Kim placed an order with her broker to purchase 400 shares of each of three IPOs that
are being released this month. Each IPO has an offer price of $23 a share. The number
of shares allocated to Kim, along with the closing stock price at the end of the first day
of trading for each stock, are as follows:
What is Kim’s total profit or loss on these three stocks as of the end of the first day of
trading for each stock?
A. -$1,330
B. -$540
C. -$230
D. $1,330
E. $2,370
Answer:
Which one of the following is minimized when the value of a firm is maximized?
A. Return on equity
B. WACC
C. Debt
D. Taxes
E. Bankruptcy costs
Answer:
Which one of the following is the set of procedures used to determine the inventory
levels for demand-dependent inventory?
A. Inventory flow log
B. Materials requirements planning
C. Just-in-time inventory system
D. Kanban
E. Keiretsu
Answer:
A callable bond:
A. is generally call protected during the entire term of the bond issue.
B. generally will have a call protection period during the final three years prior to
maturity.
C. may be structured to pay bondholders the current value of the bond on the date of
call.
D. is prohibited from having a sinking fund also.
E. is frequently called at a price that is less than par value.
Answer:
One year ago, you bought a stock for $36.48 a share. You received a dividend of $1.62
per share last month and sold the stock today for $41.18 a share. What is the capital
gains yield on this investment?
A. 2.86 percent
B. 4.70 percent
C. 12.88 percent
D. 15.62 percent
E. 18.53 percent
Answer:
Taylor’s Market received five checks today and went to the bank to deposit all of them.
Unfortunately, the bank was closed for the day due to a robbery. How does the bank
closure affect the firm’s float assuming these five checks are the only outstanding bank
items?
A. Collection float increased
B. Collection float decreased
C. Disbursement float increased
D. Disbursement float decreased
E. Net float remained unchanged
Answer:
A proposed project requires an initial cash outlay of $849,000 for equipment and an
additional cash outlay of $48,500 in year 1 to cover operating costs. During years 2
through 4, the project will generate cash inflows of $354,000 a year. What is the net
present value of this project at a discount rate of 13 percent? Round your answer to the
nearest whole dollar.
A. -$152,232
B. -$66,391
C. $67,333
D. $128,612
E. $239,602
Answer:
The foreign subsidiary of a U.S. firm is profitable when profits are measured in the
foreign currency but those profits become losses when measured in U.S. dollars. This is
an example of which one of the following?
A. Interest rate disparities
B. Short-run exposure to exchange rate risk
C. Long-run exposure to exchange rate risk
D. Political risk associated with the foreign operations
E. Translation exposure to exchange rate risk
Answer:
Baxter’s, Inc. generally holds $125,000 in cash in case an unexpected investment
opportunity arises. Which one of the following refers to holding cash for this type of
purpose?
A. Precautionary motive
B. Opportunistic motive
C. Speculative motive
D. Reserve motive
E. Transaction motive
Answer:
Donut Delite has total assets of $31,300, long-term debt of $8,600, net fixed assets of
$19,300, and owners’ equity of $21,100. What is the value of the net working capital?
A. $9,800
B. $10,400
C. $18,900
D. $21,300
E. $23,200
Answer:
Which one of the following is an underwriting of securities where the offer price is
determined by investor bids?
A. Private placement
B. Best efforts underwriting
C. Initial public offering
D. Green Shoe option
E. Dutch auction
Answer:
Kim’s Bridal Shoppe has 15,000 shares of common stock outstanding at a price of $11 a
share. It also has 2,000 shares of preferred stock outstanding at a price of $34 a share.
There are 50 bonds outstanding that have a 7.5 percent semiannual coupon. The bonds
mature in six years, have a face value of $1,000, and sell at 96 percent of par. What is
the capital structure weight of the common stock?
A. 24.20 percent
B. 31.68 percent
C. 53.15 percent
D. 58.72 percent
E. 66.23 percent
Answer:
Which one of the following can occur if the operating cycle decreases while both the
accounts receivable and the accounts payable periods remain constant?
A. Inventory period remains constant
B. Cash cycle increases
C. Inventory turnover rate increases
D. Accounts receivable turnover rate increases
E. Cash cycle remains constant
Answer:
The matching principle states that:
A. costs should be recorded on the income statement whenever those costs can be
reliably determined.
