Gulf Shores Inn is comparing two separate capital structures. The first structure consists
of 260,000 shares of stock and no debt. The second structure consists of 200,000 shares
of stock and $1.5 million of debt. What is the price per share of equity?
A. $18
B. $21
C. $25
D. $30
E. $33
Depreciation does which one of the following for a profitable firm?
A. Increases net income
B. Increases net fixed assets
C. Decreases net working capital
D. Lowers taxes
E. Has no effect on net income
Gorman Distributors shows the following information on its 2014 income statement:
sales = $317,800; costs = $211,400; other expenses = $18,500; depreciation expense =
$31,200; interest expense = $2,100; taxes = $18,600; dividends = $12,000. In addition,
youre told that the firm issued $4,500 in new equity during 2014, and redeemed $6,500
in outstanding long-term debt. If net fixed assets increased by $7,400 during the year,
what was the addition to net working capital?
A. $17,900
B. $14,600
C. $15,800
D. $16,200
E. $17,400
Which one of the following statements is correct when a firm faces hard rationing?
A. All positive net present value projects will be accepted.
B. Each division within a firm will be allocated an amount for capital expenditures that
will be less than the total value of its positive net present value projects.
C. The firm does not have funds to finance any new projects.
D. The firm will fund only those projects that create value for its shareholders.
E. The firm will finance only the projects that have the highest profitability index
values.
Last year, you earned a rate of return of 12.37 percent on your bond investments.
During that time, the inflation rate was 3.6 percent. What was your real rate of return?
A. 6.30 percent
B. 7.60 percent
C. 7.75 percent
D. 8.47 percent
E. 8.70 percent
Fresh Foods would like to sell 1,600 shares of stock using a Dutch auction. The bids
received are as follows:
What is the total amount the issuer will receive from this auction? Ignore costs.
A. $59,700
B. $57,600
C. $56,500
D. $54,000
E. $51,000
Julie wants to create a $5,000 portfolio. She also wants to invest as much as possible in
a high risk stock with the hope of earning a high rate of return. However, she wants her
portfolio to have no more risk than the overall market. Which one of the following
portfolios is most apt to meet all of her objectives?
A. Invest the entire $5,000 in a stock with a beta of 1.0
B. Invest $2,500 in a stock with a beta of 1.98 and $2,500 in a stock with a beta of 1.0
C. Invest $2,500 in a risk-free asset and $2,500 in a stock with a beta of 2.0
D. Invest $2,500 in a stock with a beta of 1.0, $1,250 in a risk-free asset, and $1,250 in
a stock with a beta of 2.0
E. Invest $2,000 in a stock with a beta of 3, $2,000 in a risk-free asset, and $1,000 in a
stock with a beta of 1.0
Botanical Gardens Nursery has 6,800 shares of stock outstanding at a market price of
$21 a share. The earnings per share are $1.54. The firm has total assets of $315,000 and
total liabilities of $186,000. Today, the firm is paying an annual cash dividend of $0.82
a share. Ignore taxes. What will the earnings per share be after the dividend is paid?
A. $0.31
B. $0.74
C. $1.54
D. $20.70
E. $21.02
Jim just deposited $13,000 into his account at Traditions Bank. The bank will pay 1.3
percent interest, compounded annually, on this account. How much interest on interest
will he earn over the next 15 years?
A. $238.16
B. $244.20
C. $360.70
D. $606.15
E. $623.70
Which one of the following statements is correct related to the dividend growth model
approach to computing the cost of equity?
A. The rate of growth must exceed the required rate of return.
B. The rate of return must be adjusted for taxes.
C. The annual dividend used in the computation must be for year 1 if you are using
todays stock price to compute the return.
D. The cost of equity is equal to the return on the stock plus the risk-free rate.
E. The cost of equity is equal to the return on the stock multiplied by the stocks beta.
Suppose you could buy 1,320 South Korean won or 78 Pakistani rupees last year for $1.
Today, $1 will buy you 1,318 won or 80 rupees. Which one of the following occurred
over the past year?
A. The dollar appreciated against the won.
B. The dollar depreciated against the rupee.
C. The dollar appreciated against both the won and the rupee.
D. The won depreciated against the dollar.
E. The rupee depreciated against the dollar.
The daily financial operations of a firm are primarily controlled by managing the:
A. total debt level.
B. working capital.
C. capital structure.
D. capital budget.
E. long-term liabilities.
The Green Tomato purchased a parcel of land six years ago for $299,500. At that time,
the firm invested $64,000 grading the site so that it would be usable. Since the firm
wasnt ready to use the site itself at that time, it decided to lease the land for $28,000 a
year. The Green Tomato is now considering building a hotel on the site as the rental
lease is expiring. The current value of the land is $355,000. The firm has no loans or
mortgages secured by the property. What value should be included in the initial cost of
the hotel project for the use of this land?
A. $0
B. $299,500
C. $355,000
D. $363,500
E. $419,000
Which one of the following can be classified as an annuity but not as a perpetuity?
A. Increasing monthly payments forever
B. Increasing quarterly payments for six years
C. Unequal payments each year for nine years
D. Equal annual payments for life
E. Equal weekly payments forever