1) A bond trader just purchased and resold a bond. The amount of profit earned by the
trader from this purchase and resale is referred to as the:
A.market yield
B.yield-to-call
C.bid-ask spread
D.current yield
E.bond premium
2) Marcos & Sons has no debt. Its current total value is $58 million. What will the
company’s 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
3) Standard deviation measures _____ risk while beta measures _____ risk.
A.systematic; unsystematic
B.unsystematic; systematic
C.total; unsystematic
D.total; systematic
E.asset-specific; market
4) A project will reduce costs by $34,000 but increase depreciation by $16,500. What is
the operating cash flow of this project based on the tax shield approach if the tax rate is
35 percent?
A.$5,775
B.$9,275
C.$15,625
D.$25,550
E.$27,875
5) Albertson and Roberts reports the following account balances: inventory of $27,600,
equipment of $128,300, accounts payable of $24,700, cash of $11,900, and accounts
receivable of $31,900. What is the amount of the current assets?
A.$46,700
B.$56,000
C.$71,400
D.$175,000
E.$199,700
6) Forecasting risk is best defined as:
A.reality risk
B.value risk
C.potential risk
D.management risk
E.estimation risk
7) To minimize collection float, a firm should do which of the following?
I. deposit its collections at least daily
II. make sure all checks it receives at the sales counter are properly dated and signed
III. pay its bills in a more timely manner
IV. eliminate its regional lockboxes and only have one central lockbox located near the
firm’s home office
A.I and II only
B.III and IV only
C.II, III, and IV only
D.I, II, and III only
E.I, II, III, and IV
8) Which one of the following is directly related to increases in a firm’s current assets?
A.Re-order costs
B.Shortage costs
C.Restocking costs
D.Out-of-stock events
E.Carrying costs
9) Which one of the following terms could be defined as a new issue of common stock
offered to the general public by a firm that is currently publicly held?
A.Initial public offering
B.Private placement
C.Rights offer
D.Venture capital
E.Seasoned equity offering
10) Lee pays one percent per month interest on his credit card account. When his
monthly rate is multiplied by 12, the resulting answer is referred to as the:
A.annual percentage rate
B.compounded rate
C.effective annual rate
D.perpetual rate
E.simple rate
11) Granger Corp. stock currently sells for $48.29 per share. The market requires a 13
percent return on the firm’s stock. If the company maintains a constant 5.5 percent
growth rate in dividends, what was the most recent annual dividend per share paid on
the stock?
A.$3.43
B.$3.57
C.$3.90
D.$4.15
E.$4.36
12) According to purchasing power parity, if a Big Mac sells for $3.49 in the United
States and 47.25 pesos in Mexico, what is the peso/$ exchange rate?
A.Ps0.0739 = $1
B.Ps0.0814 = $1
C.Ps12.29 = $1
D.Ps13.54 = $1
E.Ps14.32 = $1
13) During the past year, Ernst Electrical Services paid $36,800 in interest along with
$48,000 in dividends. The company issued $130,000 of stock and $100,000 of new
debt. The company reduced the balance due on the old debt by $225,000. What is the
amount of the cash flow to creditors?
A.-$88,200
B.-$51,400
C.$161,800
D.$211,600
E.$231,500
14) The market value of a firm’s fixed assets:
A.must exceed the book value of those assets
B.is more predictable than the book value of those assets
C.in addition to the firm’s net working capital reflects the true value of a firm
D.is decreased annually by the depreciation expense
E.is equal to the estimated current cash value of those assets
15) The retention ratio is:
A.equal to net income divided by the change in total equity
B.the percentage of net income available to the firm to fund future growth
C.equal to one minus the asset turnover ratio
D.the change in retained earnings divided by the dividends paid
E.the dollar increase in net income divided by the dollar increase in sales
16) The financial statements of Edgewater Marina reflect depreciation expenses of
$21,600 and interest expenses of $27,900 for the year. The current assets increased by
$31,800 and the net fixed assets increased by $28,600. What is the amount of the net
capital spending for the year?
A.$7,000
B.$21,600
C.$28,600
D.$50,200
E.$53,400
17) Which of the following securities has a purely fixed claim against a firm’s cash
flows?
A.preferred stock
B.options
C.common stock
D.bonds
E.None of the above
18) A firm grants credit with terms of 2/5, net 20. The firm’s customers have ___ days
to pay in order to receive a _____ percent discount.
A.2; 5
B.5; 2
C.15; 2
D.20; 2
E.30; 5
19) Which one of the following is defined as a bell-shaped frequency distribution that is
defined by its average and its standard deviation?
A.Arithmetic average return
B.Variance
C.Standard deviation
D.Probability curve
E.Normal distribution
20) Which one of the following statements does NOT describe a problem with using
ROE as a performance measure?
A.ROE measures return on accounting book value, and this problem is not solved by
using market value
B.ROE is a forward-looking, one-period measure, while business decisions span the
past and present
C.ROE measures only return, while financial decisions involve balancing risk against
return.
D.None of these describe problems with ROE
E.All of these describe problems with ROE
21) At the end of fiscal year 2011, Crane Industries, Inc.’s stock price was $30.75. A
year later it was $34.88. Per share dividends over the year were $0.55, while earnings
per share were $1.33. What was the percentage change in the share price in fiscal year
2012?
A.1.79%
B.4.33%
C.13.43%
D.22%
E.17.76%
22) Which of these ratios are the determinants of a firm’s sustainable growth rate?
I. Assets-to-equity ratio
II. Profit margin
III. Retention ratio
IV. Asset turnover ratio
A.I and III only
B.II and III only
C.II, III, and IV only
D.I, II, and III only
E.I, II, III, and IV
23) A firm is reviewing a project that has an initial cost of $71,000. The project will
produce annual cash inflows, starting with year 1, of $8,000, $13,400, $18,600, $33,100
and finally in year five, $37,900. What is the profitability index if the discount rate is 11
percent?
A.0.92
B.0.98
C.1.02
D.1.07
E.1.12
24) Which one of the following refers to a method of increasing the rate at which an
asset is depreciated?
A.Non-cash expense
B.Straight-line depreciation
C.Depreciation tax shield
D.Accelerated cost recovery system
E.Market based depreciation
25) Which one of the following is the maximum growth rate that a firm can achieve
without any additional external financing?
A.Du Pont rate
B.External growth rate
C.Sustainable growth rate
D.Internal growth rate
E.Cash flow rate
26) Which of the following statements is/are correct?
I. Going-concern value of a firm is equal to the present value of expected net income.
II. When a buyer values a target firm, the appropriate discount rate is the buyer’s
weighted-average cost of capital.
III. The liquidation value estimate of terminal value usually vastly understates a healthy
company’s terminal value.
IV. The value of a firm’s equity equals the discounted cash flow value of the firm minus
all liabilities.
A.II only
B.III only
C.I and II only
D.II and III only
E.II, III, and IV only
27) Foreign Travel Services has net income of $48,400, total assets of $219,000, total
equity of $154,800, and total sales of $311,700. What is the common-size percentage
for the net income?
A.9.00 percent
B.13.90 percent
C.15.53 percent
D.22.10 percent
E.31.27 percent
28) Mercury Homes just declared a 4-for 3 stock split. Which of the following occurred
as a result of this split?
I. number of shares outstanding increased by 1/3
II. number of shares outstanding decreased by 1/4
III. price per share increased by 1/3
IV. price per share decreased by 1/4
A.I only
B.I and III only
C.I and IV only
D.II and III only
E.II and IV only
29) Naomi plans on saving $3,000 a year and expects to earn an annual rate of 10.25
percent. How much will she have in her account at the end of 45 years?
A.$1,806,429
B.$1,838,369
C.$2,211,407
D.$2,333,572
E.$2,508,316
30) A bond has an average return of 6.3 percent and a standard deviation of 3.8 percent.
What range of returns would you expect to see 68 percent of the time on this security?
A.-1.30 percent to 13.9 percent
B.-1.30 percent to 10.1 percent
C.2.5 percent to 7.8 percent
D.2.5 percent to 10.1 percent
E.2.5 percent t0 13.9 percent
31) Your firm has cash of $3,800, accounts receivable of $9,600, inventory of $33,100,
and net working capital of $1,100. What is the cash ratio?
A.0.04
B.0.08
C.0.87
D.1.21
E.3.45
32) Anna pays 1.5 percent interest monthly on her credit card account. When the
interest rate on that debt is expressed as if it were compounded only annually, the rate
would be referred to as the:
A.annual percentage rate
B.compounded rate
C.quoted rate
D.stated rate
E.effective annual rate
33) Which of the following figures of merit does not directly take into consideration the
time value of money?
I. Payback period
II. Internal rate of return
III. Net present value (NPV)
IV. Accounting rate of return
A.IV only
B.I & III only
C.II & III only
D.I & II only
E.I & IV only
34) A stock is expected to return 13 percent in an economic boom, 10 percent in a
normal economy, and 3 percent in a recessionary economy. Which one of the following
will lower the overall expected rate of return on this stock?
A.An increase in the rate of return in a recessionary economy
B.An increase in the probability of an economic boom
C.A decrease in the probability of a recession occurring
D.A decrease in the probability of an economic boom
E.An increase in the rate of return for a normal economy
35) A firm wants to create a weighted average cost of capital (WACC) of 10.4 percent.
The firm’s cost of equity is 14.5 percent and its pre-tax 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
36) 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