Assuming market efficiency, which one of these is the least sensible explanation of why
convertibles and warrants are issued?
A. Cash flows from these securities best match the cash flows of the firm.
B. The firm is relatively large with a low level of financial leverage.
C. The securities are useful when it is costly to assess the risk of the issuing firm.
D. The securities may resolve agency problems associated with raising money.
E. The issuer has a low bond rating.
Answer:
What is the amount of the non-cash items for 2015?
A.$481 million
B.$0
C.$227 million
D.$311 million
E.$473 million
Answer:
On an average day, DDL Enterprises writes checks totaling $1,500. These checks take
an average of 5 days to clear. On an average day, DDL receives checks totaling $1,700
which take 4 days to clear. The cost of debt is 7.5 percent. What is the firm’s
disbursement float?
A. -$700
B. -$6,800
C. $700
D. $7,500
E. $6,800
Answer:
The owners of a limited liability company generally prefer:
A. being taxed like a corporation.
B. having liability exposure similar to that of a sole proprietor.
C. being taxed personally on all business income.
D. having liability exposure similar to that of a general partner.
E. being taxed like a corporation with liability like a partnership.
Answer:
What is the intrinsic value of the November 35 put?
A. $.70
B. $4.14
C. $5.10
D. $34.30
E. $29.90
Answer:
The free cash flow hypothesis states:
A. that firms with greater free cash flow will pay more in dividends thereby reducing
the risk of financial distress.
B. that firms with greater free cash flow should issue new equity to help minimize the
wasting of resources by managers.
C. that issuing debt requires interest and principal payments to be paid thereby reducing
the potential of management to waste resources.
D. that firms will higher levels of free cash flow should reduce their debt levels.
E. that firms with higher levels of free cash flow should reward their managers with
bonuses.
Answer:
Assume LK Metals is similar to its industry with one exception, it has low fixed costs
relative to all other firms in that industry. Given this, you should expect LK Metals:
A. to have a lower beta than its industry.
B. the same beta as the industry but a lower beta than the other firms in the industry.
C. a higher beta than its industry.
D. a higher beta than the industry or the firms within that industry.
E. the same beta as the industry but a higher beta than the other firms in the industry.
Answer:
Standard deviation measures _____ risk while beta measures ____ risk.
A. total; systematic
B. nondiversifiable; diversifiable
C. unsystematic; total
D. unsystematic; systematic
E. total; unsystematic
Answer:
If the All-Star Fuel Filling Company, a chain of gasoline stations, acquires the
Mid-States Refining Company, a refiner of oil products, this would be an example of a:
A. conglomerate acquisition.
B. white knight.
C. vertical acquisition.
D. going-private transaction.
E. horizontal acquisition.
Answer:
You purchased 300 shares of stock at a price of $21.72 per share. Over the last year, you
have received total dividend income of $240. What is the dividend yield?
A. 3.22%
B. 3.68%
C. 2.80%
D. 3.92%
E. 2.94%
Answer:
Mary owns a gift shop valued at $150,000. If she keeps the shop open 5 days a week,
EBIT is $75,000. If the shop remains open 6 days a week EBIT increases to $92,000
annually. Mary needs an additional $50,000 which she can raise by either selling stock
or issuing debt that will require annual payments of $7,120 for interest and principal.
Ignore taxes. What will the cash flow for the year be to Mary if she issues debt and
remains open 5 days a week?
A. $92,000
B. $61,333
C. $92,000
D. $42,000
E. $67,880
Answer:
If you believe market prices can be predicted by solely studying past prices, then you
believe the market is ____ form efficient.
A. open
B. strong
C. semistrong
D. weak
E. stable
Answer:
Jeff’s Stereos is expanding its product offerings which includes increasing the floor
inventory by $150,000, increasing accounts receivable by $35,000, and increasing its
debt to suppliers by $75,000. The company will also spend $200,000 for a building
contractor to expand the size of the showroom. What is the amount of the project’s
initial cash flow?
A. −$240,000
B. −$310,000
C. −$160,000
D. −$295,000
E. −$175,000
Answer:
If a financial institution has equated the dollar effects of interest rate risk on its assets
with the dollar effects on its liabilities, it has engaged in:
A. a long futures hedge.
B. a short futures hedge.
C. a protected swap.
D. hedging by matching.
E. hedging by swapping.
Answer:
Which one of the following statements is correct?
A. At the accounting break-even level, the pretax profit is equal to the aftertax profit.
B. The contribution margin is equal to sales minus fixed costs.
C. Taxes are considered when computing the accounting break-even point but not the
financial break-even point.
D. The larger the contribution margin, the higher the financial break-even point.
E. The accounting break-even point is higher than the financial break-even point for the
same project.
Answer:
Adjustable rate preferred stock (ARPS) offers competitive rates of return similar to
traditional money-market instruments but:
A. is not rated by Moody’s or Standard & Poor’s.
B. still provides the corporate investor with the tax exclusion on dividend income.
C. has a fixed rate of dividend income.
D. is only an overnight investment.
E. has highly volatile stock prices due to the fixed coupon.
Answer:
Corporations in the U.S. tend to:
A. minimize taxes.
B. underutilize debt.
C. rely less on equity financing than they should.
D. have extremely high debt-equity ratios.
E. rely more heavily on bonds than stocks as the major source of financing.
Answer:
A portfolio has 38 percent of its funds invested in Security C and 62 percent invested in
Security D. Security C has an expected return of 8.47 percent and a standard deviation
of 7.12 percent. Security D has an expected return of 13.45 percent and a standard
deviation of 16.22 percent. The securities have a coefficient of correlation of .89. What
are the portfolio rate of return and variance values?
A. 11.09%; .124031
B. 11.56%; .127620
C. 11.56%; .015688
D. 10.87%; .014308
E. 10.87%; .127620
Answer:
Lester’s has a new project with projected real cash flows of $12,200, $14,600, and
$16,300 for Years 1 to 3, respectively. The nominal discount rate is 15.752 percent and
the inflation rate is 4 percent. What is the net present value of the project if the initial
cost is $25,000?
A. $7,711.64
B. $6,946.48
C. $10,508.70
D. $9,569.56
E. $9,248.74
Answer:
An annuity stream of cash flow payments is a set of:
A. equal cash flows occurring each time period over a fixed length of time.
B. equal cash flows occurring each time period forever.
C. either equal or varying cash flows occurring at set intervals of time for a fixed
period.
D. increasing cash flows occurring at set intervals of time that go on forever.
E. arbitrary cash flows occurring each time period for no more than 10 years.
Answer:
Last week, you purchased one call option contract on DI stock with a strike price of
$32.50 and an option price of $1.05. What is the intrinsic value per share of stock if DI
is currently priced at $29.03?
A. -$1.05
B. $0
C. $.48
D. $.93
E. $1.53
Answer:
Westover’s has an outstanding bond with a coupon rate of 5.5 percent that matures in 12
years. The bond pays interest semiannually. What is the market price of a $1,000 face
value bond if the yield to maturity is 7.13 percent?
A. $934.59
B. $880.86
C. $870.01
D. $905.92
E. $947.87
Answer:
When selecting a benchmark, it is important to match the security or portfolio that will
be evaluated to securities:
A. that have an opposing style.
B. identical factor betas for all factors in the pricing model being utilized.
C. that closely mimic the overall market.
D. with the same PE ratios.
E. of similar style that are available for purchase.
Answer:
The acronym LIBOR stands for:
A. London Interbank Offered Rate.
B. Lending Institution Bank Receipt.
C. Leading Indicator Borrowing Rate.
D. Loan Interest Bank Order Receipt.
E. London International Opportunity Rate.
Answer:
Suppose the one-year forward rate is .6390. Given no arbitrage opportunities, this
implies that traders expect the spot rate to be:
A. .6390 in one year.
B. greater than .6390 in one year.
C. less than .6390 in one year.
D. greater than or equal to .6390 in one year.
E. less than or equal to .6390 in one year.
Answer:
You are retired, have $264,500 in your savings, withdraw $2,000 each month, and earn
4.5 percent, compounded monthly. How long will it be until you run out of money?
A. 13.67 years
B. 15.25 years
C. 22.08 years
D. 13.02 years
E. 18.78 years
Answer:
Last year, Wilson’s had credit sales of $927,000 and cost of goods sold of $762,000.
The beginning of the year inventory was $138,000 and the end of the year inventory
was $154,300. If the accounts receivables average $87,400, what is the operating cycle?
A. 88.23 days
B. 104.42 days
C. 78.60 days
D. 70.01 days
E. 92.09 days
Answer:
The standard deviation of small-company stocks:
A. had an average value of about 20 percent for the period 1926 to 2014.
B. is roughly equivalent to the standard deviation on stocks of all sizes.
C. is over ten times as large as the standard deviation of U.S. Treasury bills.
D. is less than the standard deviation on large-company stocks.
E. produces a narrow normal distribution curve.
Answer:
The expected return on a stock that is computed using economic probabilities is:
A. guaranteed to equal the actual average return on the stock for the next five years.
B. guaranteed to be the minimal rate of return on the stock over the next two years.
C. guaranteed to equal the actual return for the immediate twelve month period.
D. a mathematical expectation based on a weighted average and not an actual
anticipated outcome.
E. the actual return you will receive.
Answer:
Jasmine’s Boutique has 2,000 bonds outstanding with a face value of $1,000 each and a
coupon rate of 9 percent. The interest is paid semiannually. What is the amount of the
annual interest tax shield if the tax rate is 34 percent?
A. $58,500
B. $60,100
C. $60,750
D. $61,200
E. $62,250
Answer: