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1) Aaron's Rentals has 58,000 shares of common stock outstanding at a market price of
$36 a share. The common stock just paid a $1.64 annual dividend and has a dividend
growth rate of 2.8 percent. There are 12,000 shares of 6 percent preferred stock
outstanding at a market price of $51 a share. The preferred stock has a par value of
$100. The outstanding bonds mature in 17 years, have a total face value of $750,000, a
face value per bond of $1,000, and a market price of $1,011 each. The bonds pay 8
percent interest, semiannually. The tax rate is 34 percent. What is the firm's weighted
average cost of capital?
A.7.74 percent
B.8.68 percent
C.9.29 percent
D.9.97 percent
E.10.30 percent
2) MLK, Inc. wants to issue new 15-year bonds for some much-needed expansion
projects. The company currently has 6.5 percent coupon bonds on the market that sell
for $975.00, make semiannual payments, and mature in 15 years. What coupon rate
should the company set on its new bonds if it wants them to sell at par?
A.3.38 percent
B.6.37 percent
C.6.50 percent
D.6.67 percent
E.6.77 percent
3) You own a portfolio equally invested in a risk-free asset and two stocks. If one of the
stocks has a beta of 1.12 and the total portfolio is equally as risky as the market, what
must the beta be for the other stock in your portfolio?
A.1.37
B.1.54
C.1.88
D.1.98
E.2.97
4) Braxton's Cleaning Company stock is selling for $32.60 a share based on a 14
percent rate of return. What is the amount of the next annual dividend if the dividends
are increasing by 5 percent annually?
A.$2.71
B.$2.75
C.$2.78
D.$2.86
E.$2.93
5) The R in the Fisher effect formula represents the:
A.current yield
B.real return
C.coupon rate
D.inflation rate
E.nominal return
6) Molly is considering a project with cash inflows of $918, $867, $528, and $310 over
the next four years, respectively. The relevant discount rate is 10 percent. What is the
net present value of this project if it the start-up cost is $2,100?
A.$59.50
B.$131.83
C.$148.08
D.$210.45
E.$229.50
7) Over the last four years, the common stock of Plymouth Shippers has had an
arithmetic average return of 9.3 percent. Three of those four years produced returns of
14.1 percent, 15.6 percent, and 3.4 percent, respectively. What is the geometric average
return for this four-year period?
A.7.72 percent
B.8.41 percent
C.8.93 percent
D.9.16 percent
E.9.368 percent
8) Which one of the following correctly states a qualification an issuer must meet to be
qualified to use Rule 415 for shelf registration?
A.The issuer must never have defaulted on its debt
B.The issuer must have outstanding stock with a market value in excess of $250 million
C.The issuer must never have violated the Securities Act of 1934
D.The issuer must have an investment grade rating
E.The issuer cannot have defaulted on its debt within the past five years
9) Which one of the following situations is most apt to create an agency conflict?
A.Compensating a manager based on his or her division's net income
B.Giving all employees a bonus if a certain level of efficiency is maintained
C.Hiring an independent consultant to study the operating efficiency of the firm
D.Rejecting a profitable project to protect employee jobs
E.Selling an underproducing segment of the firm
10) Terry invested $2,000 today in an investment that pays 6.5 percent annual interest.
Which one of the following statements is correct, assuming all interest is reinvested?
A.Terry will earn the same amount of interest each year
B.Terry could have the same future value and invest less than $2,000 initially if he
could earn more than 6.5 percent interest
C.Terry will earn an increasing amount of interest each and every year even if he should
decide to withdraw the interest annually rather than reinvesting the interest
D.Terry's interest for year two will be equal to $2,000 0.065 2
E.Terry will be earning simple interest
11) Delta Mowers has a debt-equity ratio of 1.2 . Its WACC is 10.1 percent, and its cost
of debt is 7.5 percent. There is no corporate tax. What is the firm's cost of equity
capital?
