1) Free Cash Flow The 2010 income statement for Betty’s Barstools shows that
depreciation expense is $100 million, EBIT is $400 million, and taxes are $120 million.
At the end of the year, the balance of gross fixed assets was $510 million. The increase
in net operating working capital during the year was $94 million. Betty’s free cash flow
for the year was $625 million. What was the beginning of year balance for gross fixed
assets?
A.$359 million
B.$380 million
C.$849 million
D.$1,094 million
2) A firm has a profit margin of 12%; total asset turnover of .55 and an equity multiplier
of 2.2. What is the firm’s ROA and ROE?
A.ROA = 6.6%; ROE = 14.52%
B.ROA = 7.2%; ROE = 15.84%
C.ROA = 9.5%; ROE = 20.9%
D.ROA = 8.1%; ROE = 17.82%
3) The Net Present Value decision technique may not be the only pertinent unit of
measure if the firm is facing
A.time or resource constraints
B.a labor union
C.the election of a new board of directors
D.a major investment
4) Discount Rates A financial manager has determined that the appropriate discount rate
for a foreign project is 16 percent. However, that discount rate applies in the United
States using dollars. What discount rate should be used in the foreign country using the
foreign currency? The inflation rate in the United States and in the foreign country is
expected to be 4 percent and 8 percent, respectively.
A.16%
B.20%
C.12%
D.24%
5) If you are told that $1 will buy 25 Korean Wons, then you were given a(n)
___________.
A.Indirect quote
B.Direct quote
C.Cross-rate
D.None of the above
6) Consider a firm that had been priced using a 12 percent growth rate and a 16 percent
required return. The firm recently paid a $5.00 dividend. The firm has just announced
that because of a new joint venture, it will likely grow at a 12.5 percent rate. How much
should the stock price change (in dollars and percentage)?
A.$21.50; 13.72%
B.$21.50; 16.14%
C.$20.71; 14.79%
D.$20.71; 19.93%
7) Which of the following is NOT one of the sources of value enhancing synergy in a
merger?
A.revenue enhancement
B.cost reduction
C.tax considerations
D.higher cost of capital
8) To correctly project cash flows, we need to consider all of the factors except _____.
A.Use of assets or employees already employed by the firm
B.The likely impact that the new service or product will have on the firm’s existing
products’ cost and revenues
C.The new product’s or service’s costs and revenues
D.All of these are factors that need to be considered
9) Cross Rate Given these two exchange rates, $1 = 11.25 Mexican peso and $1 =
0.7521, compute the cross rate between the Mexican peso and the euro. State this
exchange rate in pesos and in euros.
A.0.0669 euros, 14.9589 pesos
B.1.3296 euros, 0.0889 pesos
C.14.9589 euros, 0.0669 pesos
D.0.0889 euros, 1.3296 pesos
10) DuPont Analysis You are considering investing in Lenny’s Lube, Inc. You have been
able to locate the following information on the firm: total assets = $20 million, accounts
receivable = $6 million, ACP = 20 days, net income = $5 million, and debt-to-equity
ratio = 2.5 times. What is the ROE for the firm?
A.2.5000%
B.13.9882%
C.35.0000%
D.87.50%
11) This is the level of EBIT at which EPS will be equal for two different capital
structures.
A.Break-even EBIT
B.Break-even EPS
C.Break-even capital structures
D.Break-even financial structures
12) This is the set of laws, policies, incentives, and monitors designed to handle the
issues arising from the separation of ownership and control.
A.agency theory
B.corporate governance
C.defined benefit plan
D.invisible hand
13) Balance Sheet Jack and Jill Corporation’s year-end 2009 balance sheet lists current
assets of $250,000, fixed assets of $800,000, current liabilities of $195,000, and
long-term debt of $300,000. What is Jack and Jill’s total stockholders’ equity?
A.$495,000
B.$555,000
C.$1,050,000
D.There is not enough information to calculate total stockholder’s equity
14) Currency Exchange Compute the amount of foreign currency that can be purchased
for $1,300,000:
1 Thai Baht = $0.03057
A.39,741 Baht
B.1,339,741 Baht
C.1,260,259 Baht
D.42,525,351.65 Baht
15) The least-used capital budgeting technique in industry is ____________.
A.NPV
B.IRR
C.Payback
D.MIRR
16) Which of the following will decrease the operating cycle?
A.The cash cycle decreases
B.The days’ sales in inventory decreases by 3 days but the average collection period
increases by 2 days
C.The average payment period increases
D.All of these will decrease the operating cycle
17) OMG Inc. has 4 million shares of common stock outstanding, 3 million shares of
preferred stock outstanding, and 5 thousand bonds. If the common shares sell for $17
per share, the preferred shares sell for $126 per share, and the bonds sell for 117% of
par ($1000), what weight should you use for preferred stock in the computation of
OMG’s WACC?
A.28.91%
B.31.58%
C.47.91%
D.83.66%
18) Compute the number of dollars that can be bought with 2 million of each foreign
currency units:
$1 = 19,005 Vietnam Dong
$1 = 2,949.6 Venezuelan Bolivar
$1 = 7.9523 South African Rand
A.$105.24; $606; $251,499.57
B.$108.24; $606; $251,489.57
C.$108.24; $675.06; $251,499.57
D.$105.24; $675.06; $251,489.57
19) You obtain beta estimates of General Electric from two different online sources and
you are surprised to find that they are so different. Which of the following would not be
a correct explanation for the difference?
A.One source used weekly data and another used monthly data
B.One source used the S&P500 for a market proxy and the other used the Dow Jones
Industrial Average
C.One used regression analysis and the other used geometric analysis
D.All of these are correct explanations for the difference
20) Suppose that Tucker Industries has annual sales of $5 million, cost of goods sold of
$2.78 million, average inventories of $1,125,000, and average accounts receivable of
$500,000. Assuming that all of Tucker’s sales are on credit, what will be the firm’s
operating cycle?
A.147.71
B.111.21
C.184.21
D.36.5
21) Calculation of Average Costs with Economies of Scope Jewelry Designs is
considering a merger with Beads Supply Stores. Jewelry’s total operating costs of
producing services are $300,000 for sales volume of $2 million. Beads’ total operating
costs of producing services are $125,000 for a sales volume (JP) of $2.25 million.
Calculate the average cost of production for the Jewelry and Beads firms, respectively.
A.15%, 5.56%
B.5.56%, 15%
C.15%, 55.56%
D.13.33%, 6.25%
22) Portfolio Beta You hold the positions in the table below. What is the beta of your
portfolio?
A.1.4
B.2.08
C.2.13
D.5.6
23) Compute the standard deviation of Kohl’s monthly returns. The past five monthly
returns for Kohl’s are 5.55 percent, 8.62 percent, -4.44 percent, -1.52 percent, and 9.75
percent.
A.4.92%
B.5.07%
C.6.28%
D.6.12%
24) The Jobs and Growth Tax Relief Reconciliation Act of 2003 changed which of the
following?
A.the general tax rate applicable to corporations
B.the general tax rate applicable to net capital gains for individuals
C.the general tax rate applicable to net capital gains for corporations
D.the general tax rate applicable to foreign corporations
25) Which of the following defines MAPE?
A.Median absolute percentage error, a measure of a financial statement’s accuracy
B.Median absolute percentage error, a measure of a forecast’s accuracy
C.Mean absolute percentage error, a measurement of a forecast’s accuracy
D.Mean absolute percentage error, a measure of a financial statement’s accuracy
26) Suppose we observe the three-year Treasury security rate (1R3) to be 11%, the
expected one-year rate next year E(2r1) to be 4%, and the expected one-year rate the
following year E(3r1) to be 5%. If the unbiased expectations theory of the term
structure of interest rates holds, what is the one-year Treasury security rate, 1R1?
A.18.57%
B.10.19%
C.23.19%
D.25.24%
27) What is the future value of $1000 deposited for one year earning 5% interest rate
annually?
A.$1000
B.$1005
C.$1050
D.$2050
28) What is the difference in perspective between finance and accounting?
A.Timing
B.Risk
C.Liability
D.Ownership
29) A 6.5% coupon bond with 12 years left to maturity can be called in 4 years. The call
premium is one year of coupon payments. It is offered for sale at $1,190.25. What is the
yield to call of the bond? (Assume interest payments are paid semi-annually and par
value is $1,000.)
A.1.48%
B.2.96%
C.6.5%
D.7.23%
30) Dividend Initiation and Stock Value A firm does not pay a dividend. It is expected
to pay its first dividend of $0.10 per share in 2 years. This dividend will grow at 11
percent indefinitely. Using a 13 percent discount rate, compute the value of this stock.
A.$4.42
B.$4.59
C.$5.43
D.$7.21