Rooster’s currently has $5,200 in cash. The company owes $31,700 to suppliers for
merchandise and $41,500 to the bank for a long-term loan. Customers owe the company
$26,400 for their purchases. The inventory has a book value of $53,300 and an
estimated market value of $56,500. If the store compiled a balance sheet as of today,
what would be the book value of the current assets?
A. $46,800
B. $55,600
C. $64,700
D. $84,900
E. $96,500
Any person who owns a license to trade on the NYSE is called a:
A. dealer.
B. floor trader.
C. DMM.
D. member.
E. proxy.
Precision Engineering invested $125,000 at 6 percent interest, compounded annually
for 3 years. How much interest on interest did the company earn over this period of
time?
A. $1,284
B. $1,377
C. $1,317
D. $1,369
E. $2,679
You have an outstanding loan with an EAR of 14.61 percent. What is the APR if
interest is compounded monthly?
A. 13.48 percent
B. 13.71 percent
C. 14.60 percent
D. 15.41 percent
E. 15.62 percent
Modern Homes just declared a 4-for-3 stock split. Which of the following occurred as a
result of this split?
I. Number of shares outstanding increased by one-third
II. Number of shares outstanding decreased by one-fourth
III. Price per share increased by one-third
IV. Price per share decreased by one-fourth
A. I only
B. I and III only
C. I and IV only
D. II and III only
E. II and IV only
What is the probability associated with a return that lies in the upper tail when the mean
plus two standard deviations is graphed?
A. .05 percent
B. .5 percent
C. 1.0 percent
D. 2.5 percent
E. 5.0 percent
Which of these is a use of cash?
A. Issuing new shares of stock
B. Decreasing accounts receivable
C. Decreasing inventory
D. Decreasing fixed assets
E. Decreasing accounts payable
Furniture Outlet has an accounts receivable period of 63 days and an accounts payable
period of 87 days. The company turns over its inventory 4.3 times per year and marks
up the inventory an average of 38 percent over its wholesale cost. What is the length of
the firm’s operating cycle?
A. 125.36 days
B. 147.88 days
C. 89.22 days
D. 60.88 days
E. 125.68 days
Wholesome Foods has a cash cycle of 21 days, an operating cycle of 46 days, and an
inventory period of 1.5 days. The company reported cost of goods sold in the amount of
$320,000, and credit sales were $410,000. What is the company’s average balance in
accounts payable?
A. $21,918
B. $18,414
C. $20,203
D. $22,344
E. $23,515
Which one of the following is the suggested method of handling exchange rate risk for
a large, multinational firm headquartered in the U.S.? Assume the operations in each
country represent a different division of the firm.
A. At the division level
B. At a level that combines all divisions representing a separate geographic continent
C. At a level that combines divisions based on the currency used by each division
D. By segregating U.S. operations and foreign operations
E. On a centralized basis for all divisions
A stock has had returns of 14 percent, -18 percent, 2 percent, 33 percent, 27 percent,
and 6 percent over the last six years, respectively. What is the geometric return for this
stock?
A. 10.82 percent
B. 9.32 percent
C. 10.31 percent
D. 9.47 percent
E. 8.88 percent
When using the pure play approach for a proposed investment, a firm is primarily
seeking a rate of return that:
A. is based on the actual source of funds that will be used to fund the project.
B. creates a positive net present value for the project.
C. reflects the size and life of the project.
D. most closely correlates with the proposed investment’s internal rate of return.
E. best matches the risk level of the proposed investment.
The stream of customer instructions to buy and sell securities is called the:
A. order flow.
B. market maker.
C. execution stream.
D. operations flow.
E. buyer’s stream.
Gleason, Inc., elects its board of directors on a staggered basis using cumulative voting.
This implies that:
A. if there are two open seats, then the candidate with the highest number of votes and
the candidate with the lowest number of votes will be selected.
B. the candidates for the open seats are voted for in individual elections.
C. all open positions are filled with one round of voting, assuming there are no tie
votes.
D. shareholders can accumulate their votes over multiple years and cast all those votes
in one election.
E. the firm’s entire board of directors is elected annually in one combined election.
Dixie Mart plans to pay dividends of $1.36, $1.15, $1.35, and $.40 at the end of the
next four years, respectively. After that, the company will be sold and shareholders are
expected to receive $82.40 per share in Year 6 when the sale should be finalized. If the
required return is 11.4 percent, what is the current value of one share of this stock?
A. $47.71
B. $51.87
C. $46.50
D. $51.08
E. $47.29
The Dog House offers credit terms of 2/7, net 20 to all of its customers. Historically, 93
percent of its customers take advantage of the discount. What is the firm’s average
collection period?
A. 7.91 days
B. 7.67 days
C. 8.20 days
D. 8.33 days
E. 9.08 days
You are comparing three investments, all of which pay $100 a month and have an
interest rate of 8 percent. One is ordinary annuity, one is an annuity due, and the third
investment is a perpetuity. Which one of the following statements is correct given these
three investment options?