B. costs should be recorded when paid.
C. the costs of producing an item should be recorded when the sale of that item is
recorded as revenue.
D. sales should be recorded when the payment for that sale is received.
E. sales should be recorded when the earnings process is virtually completed and the
value of the sale can be determined.
Answer:
Currently, you can exchange $100 for €97.25. The inflation rate in Euroland is
expected to be 3.8 percent as compared to 2.1 percent in the U.S. Assuming that relative
purchasing power parity exists, what should the exchange rate be four years from now?
A. €0.7042/$1
B. €0.7414/$1
C. €0.7670/$1
D. €0.9890/$1
E. €0.1.0403/$1
Answer:
The risk-free rate is 4.2 percent and the expected return on the market is 12.3 percent.
Stock A has a beta of 1.2 and an expected return of 13.1 percent. Stock B has a beta of
0.75 and an expected return of 11.4 percent. Are these stocks correctly priced? Why or
why not?
A. No, Stock A is underpriced and Stock B is overpriced.
B. No, Stock A is overpriced and Stock B is underpriced.
C. No, Stock A is overpriced but Stock B is correctly priced.
D. No, Stock A is underpriced but Stock B is correctly priced.
E. Yes, both stocks are correctly priced.
Answer:
The spot rate is SF 1.0654 = $1. A hotel room in a resort area of Switzerland costs SF
385. Based on absolute purchasing power parity, what should an identical room in the
U.S. cost?
A. $354.24
B. $361.37
C. $387.05
D. $410.18
E. $439.90
Answer:
You just won a contest! You will receive $100,000 a year for 20 years, starting today. If
you can earn 12 percent on your investments, what are your winnings worth today?
A. $750,000.00
B. $833,333.33
C. $836,577.69
D. $850,000.00
E. $887,450.72
Answer:
Which one of the following is true concerning a controlled disbursement account?
A. The number of checks that can be disbursed on any one day is limited.
B. The bank will inform the firm of the amount that needs to be transferred on a daily
basis.
C. The amount that can be disbursed on any given day is limited to the balance in the
account when the bank opens in the morning.
D. The total number of checks that can be written in any one month is limited.
E. The amount of the disbursements is limited to the amount the firm has available on
its bank line of credit.
Answer:
Sixty years ago, your grandparents opened two savings accounts and deposited $200 in
each account. The first account was with City Bank at 3 percent, compounded annually.
The second account was with Country Bank at 3.5 percent, compounded annually.
Which one of the following statements is true concerning these accounts?
A. The City Bank account is currently worth $1,201.54.
B. The City Bank account has earned $211.19 more in interest than the Country Bank
account.
C. The Country Bank account is currently worth $1,526.08.
D. The Country Bank account has paid $367.48 more in interest than the City Bank
account.
E. The Country Bank account has paid $397.30 more in interest than the City Bank
account.
Answer:
A firm wants to create a WACC of 10.4 percent. The firm’s cost of equity is 14.5
percent and its pretax cost of debt is 8.5 percent. The tax rate is 34 percent. What does
the debt-equity ratio need to be for the firm to achieve its target WACC?
A. 0.51
B. 0.57
C. 0.62
D. 0.70
E. 0.86
Answer:
Harter’s Meats has an average collection period of 36 days and factors all of its
receivables immediately at a 1.2 percent discount. Assume all accounts are collected in
full. What is the firm’s effective cost of borrowing?
A. 12.88 percent
B. 12.94 percent
C. 12.97 percent
D. 13.02 percent
E. 13.07 percent
Answer:
The Corner Store is a small-sized, general store which stocks a minimal level of basic
supplies and offers gasoline to a rural community. Which one of the following types of
credit is probably best-suited for financing this store’s inventory?
A. Trust receipt financing
B. Receivables factoring
C. Field warehousing
D. Blanket inventory lien
E. Receivables assignment
Answer:
Currently, the risk-free rate is 4.0 percent. Stock A has an expected return of 9.6 percent
and a beta of 1.08. Stock B has an expected return of 13.5 percent. The stocks have
equal reward-to-risk ratios. What is the beta of Stock B?
A. 1.21
B. 1.33
C. 1.52
D. 1.78
E. 1.83
Answer: