Which one of the following statements is correct concerning capital structure weights?
A. Target rates are less relevant to a project than are historical rates.
B. The weights are unaffected when a bond issue matures.
C. An increase in the debt-equity ratio will increase the weight of the common stock.
D. The repurchase of preferred stock will increase the weight of debt.
E. The issuance of additional shares of common stock will increase the weight of the
preferred stock.
Answer:
One year ago, you purchased 100 shares of a stock. This morning you sold those shares
and realized a total return of 8.2 percent. Given this information, you know for sure the:
A. stock price increased by 8.2 percent over the last year.
B. stock increased in value over the past year.
C. stock paid a dividend.
D. dividend yield is greater than zero.
E. sum of the dividend yield and the capital gains yield is 8.2 percent.
Answer:
A project has the following cash flows. What is the internal rate of return?
A. 8.26 percent
B. 9.11 percent
C. 10.58 percent
D. 11.23 percent
E. 12.18 percent
Answer:
Custom Tailored Shirts is a specialty retailer offering T-shirts, sweatshirts, and caps. Its
most recent annual sales consisted of $14,000 of T-shirts, $11,000 of sweatshirts, and
$1,300 of caps. The company is adding polo shirts to the lineup and projects that this
addition will result in sales next year of $14,000 of T-shirts, $8,000 of sweatshirts,
$7,800 of Polo shirts, and $1,300 of caps. What sales amount should be used when
evaluating the Polo shirt project?
A. $0
B. $4,800
C. $4,900
D. $5,000
E. $9,100
Answer:
Your firm is contemplating the purchase of a new $674,000 computer-based order entry
system. The system will be depreciated straight-line to zero over its six-year life. It will
be worth $58,000 at that time. You will save $185,000 before taxes per year in order
processing costs, and you will be able to reduce working capital by $29,000 at the
beginning of the project. Working capital will revert back to normal at the end of the
project. If the tax rate is 34 percent, what is the IRR for this project?
A. 12.51 percent
B. 12.79 percent
C. 13.01 percent
D. 13.53 percent
E. 14.20 percent
Answer:
Black Water Mills is operating at its optimal point. Which one of the following
conditions exists given this firm’s operating status?
A. Carrying costs exceed shortage costs
B. Carrying costs are equal to zero
C. Both carrying costs and shortage costs are at their minimum levels
D. Shortage costs are equal to zero
E. Shortage costs equal carrying costs
Answer:
Currently, you can exchange $1 for 100.37 yen or €0.7538 in New York. In Tokyo,
the exchange rate is 1 = €0.0077. If you have $1,200, how much profit can you earn
using triangle arbitrage?
A. $18.08
B. $25.27
C. $30.32
D. $31.50
E. $33.14
Answer:
You are analyzing a project and have developed the following estimates. The
depreciation is $19,800 a year and the tax rate is 34 percent. What is the best-case
operating cash flow?
A. $60,456
B. $62,333
C. $64,011
D. $65,650
E. $66,240
Answer:
Kyle Electric has three positive net present value opportunities. Unfortunately, the firm
has not been able to find financing for any of these projects. Which one of the following
terms best describes the firm’s situation?
A. Sensitivity analysis
B. Capital rationing
C. Soft rationing
D. Contingency planning
E. Sunk cost
Answer:
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
Answer:
You expect to receive $20,000 at graduation one year from now. You plan on investing
it at 6 percent until you have $100,000. How long will you wait from now?
A. 27.47 years
B. 27.51 years
C. 27.55 years
D. 28.54 years
E. 28.62 years
Answer:
Taylor’s, Inc. stock has plummeted in value and is currently priced at $4 a share. The
exchange on which the stock trades requires that the minimum stock price be $10 a
share. Taylor’s has decided to do a reverse stock split to avoid delisting. However, when
it does this, the firm wants the stock price increased to at least twice the minimum
exchange required price. Which one of the following stock split ratios is most
appropriate for this situation?
A. 1-for-3
B. 1-for-5
C. 2-for-9
D. 3-for-1
E. 5-for-1
Answer:
Which one of the following indicates that a project is expected to create value for its
owners?
A. Profitability index less than 1.0
B. Payback period greater than the requirement
C. Positive net present value
D. Positive average accounting rate of return
E. Internal rate of return that is less than the requirement
Answer:
The spot rate on the Hong Kong dollar is 7.75. Interest rates in Hong Kong are expected
to be 6 percent while they are anticipated to be 3 percent in the U.S. What is the
expected exchange rate two years from now?
A. HK$7.9825
B. HK$8.1808
C. HK$8.2220
D. HK$8.3778
E. HK$8.4141
Answer:
Which one of the following will occur when the internal rate of return equals the
required return?
A. The average accounting return will equal 1.0.
B. The profitability index will equal 1.0.
C. The profitability index will equal 0.
D. The net present value will equal the initial cash outflow.
E. The profitability index will equal the average accounting return.
Answer:
Healthy Foods just paid its annual dividend of $1.45 a share. The firm recently
announced that all future dividends will be increased by 2.8 percent annually. What is
one share of this stock worth to you if you require a 14 percent rate of return?
A. $12.56
B. $12.95
C. $13.31
D. $13.68
E. $14.07
Answer:
Which one of the following generally pays a fixed dividend, receives first priority in
dividend payment, and maintains the right to a dividend payment, even if that payment
is deferred?
A. Cumulative common
B. Noncumulative common
C. Noncumulative preferred
D. Cumulative preferred
E. Senior common
Answer:
A firm has sales of $529,000 for the year. The profit margin is 3.4 percent and the
retention ratio is 60 percent. What is the common-size percentage for the dividends
paid?
A. 0.99 percent
B. 1.18 percent
C. 1.21 percent
D. 1.36 percent
E. 1.42 percent
Answer:
During a normal month, Florence Lumber receives a total of eight checks with a total
value of $576,000. On average, it takes 1 day from the date of deposit for the funds
from these checks to be available to the firm. Assume each month has 30 days. What is
the average daily float?
A. $19,200
B. $273,000
C. $576,000
D. 8,190,000
E. $17,280,000
Answer: