Dover Wholesalers sells products exclusively to Benn Retailer. Benn Retailer buys
exclusively from Dover Wholesalers. Dover Wholesalers has a receivables period of 44
days, an inventory period of 8 days, and a payables period of 63 days. Benn Retailer has
an inventory period of 15 days, a receivables period of 22 days, and a payables period
of 44 days. Which one of the following statement is correct given this information?
A. Dover Wholesalers has a shorter operating cycle than does Benn Retailer.
B. Benn Retailer has an operating cycle of 81 days.
C. It takes Benn Retailer less time to collect payment on a sale than it does for the firm
to sell its inventory.
D. Dover Wholesalers is financing 100 percent of Benn Retailers operating cycle.
E. Dover Wholesalers has a cash cycle of 11 days. Benn Retailers operating cycle of 37
days (15 + 22) is less than its payables period of 44 days.
Ernst Electrical has 9,000 shares of stock outstanding and no debt. The new CFO is
considering issuing $80,000 of debt and using the proceeds to retire 1,500 shares of
stock. The coupon rate on the debt is 7.5 percent. What is the break-even level of
earnings before interest and taxes between these two capital structure options?
A. $18,500
B. $21,000
C. $24,000
D. $32,500
E. $36,000
Keyser Materials has 8 percent coupon bonds on the market with 19 years to maturity.
The bonds make semiannual payments and currently sell for 102 percent of par. What is
the current yield on Keyser Materials bonds? The YTM? The effective annual yield?
A. 7.84 percent; 7.80 percent; 7.95 percent
B. 7.84 percent; 7.92 percent; 7.95 percent
C. 7.84 percent; 7.92 percent; 7.97 percent
D. 7.80 percent; 7.84 percent; 7.92 percent
E. 7.80 percent; 7.92 percent; 7.95 percent
Jake owes $3,400 on his credit card. He is not charging any additional purchases
because he wants to get this debt paid in full. The card has an APR of 13.9 percent.
How much longer will it take him to pay off this balance if he makes monthly payments
of $50 rather than $60?
A. 28.24 months
B. 31.33 months
C. 36.74 months
D. 39.20 months
E. 41.79 months
The Embroidery Shoppe had beginning retained earnings of $18,670. During the year,
the company reported sales of $83,490, costs of $68,407, depreciation of $8,200,
dividends of $950, and interest paid of $478. The tax rate is 35 percent. What is the
retained earnings balance at the end of the year?
A. $21,883.25
B. $22,193.95
C. $22,833.24
D. $23,783.24
E. $30,393.95
A firm has adopted a policy whereby it will not seek any additional external financing.
Given this, what is the maximum growth rate for the firm if it has net income of
$12,100, total equity of $94,000, total assets of $156,000, and a 40 percent dividend
payout ratio?
A. 4.88 percent
B. 5.11 percent
C. 6.62 percent
D. 7.67 percent
E. 8.37 percent
Friendly Skies Airline has earnings before interest and taxes of $21,680 and net income
of $12,542. The tax rate is 35 percent. What is the times interest earned ratio?
A. 0.88
B. 1.73
C. 3.09
D. 5.59
E. 9.09
Glass Growers has no debt. Its cost of capital is 8.7 percent. Suppose the firm converts
to a debt-equity ratio of 0.65. The interest rate on the debt is 6.9 percent. What is its
new WACC?
A. 7.99 percent
B. 8.13 percent
C. 8.36 percent
D. 8.44 percent
E. 8.61 percent
Ted is trying to decide what cost of capital he should assign to a project. Which one of
the following should be his primary consideration in this decision?
A. Amount of debt used to finance the project
B. Use, or lack, of preferred stock to finance the project
C. Mix of funds used to finance the project
D. Risk level of the project
E. Length of the projects life
A project will reduce costs by $34,000 but increase depreciation by $16,500. What is
the operating cash flow of this project based on the tax shield approach if the tax rate is
40 percent?
A. $5,775
B. $9,275
C. $15,625
D. $20,400
E. $27,000