Lisa is interested in purchasing 1,000 shares of TJH, Inc. when the shares are issued.
Her broker just gave Lisa a preliminary prospectus on these shares for her to review as
she waits for the shares to be cleared for sale. What is the name of this prospectus?
A. Green Shoe
B. Rights offer
C. Red herring
D. Spread
E. Tombstone
Whole Foods has a book value per share of $13.50, earnings per share of $1.21, and a
price-earnings ratio of 17.6. What is the market-to-book ratio?
A. 1.08
B. 1.58
C. 1.99
D. 2.47
E. 11.16
The Mens Warehouse charges 1.6 percent interest per month. What rate of interest are
its credit customers actually paying?
A. 18.00 percent
B. 18.92 percent
C. 19.26 percent
D. 19.31 percent
E. 20.98 percent
A firm has net working capital of $3,800 and current assets of $11,700. What is the
current ratio?
A. 0.34
B. 0.60
C. 1.48
D. 1.65
E. 2.92
Marcos & Sons has no debt. Its current total value is $58 million. What will the
companys value be if it sells $21 million in debt and has a tax rate of 34 percent?
Assume debt proceeds are used to repurchase equity.
A. $58,220,000
B. $60,370,000
C. $62,330,000
D. $64,560,000
E. $65,140,000
The R in the Fisher effect formula represents the:
A. current yield.
B. real return.
C. coupon rate.
D. inflation rate.
E. nominal return.
Leslie Printing has net income of $26,310 for the year. At the beginning of the year, the
firm had common stock of $55,000, paid-in surplus of $11,200, and retained earnings of
$48,420. At the end of the year, the firm had total equity of $142,430. The firm does not
pay dividends. What is the amount of the net new equity raised during the year?
A. $1,500
B. $2,500
C. $2,700
D. $48,420
E. $48,310
You are considering the following two mutually exclusive projects. What is the
crossover point?
A. 10.76
B. 13.72
C. 15.89
D. 18.79
E. 22.56
Tim has been promoted and is now in charge of all fixed asset purchases. In other
words, Tim is in charge of:
A. capital structure management.
B. asset allocation.
C. risk management.
D. capital budgeting.
E. working capital management.
Assume both corporate taxes and financial distress costs apply to a firm. Given this, the
static theory of capital structure illustrates that:
A. a firms value and its weighted average cost of capital are inversely related.
B. a firms value and its tax rate are inversely related.
C. the maximum value of a firm is obtained when a firm is financed solely with debt.
D. the value of a firm rises as the interest rate on debt rises.
E. the value of a firm rises as both the interest rate on debt and the tax rate rise.
The internal rate of return is unreliable as an indicator of whether or not an investment
should be accepted given which one of the following?
A. One of the time periods within the investment period has a cash flow equal to zero.
B. The initial cash flow is negative.
C. The investment has cash inflows that occur after the required payback period.
D. The investment is mutually exclusive with another investment under consideration.
E. The cash flows are conventional.
Weston Mines has a cost of equity of 20.8 percent, a pretax cost of debt of 9.4 percent,
and a return on assets of 17.1 percent. Ignore taxes. What is the debt-equity ratio?
A. 0.39
B. 0.41
C. 0.48
D. 0.56
E. 0.62
Use the following tax table to answer this question:
The Holiday Inn earned $177,284 in taxable income for the year. How much tax does
the company owe on this income?
A. $46,311.02
B. $48,490.76
C. $52,390.76
D. $59,998.81
E. $65,240.76
Which one of the following is a use of cash?
A. Selling inventory at cost
B. Paying a supplier for inventory you purchased last month
C. Borrowing money from a local bank
D. Collecting payment from a customer
E. Selling a fixed asset such as a piece of machinery
An income statement prepared according to GAAP:
A. reflects the net cash flows of a firm over a stated period of time.
B. reflects the financial position of a firm as of a particular date.
C. distinguishes variable costs from fixed costs.
D. records revenue when payment for a sale is received.
E. records expenses based on the matching principle.
Cinram Machines has the following estimates for its new gear assembly project: price =
$1,340 per unit; variable costs = $348 per unit; fixed costs = $5.1 million; quantity =
82,000 units. Suppose the company believes all of its estimates are accurate only to
within ± 5 percent. What value should the company use for its total variable costs when
performing its best-case scenario analysis?
A. $26,578,064
B. $28,464,660
C. $28,536,000
D. $28,802,130
E. $30,864,538
The local video store has to restock a popular video game every five days as it
completely sells out in that period of time. What is the inventory turnover rate for this
game?
A. 5.00 times
B. 5.25 times
C. 57.14 times
D. 60.00 times
E. 73.00 times
Mary has just been asked to analyze an investment to determine if it is acceptable.
Unfortunately, she is not being given sufficient time to analyze the project using various
methods. She must select one method of analysis and provide an answer based solely on
that method. Which method do you suggest she use in this situation?
A. Internal rate of return
B. Payback
C. Average accounting rate of return
D. Net present value
E. Profitability index
In an efficient market, the cost of equity for a risky firm does which one of the
following according to the security market line?
A. Produces a return that will be less than the market rate but higher than the risk-free
rate
B. Equals the market rate of return for all stocks
C. Has a maximum cost equal to the market rate of return
D. Decreases as the beta of the firms stock increases
E. Increases in direct relation to the stocks systematic risk
A firm has an equity multiplier of 1.5. This means that the firm has a:
A. debt-equity ratio of 0.67.
B. debt-equity ratio of 0.33.
C. total debt ratio of 0.50.
D. total debt ratio of 0.67.
E. total debt ratio of 0.33.
Explain how the process of dividend smoothing affects the dividend growth rate as
compared to the earnings growth rate.
Can a firm have a negative cash cycle? If yes, explain how that can occur and discuss
whether or not that would be good for a firm. If no, explain why that cannot occur and
why preventing it from occurring is good for a firm.
Explain the relationships among the reward-to-risk ratio, risk-free rate of return, market
rate of return, market risk premium, beta, and the security market line.
In words, explain how the crossover rate is computed and why the net present value
profile is useful.
Explain how staggering offsets some of the benefits associated with cumulative voting.