 percent.
Who, if either, should accept this project?
A.Joe, but not Rich
B.Rich, but not Joe
C.Neither Joe nor Rich
D.Both Joe and Rich
E.Joe, and possibly Rich, who will be neutral on this decision as his net present value
will equal zero
15) Which one of the following is an expected result of the Check Clearing Act for the
21st Century?
A.Firms will have to wait three days before having access to their deposited funds
B.Zero-balance accounts will be eliminated
C.Lockboxes will be prohibited
D.Collection float, but not disbursement float, will be reduced
E.Both collection and disbursement float will be reduced
16) Faith wrote a check for $22 on Friday, May 6 . The check cleared the bank on
Wednesday, May 11 . There were no other checks or deposits outstanding during the
month. Given this, which one of the following statements is correct?
A.On May 6, the available balance decreased by $22
B.On May 11, the available balance was $22 less than the ledger balance
C.On May 12, the ledger balance was $22 less than the available balance
D.On May 14, the available balance increased by $22
E.On May 10, the ledger balance was $22 less than the available balance
17) Which one of the following is correct based on the static theory of capital structure?
A.A firm receives the greatest benefit from debt financing when its tax rate is relatively
low
B.A debt-equity ratio of 1 is considered to be the optimal capital structure
C.The costs of financial distress decrease the value of a firm
D.The more debt a firm assumes, the greater the incentive to acquire even more debt
until such time as the firm is financed with 100 percent debt
E.At the optimal level of debt a firm also optimizes its tax shield on debt
18) Keyser Materials has 8 percent coupon bonds on the market with 19 years to
maturity. The bonds make semiannual payments and currently sell for 102 percent of
par. What is the current yield on Keyser Materials bonds? The YTM? The effective
annual yield?
A.7.84 percent; 7.80 percent; 7.95 percent
B.7.84 percent; 7.92 percent; 7.95 percent
C.7.84 percent; 7.92 percent; 7.97 percent
D.7.80 percent; 7.84 percent; 7.92 percent
E.7.80 percent; 7.92 percent; 7.95 percent
19) Which one of the following will decrease the net working capital of a firm?
A.Obtaining a three-year loan and using the proceeds to buy inventory
B.Collecting a payment from a credit customer
C.Obtaining a five-year loan to buy equipment
D.Selling inventory at a profit
E.Making a payment on a long-term debt
20) Piedmont Hotels is an all-equity firm with 60,000 shares of stock outstanding. The
stock has a beta of 1.27 and a standard deviation of 13.8 percent. The market risk
premium is 9.1 percent and the risk-free rate of return is 4.5 percent. The company is
considering a project that it considers riskier than its current operations so it wants to
apply an adjustment of 1 percent to the project’s discount rate. What should the firm set
as the required rate of return for the project?
A.12.54 percent
B.13.92 percent
C.15.39 percent
D.17.06 percent
E.17.33 percent
21) The cash coverage ratio is used to evaluate the:
A.liquidity of a firm
B.speed at which a firm generates cash
C.length of time that a firm can pay its bills if no additional cash becomes available
D.ability of a firm to pay the interest on its debt
E.relationship between the firm’s cash balance and its current liabilities
22) The Berry Patch has sales of $438,000, cost of goods sold of $369,000, depreciation
of $37,400, and interest expense of $13,800. The tax rate is 35 percent. What is the
times interest earned ratio?
A.2.29
B.3.46
C.3.87
D.4.38
E.4.79
23) Baugh & Essary has net income of $149,200, sales of $936,800, a capital intensity
ratio of 0.74, and an equity multiplier of 1.5 . What is the return on equity?
A.6.67 percent
B.15.93 percent
C.32.25 percent
D.42.21 percent
E.44.09 percent
24) Which one of the following analytical methods is based on net income?
A.Profitability index
B.Internal rate of return
C.Average accounting return
D.Modified internal rate of return
E.Payback
25) Of the following, which two are the best reasons for doing a reverse stock split?
I. Return a stock to its normal trading range
II. Eliminate small shareholders
III. Reduce shareholder costs
IV. Avoid delisting
A.I and II
B.I and III
C.II and III
D.II and IV
E.III and IV
26) Donuts Delite just paid an annual dividend of $1.10 a share. The firm expects to
increase this dividend by 8 percent per year the following three years and then decrease
the dividend growth to 2 percent annually thereafter. Which one of the following is the
correct computation of the dividend for year 7?
A.($1.10) (1.08 3) (1.02 4)
B.($1.10) (1.08 3) (1.02 3)
C.($1.10) (1.08)3 (1.02)4
D.($1.10) (1.08)3 (1.02)3
E.($1.10) (1.08)3 (1.02)2
27) The stock of Wiley United has a beta of 0.92 . The market risk premium is 8.4
percent and the risk-free rate is 3.2 percent. What is the expected return on this stock?
A.8.87 percent
B.10.69 percent
C.11.11 percent
D.11.52 percent
E.12.01 percent
28) Which one of the following premiums is paid on a corporate bond due to its tax
status?
A.Interest rate risk premium
B.Inflation premium
C.Liquidity premium
D.Taxability premium
E.Default risk premium
29) Peter’s Motor Works has total assets of $689,400, long-term debt of $299,500, total
equity of $275,000, net fixed assets of $497,800, and sales of $721,500. The profit
margin is 4.6 percent. What is the current ratio?
A.0.60
B.0.91
C.1.01
D.1.67
E.2.16
30) 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
31) In an efficient market, the cost of equity for a risky firm does which one of the
following according to the security market line?
A.Produces a return that will be less than the market rate but higher than the risk-free
rate
B.Equals the market rate of return for all stocks
C.Has a maximum cost equal to the market rate of return
D.Decreases as the beta of the firm’s stock increases
E.Increases in direct relation to the stock’s systematic risk
32) Which one of the following methods of analysis is most similar to computing the
return on assets (ROA)?
A.Internal rate of return
B.Profitability index
C.Average accounting return
D.Net present value
E.Payback
33) Newly issued securities are sold to investors in which one of the following markets?
A.Proxy
B.Stated value
C.Inside
D.Secondary
E.Primary