A. To be the perpetuity, the payments must occur on the first day of each monthly
period.
B. The ordinary annuity would be more valuable than the annuity due if both had a life
of 10 years.
C. The present value of the perpetuity has to be higher than the present value of either
the ordinary annuity or the annuity due.
D. The future value of all three investments must be equal.
E. The present value of all three investments must be equal.
Travis borrowed $10,000 four years ago at an annual interest rate of 7 percent. The loan
term is six years. Since he borrowed the money, Travis has been making annual
payments of $700 to the bank. Which type of loan does he have?
A. Interest-only
B. Pure discount
C. Compound
D. Amortized
E. Complex
A project has the following cash flows. What is the internal rate of return?
A. 13.23 percent
B. 13.58 percent
C. 12.96percent
D. 13.67 percent
E. 13.10 percent
Katie owns 100 shares of ABC stock. Which one of the following terms is used to refer
to the return that Katie and the other shareholders require on their investment in ABC?
A. Weighted average cost of capital
B. Pure play cost
C. Cost of equity
D. Subjective cost
E. Cost of debt
What percentage of capital gains are excluded from taxation for corporate shareholders?
A. 0 percent
B. 10 percent
C. 25 percent
D. 70 percent
E. 75 percent
Today, Stacy is investing $18,000 at 6.72 percent, compounded annually, for 5 years.
How much additional income could she earn if she had invested this amount at 7.15
percent, compounded annually?
A. $43.11
B. $506.06
C. $401.16
D. $442.79
E. $484.08
Harvest Foods generally receives three checks a month in the amounts of $38,950,
$16,750, and $63,800. It takes an average of one day 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? Assume a 30-day month.
A. $4,333.33
B. $3,983.33
C. $4,209.33
D. $3,506.00
E. $4,020.00
Health Centers, Inc., has total equity of $948,300, sales of $1.523 million, and a profit
margin of 4.4 percent. What is the return on equity?
A. 4.21 percent
B. 6.49 percent
C. 7.18 percent
D. 8.68 percent
E. 7.07 percent
National Importers paid $38,600 in dividends and $24,615 in interest over the past year
while net working capital increased from $15,506 to $17,411. The company purchased
$38,700 in net new fixed assets and had depreciation expenses of $14,784. During the
year, the firm issued $20,000 in net new equity and paid off $23,800 in long-term debt.
What is the amount of the cash flow from assets?
A. $21,811
B. $41,194
C. $36,189
D. $26,410
E. $67,015
A firm that uses its weighted average cost of capital as the required return for all of its
investments will:
A. maintain a constant value for its shareholders.
B. increase the risk level of the firm over time.
C. make the best possible accept and reject decisions related to those investments.
D. find that its cost of capital declines over time.
E. accept only the projects that add value to the firm’s shareholders.
A U.S. firm has total assets valued at €918,000 located in Germany. This valuation did
not change from last year. Last year, the exchange rate was €.92 = $1. Today, the
exchange rate is €.80 = $1. By what amount did these assets change in value for the
year on the firm’s U.S. financial statements?
A. -$149,673.91
B. -$162,311.19
C. $162,311.19
D. $149,673.91
E. $0
Which one of the following decreases net income but does not affect the operating cash
flow of a firm that owes no taxes for the current year?
A. Indirect cost
B. Direct cost
C. Noncash item
D. Period cost
E. Variable cost
A bond has a $1,000 face value, a market price of $1,045, and pays interest payments of
$74.50 every year. What is the coupon rate?
A. 6.76 percent
B. 7.00 percent
C. 7.12 percent
D. 7.45 percent
E. 8.14 percent
Which one of the following is a payment by a firm to its shareholders from any source
other than current or accumulated retained earnings?
A. Interest
B. Distribution
C. Retained earnings
D. Dividend
E. Stock repurchase
Davis Engineering declared a dividend to shareholders of record on Monday, February
8, that is payable on Friday, February 26. Carla knows that her dividend check normally
arrives three business days after the check is written. On which one of the following
days should she expect to receive her dividend check? Assume a 365-day year.
A. Wednesday, February 10
B. Thursday, February 11
C. Monday, March 1
D. Tuesday, March 2
E. Wednesday, March 3
Ready To Go is an all-equity firm specializing in hot ready-to-eat meals. Management
has estimated the firm’s earnings before interest and taxes will be $68,000 annually
forever. The present cost of equity is 14.1 percent. Currently, the firm has no debt but is
considering borrowing $450,000 at 8 percent interest. The tax rate is 34 percent. What
is the value of the unlevered firm?
A. $323,017
B. $346,511
C. $314,141
D. $318,298
E. $305,200
Financial leverage:
A. increases as the net working capital increases.
B. is equal to the market value of a firm divided by the firm’s book value.
C. is inversely related to the level of debt.
D. is the ratio of a firm’s revenues to its fixed expenses.
E. increases the potential return to the stockholders.