A.12.60 percent
B.13.22 percent
C.13.83 percent
D.14.29 percent
E.14.80 percent
12) The security market line is defined as a positively sloped straight line that displays
the relationship between which two of the following variables?
A.Beta and standard deviation
B.Systematic and unsystematic risk
C.Nominal and real returns
D.Expected return and beta
E.Risk premium and beta
13) Shane's Music has a line of credit with a local bank that permits it to borrow up to
$750,000 at any time. The interest rate is 0.28 percent per month. The bank charges
compound interest and also requires that 4 percent of the amount borrowed be deposited
into a non-interest-bearing account. How much interest will the firm pay if it needs
$500,000 of cash for four months to pay its operating expenses?
A.$5,857.88
B.$5,949.21
C.$6,017.02
D.$6,039.91
E.$6,208.11
14) Joseph Turner and Sons has 125,000 shares of stock outstanding. The firm has extra
cash so it announced this morning that it is willing to repurchase 25,000 of its shares.
What type of offer is the firm making?
A.Rights offer
B.Secondary issue
C.Targeted repurchase
D.Tender offer
E.Private issue
15) By definition, an inventory loan is which one of the following types of loan?
A.Secured short-term loan
B.Unsecured short-term loan
C.Secured long-term loan
D.Unsecured long-term loan
E.Trust receipt loan
16) Which one of the following defines the terms of sale?
A.Period of time during which a discount can be taken on an invoice
B.Period of time granted to a customer to pay for the goods or services received
C.Legal documents related to the credit sale of either goods or services
D.Conditions under which a firm sells its goods or services for either cash or credit
E.Process used to determine which customers will be granted credit and which will not
17) All else constant, which one of the following will decrease the cash cycle?
A.Decreasing the credit period granted to a customer
B.Decreasing the inventory turnover rate
C.Decreasing the accounts payable period
D.Decreasing the accounts receivable turnover rate
E.Increasing the receivables period
18) A broker is an agent who:
A.trades on the floor of an exchange for himself or herself
B.buys and sells from inventory
C.offers new securities for sale to dealers only
D.is ready to buy or sell at any time
E.brings buyers and sellers together
19) The yield to maturity on a discount bond is:
A.equal to both the coupon rate and the current yield
B.equal to the current yield but greater than the coupon rate
C.greater than both the current yield and the coupon rate
D.less than the current yield but greater than the coupon rate
E.less than both the current yield and the coupon rate
20) 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
21) The ex-dividend date is defined as _____ day(s) before the date of record.
A.three business
B.three
C.two business
D.two
E.one
22) Suppose you know that a company's stock currently sells for $75 per share and the
required return on the stock is 14 percent. You also know that the total return on the
stock is evenly divided between capital gains yield and a dividend yield. If it's the
company's policy to always maintain a constant growth rate in its dividends, what is the
current dividend per share?
A.$4.24
B.$4.91
C.$5.34
D.$5.76
E.$6.07
23) The common stock of Beasley International goes ex-dividend tomorrow. The stock
closed at a price of $34.65 a share today. This quarter, the company is paying a cash
dividend of $0.24 a share and a liquidating dividend of $0.60 a share. Ignoring taxes
and assuming that all else is held constant, what will the ex-dividend price be tomorrow
morning?
A.$32.76
B.$33.00
C.$33.81
D.$33.96
E.$34.05
24) Which one of the following is the most ethical practice related to cash disbursement
management?
A.Intentionally delaying payments by creating a complex accounts payable system
B.Taking the cash discount but paying after the discount period
C.Paying a supplier from a zero-balance account
D.Purposely losing a supplier's invoice and requiring the supplier to submit another
copy
E.Mailing a check from the most remote location possible
25) During a normal month, Florence Lumber receives a total of eight checks with a
total value of $576,000. On average, it takes 1 day from the date of deposit for the
funds from these checks to be available to the firm. Assume each month has 30 days.
What is the average daily float?
A.$19,200
B.$273,000
C.$576,000
D.8,190,000
E.$17,280,000
