Tim’s Tools just issued a dividend of $2.22 per share on its common stock. The
company is expected to maintain a constant 2.8 percent growth rate in its dividends
indefinitely. If the stock sells for $19 a share, what is the company’s cost of equity?
A. 12.81 percent
B. 13.37 percent
C. 9.94 percent
D. 14.81 percent
E. 10.46 percent
Interest rate parity defines the relationships among which of the following?
A. Spot exchange rates, future exchange rates, interest rates, and inflation rates
B. Real and nominal interest rates across countries
C. Real interest and inflation rates
D. Forward exchange rates, relative interest rates, and spot exchange rates
E. Spot exchange rates, forward exchange rates, nominal interest rates, and real interest
rates
At 10 percent interest, how long does it take to triple your money?
A. 14.33 years
B. 11.53 years
C. 9.67 years
D. 10.36 years
E. 10.56 years
Miller Brothers is considering a project that will produce cash inflows of $32,500,
$38,470, $40,805, and $41,268 a year for the next four years, respectively. What is the
internal rate of return if the initial cost of the project is $184,600?
A. 7.39 percent
B. 6.86 percent
C. 6.47 percent
D. 7.62 percent
E. 6.24 percent
Juniper Trees has earnings per share of $1.38, all of which is added to retained earnings.
What is the value of a share of its stock if the PE ratio is 9.8 and market-to-book ratio is
2.5?
A. $13.52
B. $13.67
C. $15.30
D. $33.80
E. $34.18
The DuPont identity can be accurately defined as:
A. Return on equity × Total asset turnover × Equity multiplier.
B. Equity multiplier × Return on assets.
C. Profit margin × Return on equity.
D. Total asset turnover × Profit margin × Debt-equity ratio.
E. Equity multiplier × Return on assets × Profit margin.
Kelso’s has projected sales for January through April of $136,000, $148,000, $144,000,
and $146,000, respectively. The firm collects 59 percent of sales in the month of sale,
36 percent in the month following the sale, and the remainder in the second month
following the sale. Assume all sales are collected. The accounts receivable balance at
the end of the beginning of January was $56,050 ($47,643 of which was uncollected
December sales). How much did the firm collect in the month of February?
A. $138,539
B. $141,220
C. $140,208
D. $138,615
E. $142,090
A stock has an expected return of 14.3 percent, the risk-free rate is 3.9 percent, and the
market risk premium is 7.8 percent. What must the beta of this stock be?
A. 1.67
B. .94
C. 1.08
D. 1.21
E. 1.33
A firm has four open positions on its board of directors. How many shares do you need
to own to guarantee your own election to the board if the firm has 387,500 shares of
stock outstanding and uses cumulative voting? Each share is granted one vote.
A. 33,334 shares
B. 77,501 shares
C. 75,251 shares
D. 70,501 shares
E. 96,876 shares
For the year, Uptowne Furniture had sales of $818,790, costs of $748,330, and interest
paid of $24,450. The depreciation expense was $56,100 and the tax rate was 34 percent.
At the beginning of the year, the firm had retained earnings of $172,270 and common
stock of $260,000. At the end of the year, retained earnings was $158,713 and common
stock was $280,000. Any tax losses can be used. What is the amount of the dividends
paid for the year?
A. $5,266
B. $6,466
C. $7,566
D. $7,066
E. $6,898
Which one of these is the best example of systematic risk?
A. Discovery of a major gas field
B. Decrease in textile imports
C. Increase in agricultural exports
D. Decrease in gross domestic product
E. Decrease in management bonuses for banking executives
A real rate of return is defined as a rate that has been adjusted for which one of the
following?
A. Inflation
B. Interest rate risk
C. Taxes
D. Liquidity
E. Default risk
Industrial Supply has projected Q1 sales at $38,200, Q2 sales at $44,900, and Q3 sales
at $42,300. Purchasesequal69 percent of the next quarter’s sales. The accounts
receivable period is 30 days and the accounts payable period is 60 days. At the
beginning of Q1, the firm has an accounts receivable balance of $11,800 and an
accounts payable balance of $23,300. The firm pays $1,600 a month in cash expenses
and $800 a month in interest and taxes. At the beginning of the Q1, the cash balance is
$500 and the short-term loan balance is zero. During Q1, capital spending will be
$2,100. The firm maintains a minimum cash balance of $200. Assume each month has
30 days. What is the cumulative cash surplus (deficit) at the end of Q1, prior to any
short-term borrowing?
A. -$560
B. -$983
C. -$91
D. $109
E. $360
On which one of the following dates is the determination made as to which
shareholders will receive a dividend payment?
A. Date of record
B. Ex-dividend date
C. Payment date
D. Declaration date
E. Public announcement date
Assume the one-year forward rate for the Swiss franc is SF.9655 = $1. The spot rate is
SF .9702 = $1. The interest rate on a risk-free asset in Switzerland is 3.8 percent. If
interest rate parity exists, a one-year risk-free security in the U.S. is yielding _____
percent.
A. 4.21
B. 4.51
C. 3.98
D. 4.40
E. 4.31
You are debating between spending a week in Brazil or a week in Chile. You’ve
estimated the cost of the Brazilian trip at 56,300 reals and the Chilean trip at 13.6
million pesos. The currency per U.S. dollar is 2.5658 reals and 609.10 pesos. If you
prefer the less expensive trip, as measured in U.S. dollars, you should travel to _____
because you can save ____.
