What is the effective annual rate of 10 percent compounded semiannually?
A. 10.21 percent
B. 10.25 percent
C. 10.35 percent
D. 10.38 percent
E. 10.42 percent
Answer:
Which one of the following will generally receive the highest priority in a bankruptcy
liquidation, assuming the absolute priority rule is followed?
A. Claims by unsecured creditors
B. Employee wages
C. Government tax claims
D. Contributions to employee retirement plans
E. Bankruptcy administrative expenses
Answer:
Today is your 21st birthday and you just decided to start saving money so you can retire
early. Thus, you are going to save $500 a month starting one month from now. You plan
to retire as soon as you can accumulate $1 million. If you can earn an average of 8
percent on your savings, how old will you be when you retire?
A. 33.39 years old
B. 42.87 years old
C. 54.39 years old
D. 64.71 years old
E. 63.87 years old
Answer:
One year ago, LaTresa purchased 600 shares of Outland Co. stock for $3,600. The stock
does not pay any regular dividends but it did pay a special dividend of $0.30 a share last
week. This morning, she sold her shares for $7.25 a share. What was the total return on
this investment?
A. 18.00 percent
B. 20.83 percent
C. 22.50 percent
D. 25.83 percent
E. 28.24 percent
Answer:
Which one of the following terms refers to the length of time a firm grants its customers
to pay for their purchases?
A. Lockbox period
B. Discount period
C. Credit period
D. Cash cycle
E. Receivables turnover period
Answer:
Which one of the following inventory management approaches determines the finished
goods inventory level and then works backward until the raw material needs are
determined?
A. Extended EOQ
B. Just-in-time
C. ABC approach
D. Materials requirements planning
E. Economic order quantity
Answer:
You have just agreed to a forward trade that will be settled six months from now. When
will the exchange rate for this transaction be determined?
A. Today
B. Three months from today because that is the halfway point
C. Anytime you prefer within the next six months
D. Whenever the spot rate six months from today is known
E. Six months from now
Answer:
Kate is the CFO of a major firm and has the job of assigning discount rates to each
project that is under consideration. Kate’s method of doing this is to assign an
incrementally higher rate as the risk level of the project increases over that of the
current firm. Likewise, she assigns lower rates as the risk level declines. Which one of
the following approaches is Kate using to assign the discount rates?
A. Pure play approach
B. Divisional rating
C. Subjective approach
D. Straight WACC approach
E. Equity rating
Answer:
Given an interest rate of 5.85 percent per year, what is the value at year t = 8 of a
perpetual stream of $2,500 payments that begin at year t = 25?
A. $16,412.02
B. $17,208.00
C. $34,335.96
D. $36,235.06
E. $36,711.41
Answer:
A bond has a $1,000 face value, a market price of $1,045, and pays interest payments of
$80 every year. What is the coupon rate?
A. 6.76 percent
B. 7.00 percent
C. 7.12 percent
D. 8.00 percent
E. 8.14 percent
Answer:
Operating cash flow is defined as:
A. a firm’s net profit over a specified period of time.
B. the cash that a firm generates from its normal business activities.
C. a firm’s operating margin.
D. the change in the net working capital over a stated period of time.E. the cash that is
generated and added to retained earnings.
Answer:
Which one of the following methods of analysis ignores cash flows?
A. Profitability index
B. Net present value
C. Average accounting return
D. Modified internal rate of return
E. Internal rate of return
Answer:
Which one of the following statements concerning debt issues is correct?
A. Firms often pay higher interest rates on term loans than on public issues of debt.
B. The only difference between a term loan and a private placement is the size of the
issue.
C. A prospectus is required for equity issues but not for debt issues.
D. The flotation costs of issuing debt tend to be more expensive than for issuing equity.
E. Direct long-term loans must be registered with the SEC.
Answer:
Assume that PE is the euro price of a product, PUS is the U.S. price of the identical
product, and S0 is the spot exchange rate, quoted as the amount of foreign currency per
dollar. Given this, which one of the following correctly expresses absolute purchasing
power parity?
A. PUS = S0/PE
B. PUS = S0PE
C. PUS = S0 + PE
D. PE = S0/PUS
E. PE = S0PUS
Answer:
If you put up $46,000 today in exchange for a 6.75 percent 15-year annuity, what will
the annual cash flow be?
A. $4,519.27
B. $4,666.67
C. $4,971.10
D. $5,203.16
E. $5,338.09
Answer:
The balance sheet for Oasis, Inc. is shown here in market value terms. There are 30,000
shares of stock outstanding.
The company has announced it is going to repurchase $40,000 worth of stock. What
will the price per share be after the repurchase?
A. $36.29
B. $38.17
C. $38.67
D. $39.42
E. $39.89
Answer:
Which one of the following is the minimum required rate of return on a new investment
that makes that investment attractive?
A. Risk-free rate
B. Market risk premium
C. Expected return minus the risk-free rate
D. Market rate of return
E. Cost of capital
Answer:
Travis invests $10,000 today into a retirement account. He expects to earn 8 percent,
compounded annually, on his money for the next 26 years. After that, he wants to be
more conservative, so only expects to earn 5 percent, compounded annually. How much
money will he have in his account when he retires 38 years from now, assuming this is
the only deposit he makes into the account?
A. $129,411.20
B. $132,827.88
C. $134,616.56
D. $141,919.67
E. $142,003.12
Answer:
Which of the following can generally be found in a bond’s indenture agreement?
I. Terms of repayment
II. Names of registered shareholders
III. Protective covenants
IV. Total amount of the bond issue
A. I and III only
B. II, III, and IV only
C. I, II, and III only
D. I, III, and IV only
E. I, II, III, and IV
Answer:
The Corner Market has decided to expand its retail store by building on a vacant lot it
currently owns. This lot was purchased four years ago at a cost of $299,000, which the
firm paid in cash. To date, the firm has spent another $38,000 on land improvements, all
of which was also paid in cash. Today, the lot has a market value of $329,000. What
value should be included in the analysis of the expansion project for the cost of the
land?
A. The sum of the cash paid to date for both the lot and the improvements
B. The original purchase price only
C. The current market value of the land plus the cash paid for the improvements
D. The current market value of the land
E. Zero because the land and the improvements were purchased with cash
Answer:
Which one of the following statements concerning financial leverage is correct?
A. The benefits of leverage are unaffected by the amount of a firm’s earnings.
B. The use of leverage will always increase a firm’s earnings per share.
C. The shareholders of a firm are exposed to less risk anytime a firm uses financial
leverage.
D. Changes in the capital structure of a firm will generally change the firm’s earnings
per share.
Answer:
The 8 percent, $1,000 face value bonds of Sweet Sue Foods are currently selling at
$1,057. These bonds have 16 years left until maturity. What is the current yield?
A. 7.38 percent
B. 7.57 percent
C. 8.00 percent
D. 8.23 percent
E. 8.28 percent
Answer:
Western Steer purchased some three-year MACRS property three years ago. What is the
current book value of this equipment if the original cost was $58,000? The MACRS
allowance percentages are as follows, commencing with year 1: 33.33, 44.45, 14.81,
and 7.41 percent.
A. $0
B. $1,122
C. $4,298
D. $7,863
E. $8,886
Answer:
Karl can afford car payments of $235 a month for 48 months. The bank will lend him
money to buy a car at 7.75 percent interest. How much money can he afford to borrow?
A. $9,672.48
B. $9,734.95
C. $9,899.60
D. $10,022.15
E. $10,422.09
Answer: