1) Donovan Brothers, Inc. would like to increase its internal rate of growth. Decreasing
which one of the following will help the firm achieve its goal?
A.Return on assets
B.Net income
C.Retention ratio
D.Dividend payout ratio
E.Return on equity
2) Sixty years ago, your grandparents opened two savings accounts and deposited $200
in each account. The first account was with City Bank at 3 percent, compounded
annually. The second account was with Country Bank at 3.5 percent, compounded
annually. Which one of the following statements is true concerning these accounts?
A.The City Bank account is currently worth $1,201.54
B.The City Bank account has earned $211.19 more in interest than the Country Bank
account
C.The Country Bank account is currently worth $1,526.08
D.The Country Bank account has paid $367.48 more in interest than the City Bank
account
E.The Country Bank account has paid $397.30 more in interest than the City Bank
account
3) Ian is going to receive $20,000 six years from now. Sunny is going to receive
$20,000 nine years from now. Which one of the following statements is correct if both
Ian and Sunny apply a 7 percent discount rate to these amounts?
A.The present values of Ian and Sunny’s monies are equal
B.In future dollars, Sunny’s money is worth more than Ian’s money
C.In today’s dollars, Ian’s money is worth more than Sunny’s
D.Twenty years from now, the value of Ian’s money will be equal to the value of
Sunny’s money
E.Sunny’s money is worth more than Ian’s money given the 7 percent discount rate
4) What is the year two depreciation on equipment costing $164,000 if it is classified as
5-year property for MACRS purposes? The MACRS allowance percentages are as
follows, commencing with year one: 20.00, 32.00, 19.20, 11.52, 11.52, and 5.76
percent.
A.$37,620
B.$38,200
C.$41,984
D.$47,815
E.$52,480
5) Which one of the following is the process of determining the probability that
customers will not pay?
A.Credit analysis
B.Collection policy
C.Account aging
D.Credit terms
E.Customer invoicing
6) Which one of the following is a use of cash?
A.increase in notes payable
B.increase in inventory
C.increase in long-term debt
D.decrease in accounts receivable
E.increase in common stock
7) Which one of the following conditions exists at the point where a firm maximizes its
value?
A.The tax benefit from an additional dollar of debt is zero
B.Financial distress costs are equal to zero
C.The debt-equity ratio is 1.0
D.WACC is minimized
E.The cost of equity is minimized
8) What is the primary purpose of bond covenants?
A.Meet regulatory requirements
B.Describe repayment terms
C.Lender protection
D.Define a bond’s rating
E.Increase a bond’s seniority position
9) Blooming Gardens has an inventory turnover of 16. This means the firm:
A.sells its entire inventory every 16 days
B.only stocks its inventory every 16 days
C.buys 16 days of inventory with each order
D.sells its inventory by granting customers 16 days credit
E.sells its inventory an average of 16 times each year
10) Which one of the following statements is correct?
A.A longer payback period is preferred over a shorter payback period
B.The payback rule states that you should accept a project if the payback period is less
than one year
C.The payback period ignores the time value of money
D.The payback rule is biased in favor of long-term projects
E.The payback period considers the timing and amount of all of a project’s cash flows
11) Which one of the following parties on the NYSE floor post bid and asked prices?
A.Floor traders
B.Specialists
C.Floor brokers
D.Commission brokers
E.Fee brokers
12) Janis just won a scholarship that will pay her $500 a month, starting today, and
continuing for the next 48 months. Which one of the following terms best describes
these scholarship payments?
A.Ordinary annuity
B.Annuity due
C.Consol
D.Ordinary perpetuity
E.Perpetuity due
13) Galaxy Sales has sales of $746,700, cost of goods sold of $603,200, and inventory
of $94,300. How long on average does it take the firm to sell its inventory?
A.6.40 days
B.7.23 days
C.48.68 days
D.57.06 days
E.10 days
14) Kelly just completed compiling a listing of her firm’s accounts receivables with
each invoice segregated according to the length of time the invoice has been
outstanding. What is the name given to this listing?
A.Aging schedule
B.Collection report
C.Credit evaluation report
D.Invoice schedule
E.Terms of credit
15) Triangle Enterprises has no debt but can borrow at 9 percent. The firm’s WACC is
currently 14.7 percent, and there is no corporate tax. If the firm converts to 70 percent
debt, what will its cost of equity be?
A.20.67 percent
B.22.95 percent
C.24.47 percent
D.26.39 percent
E.28.00 percent
16) Which one of the following occupations best fits into the international area of
finance?
A.Bank teller
B.Treasury bill analyst
C.Currency trader
D.Insurance risk manager
E.Local bank manager
17) You can exchange $1 for either C$1.2381 or 100.37. What is the cross rate between
the Canadian dollar and the Japanese yen?
A.C$.012335/1
B.C$.013723/1
C.C$.014582/1
D.CS124.2681/1
E.C$131.0818/1
18) Which one of the following statements is correct?
A.Shareholders’ equity is the residual value of a firm
B.Net working capital must be a positive value
C.An increase in cash reduces the liquidity of a firm
D.Equipment is generally considered a highly liquid asset
E.Depreciation increases total assets
19) You’ve observed the following returns on Blast It Corporation’s stock over the past
five years: 11 percent, -28 percent, 16 percent, 18 percent, and – 3 percent. What was
the variance of the returns over this period?
A..03598
B..03637
C..03692
D..03714
E..03781
20) A bond has a par value of $1,000, a current yield of 7.606 percent, and semi-annual
interest payments. The bond quote is 98.6. What is the amount of each coupon
payment?
A.$32.50
B.$37.50
C.$38.03
D.$72.31
E.$75.00
21) Auto Transmissions is expected to pay annual dividends of $1.90 and $2.10 over the
next two years, respectively. After that, the company expects to pay a constant dividend
of $2.30 a share. What is the value of this stock at a required return of 15 percent?
A.$13.67
B.$14.21
C.$14.83
D.$15.08
E.$15.60
22) In a general partnership, each partner is personally liable for:
A.the partnership debts that he or she created
B.his or her proportionate share of all partnership debts regardless of which partner
incurred that debt
C.the total debts of the partnership, even if he or she was unaware of those debts
D.the debts of the partnership up to the amount he or she invested in the firm
E.all personal and partnership debts incurred by any partner, even if he or she was
unaware of those debts
23) Which one of the following represents the rate of return a firm must earn on its
assets if it is to maintain the current value of its securities?
A.Cost of equity
B.Internal rate of return
C.Aftertax cost of debt
D.Weighted average cost of capital
E.Debt-equity ratio
24) The total direct costs of a debt issue, when expressed as a percentage of gross
proceeds, tends to:
A.increase as the quality of the debt increases
B.decrease as the size of the issue decreases
C.decrease when the bonds are convertible rather than straight
D.decrease as the proceeds of the bond issue increase
E.be relatively the same regardless of the type or quality of the debt issue
25) The Medicine Cabinet has a return on equity of 18.2 percent, a profit margin of 11.6
percent, and total equity of $738,000. What is the net income?
A.$85,608
B.$113,875
C.$134,316
D.$142,311
E.$149,897
26) Four years ago, the Moore Co. issued 15-year, 7.5 percent semiannual coupon
bonds at par. Today, the bonds are quoted at 101.6. What is this firm’s pre-tax cost of
debt?
A.6.97 percent
B.7.08 percent
C.7.29 percent
D.7.33 percent
E.7.39 percent
27)
Please refer to Oscar’s financial statements. Sales are projected to increase by 3 percent
next year. The profit margin and the dividend payout ratio are projected to remain
constant. What is the projected addition to retained earnings for next year?
A.$1,309.19
B.$1,421.40
C.$1,884.90
D.$2,667.78
E.$3,001.40