A. Brazil; you can save $460.45
B. Brazil; you can save $518.74
C. Chile; you can save $384.29
D. Chile; you can save $613.33
E. Brazil; you can save $385.55
Traditional Bank has an issue of preferred stock with an annual dividend of $7.50 that
just sold for $62 a share. What is the bank’s cost of preferred stock?
A. 12.91 percent
B. 12.10 percent
C. 11.23 percent
D. 13.47 percent
E. 11.32 percent
Which one of the following inventory management approaches determines the finished
goods inventory level and then works backward until the raw material needs are
determined?
A. Extended EOQ
B. Just-in-time
C. ABC approach
D. Materials requirements planning
E. Economic order quantity
Last year, Teresa’s Fashions earned $2.03 per share and had 15,000 shares of stock
outstanding. The firm paid a total of $16,672 in dividends. What is the retention ratio?
A. 45.25 percent
B. 64.07 percent
C. 52.00 percent
D. 40.21 percent
E. 54.75 percent
The Flowering Vine buys hanging plants for $4 each and resells them for $10.95 each.
The firm sells 6,200 plants per year. Generally, the firm orders 250 plants at a time and
has a fixed cost per order of $49. The carrying cost per unit is $22.32. To avoid newer
plants mixing with older plants, the inventory is totally sold out before it is restocked.
Given the current ordering system, the total annual carrying cost is ____ and the total
annual restocking cost is ____.
A. $2,811; $1,215
B. $2,811; $1,269
C. $2,790; $1,215
D. $2,790; $1,225
E. $3,212; $1,269
Maria is the sole proprietor of an antique store that is located in a rented warehouse.
The store has an outstanding loan with the local bank but no other debt obligations.
There are no specific assets pledged as security for the loan. Due to a sudden and
unexpected downturn in the economy, the store is unable to generate sufficient funds to
pay the loan payments due to the bank. Which of the following options does the bank
have to collect the money it is owed?
I. Sell the inventory and apply the proceeds to the debt
II. Sell the lighting fixtures from the building and apply the proceeds to the debt
III. Withdraw funds from Maria’s personal account at the bank to pay the store’s debt
IV. Sell any assets Maria personally owns and apply the proceeds to the store’s debt
A. I only
B. III only
C. I and II only
D. I, II, and III only
E. I, III, and IV only
CrossTown Builders is considering remodeling an old building it currently owns. The
building was purchased ten years ago for $1.2 million. Over the past ten years, the firm
rented out the building and used the rent to pay off the mortgage. The building is now
owned free and clear and has a current market value of $1.9 million. The company is
considering remodeling the building into industrial-type apartments at an estimated cost
of $1.6 million. The estimated present value of the future income from these apartments
is $4.1 million. Which one of the following defines the opportunity cost of the
remodeling project?
A. Present value of the future income
B. Cost of the remodeling
C. Current market value of the building
D. Initial cost of the building plus the remodeling costs
E. Current market value of the building plus the remodeling costs
DJ’s has a total asset turnover rate of 1.13, an equity multiplier of 1.46, a profit margin
of 5.28 percent, a retention ratio of .74, and total assets of $138,000. What is the
sustainable growth rate?
A. 6.98 percent
B. 6.89 percent
C. 7.33 percent
D. 7.04 percent
E. 7.21 percent
The amount of systematic risk present in a particular risky asset relative to that in an
average risky asset is measured by the:
A. squared deviation.
B. beta coefficient.
C. standard deviation.
D. mean.
E. variance.
Diversifying a portfolio across various sectors and industries might do more than one of
the following. However, this diversification must do which one of the following?
A. Increase the expected risk premium
B. Reduce the beta of the portfolio to one
C. Increase the security’s risk premium
D. Reduce the portfolio’s systematic risk level
E. Reduce the portfolio’s unique risks
Financial statement analysis:
A. is primarily used to identify account values that meet the normal standards.
B. is limited to internal use by a firm’s managers.
C. provides useful information that can serve as a basis for forecasting future
performance.
D. provides useful information to shareholders but not to debtholders.
E. is enhanced by comparing results to those of a firm’s peers but not by comparing
results to prior periods.
Which one of the following is directly related to increases in a firm’s current assets?
A. Reorder costs
B. Shortage costs
C. Restocking costs
D. Out-of-stock events
E. Carrying costs
Which statement is true?
A. The inventory period increases as the inventory turnover rate increases.
B. The length of the inventory period depends on the length of the cash cycle.
C. The inventory period is the average number of days a firm holds inventory on its
shelves.
D. The inventory period is equal to the operating cycle minus the accounts payable
period.
E. The inventory period has no effect on the cash cycle.
Peter’s Tools recently defaulted on a bank loan. To avoid a bankruptcy proceeding, the
bank agreed to a composition. This composition would do which one of the following?
A. Forgive the loan payment in its entirety
B. Extend the due date on the missed loan payment
C. Reduce the amount of the loan payments so Peter’s can pay on time
D. Transfer some of Peter’s assets to the bank in lieu of the loan payment
E. Transfer all the equity shares in Peter’s to the lending bank
Today, you deposit $2,500 in a bank account that pays 3.6 percent simple interest. How
much interest will you earn over the next 5 years?
A. $90.00
B. $120.00
C. $450.00
D. $483.59
E. $492.27
Scenario analysis:
A. determines the impact a $1 change in sales has on a project’s internal rate of return.
B. determines which variable has the greatest impact on a project’s net present value.
C. helps determine the reasonable range of expectations for a project’s anticipated
outcome.
D. evaluates a project’s net present value while sensitivity analysis evaluates a project’s
internal rate of return.
E. determines the absolute worst and absolute best outcome that could ever occur.