Augustinos has the following estimated sales.
Purchases are equal to 64 percent of the following quarters sales. The accounts
receivable period is 45 days and the accounts payable period is 60 days. Assume there
are 30 days in each month. How much will the firm pay its suppliers in the third
quarter?
A. $7,211
B. $7,656
C. $8,405
D. $8,520
E. $8,889
You will receive annual payments of $2,400 at the end of each year for 15 years. The
first payment will be received in year 6. What is the present value of these payments if
the discount rate is 7 percent?
A. $11,465.20
B. $12,018.52
C. $13,299.80
D. $15,585.16
E. $16,856.60
Paying interest reduces the taxes owed by a firm. Which one of the following terms
applies to this relationship?
A. Static theory of interest rates
B. M&M Proposition I
C. Financial risk
D. Interest tax shield
E. Homemade leverage
The cash coverage ratio is used to evaluate the:
A. liquidity of a firm.
B. speed at which a firm generates cash.
C. length of time that a firm can pay its bills if no additional cash becomes available.
D. ability of a firm to pay the interest on its debt.
E. relationship between the firms cash balance and its current liabilities.
Bill just financed a used car through his credit union. His loan requires payments of
$275 a month for five years. Assuming that all payments are paid on time, his last
payment will pay off the loan in full. What type of loan does Bill have?
A. Amortized
B. Complex
C. Pure discount
D. Lump sum
E. Interest-only
The Bread Basket needs to raise $38 million to expand its operations nationally. The
company will sell new shares of common stock using a general cash offering. The
underwriters charge a 7.65 percent spread, the administrative costs are $395,000, and
the offer price is $26 per share. How many shares of stock must be sold for The Bread
Basket to receive the total funds it desires?
A. 1,599,059 shares
B. 1,638,311 shares
C. 1,647,222 shares
D. 1,814,141 shares
E. 1,833,333 shares
Which one of the following best defines the term credit scoring?
A. Categorizing customers into groups depending on the length of time it takes each
customer to pay for purchases
B. Compiling a list of accounts receivable segregated by the length of time each
receivable has been outstanding
C. Evaluating the opportunity costs of a credit policy
D. Process of quantifying the probability of default when granting credit to customers
E. Tracking of both the number and the size of customer orders over a period of time
Which one of the following is an indicator that an investment is acceptable?
A. Modified internal rate of return equal to zero
B. Profitability index of zero
C. Internal rate of return that exceeds the required return
D. Payback period that exceeds the required period
E. Negative average accounting return
Newly issued securities are sold to investors in which one of the following markets?
A. Proxy
B. Stated value
C. Inside
D. Secondary
E. Primary
Consider the following financial statement information for Kirkwood United.
Assume all sales are on credit. How long is the cash cycle?
A. 28.21 days
B. 33.25 days
C. 51.03 days
D. 51.58 days
E. 53.57 days
Which one of the following is specifically designed to compute the rate of return on a
project that has unconventional cash flows?
A. Average accounting return
B. Profitability index
C. Internal rate of return
D. Indexed rate of return
E. Modified internal rate of return
You own two bonds. Both bonds pay annual interest, have 6 percent annual coupons,
$1,000 face values, and currently have 6 percent yields to maturity. Bond A has 12
years to maturity and Bond B has 4 years to maturity. If the market rate of interest rises
unexpectedly to 7 percent, Bond _____ will be the most volatile with a price decrease
of _____ percent.
A. A; 5.73
B. A; 6.08
C. A; 7.94
D. B; 3.39
E. B; 4.51
What is the primary purpose of a cash discount?
A. Customer compensation for an out-of-stock item
B. Customer compensation for faulty goods or services
C. Means of offsetting the interest charges on an account receivable
D. Inducement to pay promptly
E. Incentive to purchase a specialty item
You want to have $25,000 for a down payment on a house 6 years from now. If you can
earn 6.5 percent, compounded annually, on your savings, how much do you need to
deposit today to reach your goal?
A. $17,133.35
B. $17,420.73
C. $17,880.69
D. $18,211.17
E. $18,886.40
Chelsie Enterprises declared a dividend to shareholders of record on Monday, February
8, that is payable on Friday, February 26. Carla knows that her dividend check normally
arrives three business days after the check is written. On which one of the following
days should she expect to receive her dividend check?
A. Wednesday, February 10
B. Thursday, February 11
C. Monday, March 1
D. Tuesday, March 2
E. Wednesday, March 3
Swan Lake Marina is expected to pay an annual dividend of $1.58 next year. The stock
is selling for $18.53 a share and has a total return of 12 percent. What is the dividend
growth rate?
A. 2.82 percent
B. 3.03 percent
C. 3.28 percent
D. 3.47 percent
E. 3.66 percent
Over the past four years, a stock produced returns of 15 percent, 6 percent, 11 percent,
and 22 percent, respectively. Based on these four years, what range of returns would
you expect to see 95 percent of the time?
A. -6.58 percent to 31.33 percent
B. -6.58 percent to 27.02 percent
C. -6.58 percent to 24.39 percent
D. -0.02 percent to 24.39 percent
E. -0.02 percent to 27.02 percent
An investment has an initial cost of $300,000 and a life of four years. This investment
will be depreciated by $60,000 a year and will generate the net income shown below.
Should this project be accepted based on the average accounting rate of return (AAR) if
the required rate is 9.5 percent? Why or why not?
A. Yes, because the AAR less than 9.5 percent
B. Yes, because the AAR is 9.5 percent
C. Yes, because the AAR is greater than 9.5 percent
D. No, because the AAR is 9.5 percent
E. No, because the AAR is greater than 9.5 percent
You are considering the following two mutually exclusive projects. The required return
on each project is 14 percent. Which project should you accept and what is the best
reason for that decision?
A. Project A, because it pays back faster
B. Project A, because it has the higher internal rate of return
C. Project B, because it has the higher internal rate of return
D. Project A, because it has the higher net present value
E. Project B, because it has the higher net present value