1) Insider trading involves the use of information not available to the general public to
make profits from trading in a company’s stock.
2) Most dividends, like interest on corporate bonds, are paid semi-annually.
3) A tax loss carryforward of $1,000,000 for company ZZZ is not usually worth
$1,000,000 in present value to a firm that might acquire company ZZZ.
4) The fact that small businesses are usually illiquid does not affect their valuation
process.
5) A convertible bond carries an element of downside risk if its “floor value” were to
exceed the price of the company’s stock.
6) Multinational firms find it difficult to shift funds from one country to another.
7) A cash budget is unnecessary under level production since we know how much will
be produced every month.
8) According to the expectations hypothesis, when long-term interest rates are higher
than short-term interest rates, short-term rates are expected to rise.
9) When a bank issues a “letter of credit,” the bank absorbs ALL of the credit risk to the
exporter.
10) Short-term interest rates have historically been more volatile than long-term rates.
11) On 2/10, net 30 trade terms, if the discount is not taken, the buyer is said to receive
20 days of free credit.
12) It is not possible for a company with a high gross profit margin to have a low
operating profit.
13) A major focus of the Sarbanes-Oxley Act is to make sure that publicly traded
companies accurately present their assets, liabilities, and income in their financial
statements.
14) As the interest rate increases, the interest factor (IF) for the present value of $1
increases.
15) The coefficient of variation calculates the percentage of return relative to the risk of
a project.
16) Under MACRS depreciation, the tax life of an asset and its economically useful life
are assumed to be the same.
17) In a merger, two or more companies are combined to form an entirely new entity.
18) The European Central Bank issues bonds, notes, and bills denominated in the Euro
currency.
19) Firms with predictable cash-flow patterns should assume relatively low levels of
risk.
20) The term “credit crunch” refers to a period in which the interest rate on credit is so
high that firms cannot afford to borrow money.
21) The coefficient of variation (V) can be defined as the
A.expected value multiplied by the standard deviation
B.standard deviation divided by the mean (expected value)
C.mean (expected value) divided by the standard deviation
D.standard deviation squared, divided by the expected value
22) Retained earnings has a cost associated with it because
A.new funds must be raised
B.there is an opportunity cost associated with stockholder funds
C.Ke>g
D.flotation costs increase the cost of funding
23) Regarding risk levels, financial managers should
A.pursue higher-risk projects because they increase value
B.avoid higher-risk projects because they destroy value
C.focus primarily on market fluctuations
D.evaluate investors’ desire for risk
24) The “floor” or pure bond value of a convertible bond is found by
A.multiplying the price of the firm’s common stock by the conversion ratio
B.multiplying the bond’s conversion premium by the price of the firm’s common stock
C.multiplying the price of the firm’s common stock by the conversion ratio and adding
the present value of the bond’s face value
D.finding the present value of the bond’s interest payments and adding the present value
of the bond’s face value
25) If two companies have the same ROE, they will also have the same ROA.
26) A weakness of break-even analysis is that it assumes
A.revenue and costs are a linear (constant) function of volume
B.prices and costs increase when the economy is strong and confidence is high
C.the cost of goods sold goes up as revenue increases
D.None of the options
27)
Refer to the figure above. Compute Tew’s after-tax profit margin.
A.65.0%
B.27.3%
C.59.4%
D.None of the options
28) When Country A’s currency strengthens against Country B’s, citizens of Country A
will
A.pay less to buy Country B’s products
B.pay more to buy Country B’s products
C.pay more to buy domestically produced products
D.not be affected by the change in their currency’s value
29) Companies that have higher risk than a competitor in the same industry will
generally have
A.to pay a higher interest rate than its competitors
B.a lower relative stock price than its competitors
C.a higher cost of funds than its competitors
D.All of the options
30) If a firm has both interest expense and lease payments,
A.times interest earned will be smaller than fixed charge coverage
B.timesinterest earned will be greater than fixed charge coverage
C.times interest earned will be the same as fixed charge coverage
D.fixed charge coverage cannot be computed
31) A 15-year zero-coupon bond was issued with a $1,000 par value to yield 8%. What
is the approximate market value of the bond?
A.$597
B.$315
C.$275
D.$482
32)
Refer to the figure above. What is Marni’s total asset turnover?
A.13.3x
B.4x
C.1x
D.2x
33) Characteristics of a money market mutual fund include
A.the purchase of shares by investors, the proceeds of which are reinvested into liquid
short-term securities
B.a required minimum balance of $2,500
C.the ability to be readily marketable
D.None of the options
34) Which of the following events will NOT affect world markets?
A.A currency crisis
B.Government defaults on foreign debt
C.Terrorism
D.All of these options affect world markets
35) The major limitation of financial statements is
A.their complexity
B.their lack of comparability
C.their use of historical cost accounting
D.their lack of detail
36) In determining the cost of retained earnings
A.the dividend valuation model is inappropriate
B.flotation costs are included
C.growth is not considered
D.the capital asset pricing model can be used
37) The formation of the European Monetary Union and its single currency Euro is
expected to
A.eliminate foreign currency risk between its member countries
B.create stock and bond prices denominated in euros
C.have stock and bond indexes tracking a combined group of common stocks and
bonds from the member countries
D.All of these options
38) If a firm sells 40,000 units and the contribution margin on the firm’s single product
is $4.00 per unit and fixed costs are $60,000, what will the firm’s operating profit be at
this level of sales volume?
A.$100,000
B.$30,000
C.$15,000
D.$145,000
39) Depending upon the state of the economy, Ables Manufacturing Corp. expects to
sell the following number of prefabricated buildings. The probability of each state is
indicated. What is the expected value of the total sales projection?
A.$5,625
B.$4,540
C.$12,800
D.None of the options
40) Industries most sensitive to inflation-induced profits are those with
A.seasonal products
B.cyclical products
C.consumer products
D.high-profit products
41) Common stockholders’ rights include all of the following except for which one?
A.Fixed dividend yield
B.Voting rights
C.First option to purchase new shares
D.Residual claim to income
42) In a general sense, “cash flow” can be said to equal
A.operating income less taxes plus depreciation
B.operating income less taxes
C.operating income before depreciation and taxes plus depreciation
D.operating income after taxes minus depreciation
43) Mr. Nailor invests $5,000 in a money market account at his local bank. He receives
annual interest of 8% for seven years. How much total return will his investment earn
during this time period?
A.$2,915
B.$3,570
C.$6,254
D.$8,570
44) Which of the following is not a method of speeding up collections?
A.Lock-box system
B.Regional collection centers
C.Extended disbursement float
D.All of the options are methods for speeding up collections
45) The market stabilization function usually
A.is performed by the company
B.lasts six to nine months
C.provides price support for the stock during the distribution period
D.is illegal
46) Investors and financial analysts wanting to evaluate the operating efficiency of a
firm’s managers would probably look primarily at the firm’s
A.debt utilization ratios
B.liquidity ratios
C.asset utilization ratios
D.profitability ratios
47) Generally, the total cost to issue securities (as a percent of total proceeds)
A.is greater for common stock than for debt and increases as the size of the issue
increases
B.is greater for debt than for common stock and decreases as the size of the issue
increases
C.is greater for debt than for common stock and increases as the size of the issue
increases
D.is greater for common stock than for debt and decreases as the size of the issue
increases
48) Sponge Bob will receive a payment of $5,000 per year for seven years beginning
three years from today. At a discount rate of 9%, what is the present value of this
deferred annuity?
49) During 20XX, Baker Company and Baumer Company made the following identical
purchases:
100 units @ $12.50
200 units @ $10.50
200 units @ $11.00
100 units @ $12.00
Each company sold 500 units, but Baker uses LIFO inventory valuation and Baumer
uses FIFO inventory valuation. Assume there was no beginning inventory. Calculate
ending inventory and cost of goods sold for each company. How will the difference in
cost of goods sold affect net income?
50) Ohlin, Meade, and Assoc. plans to borrow $1,500,000 for 12 months. Citibank
gives the firm a stated rate of 10% interest.
What is the effective rate of interest if the loan is an installment loan with 12 payments?
51) The Amber Magic Shoppe has forecast its sales revenues and purchases for the last
5 months of 20XX to be as follows:
Sixty-five percent of sales are on credit. On the basis of past experience, 50% of the
accounts receivable are collected the month after the sale and the remainder are
collected two months after the sale. Purchases are paid 30 days after they are incurred.
The firm had a cash balance of $5,000 as of September 30, and its minimum required
cash balance is $4,000. It had no beginning loan balance. Prepare a cash budget for
October, November, and December.
52) State Street Corp. will pay a dividend on common stock of $2.10 per share at the
end of the year. The required return on common stock (Ke) is 8%. The firm has a
constant growth rate of 5%. Compute the current price of the stock (Po).
53) Jury Company wants to calculate the component costs in its capital structure.
Common stock currently sells for $33, and is expected to pay a dividend of $.50. Jury’s
dividend growth rate is 8%, and flotation cost is $1.25. Preferred stock sells for $40,
pays a dividend of $3.00, and carries a flotation cost of $1.10. Jury Company bonds
yield 7% in the market. Jury is in the 30% tax bracket.
Calculate the cost of debt, cost of new common stock, cost of preferred stock, and cost
of retained earnings.
54) ElectroWizard Company produces a popular video game called Destructo, which
sells for $65. Last year ElectroWizard sold 100,000 Destructo games, each of which
costs $10 to produce. ElectroWizard incurred selling and administrative expenses of
$200,000 and a depreciation expense of $100,000. In addition, ElectroWizard has a
$1,000,000 loan outstanding at 8%. Their tax rate is 40%. There are 400,000 common
shares outstanding.
Prepare an income statement for ElectroWizard in good form (include EPS).
55) If you borrow $15,000 at $1,000 interest for one year, what is your effective interest
cost for the following payment plans?
56) The following is the balance sheet for 2010 for Marbell Inc.
Sales for 2010 were $500,000. Sales for 2011 have been projected to increase by 10%.
Assuming that Marbell Inc. is operating below capacity, calculate the amount of new
funds required to finance this growth. Marbell has an 8% return on sales and 80% is
paid out as dividends.
57) Samuel Johnson invested in gold U.S. coins 10 years ago, paying $216.53 for
one-ounce gold “double eagle” coins. He could sell these coins for $734 today. What
was his annual rate of return for this investment?