Given the following information, what is the standard deviation of the returns on a
portfolio that is invested 35 percent in both Stocks A and C, and 30 percent in Stock B?
A. 2.77 percent
B. 4.13 percent
C. 6.67 percent
D. 8.91 percent
E. 9.36 percent
Answer:
The owners’ equity accounts for Speed Boats are shown here:
How many shares will be outstanding if the firm declares a 1-for-6 reverse stock split?
A. 5,833 shares
B. 9,167 shares
C. 18,000 shares
D. 35,000 shares
E. 330,000 shares
Answer:
Design Interiors has a cost of equity of 18.6 percent and a pretax cost of debt of 9.7
percent. The firm’s target weighted average cost of capital is 12 percent and its tax rate
is 35 percent. What is the firm’s target debt-equity ratio?
A. 0.81
B. 0.87
C. 0.98
D. 1.02
E. 1.16
Answer:
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
Answer:
ADP, Inc. needs to raise $43 million to finance its expansion into new markets. The
company will sell new shares of equity via a general cash offering to raise the needed
funds. The SEC filing fee and associated administrative expenses of the offering are
$389,000. If the offer price is $38 per share and the company’s underwriters charge a
spread of 9 percent, how many shares need to be sold?
A. 1,254,743 shares
B. 1,354,743 shares
C. 1,406,211 shares
D. 1,514,141 shares
E. 1,587,923 shares
Answer:
Which one of the following is a disbursement account into which funds are transferred
from a master account only as the funds are needed to cover checks presented for
payment?
A. Lockbox account
B. Cash concentration account
C. Ledger account
D. Zero-balance account
E. Cash clearing account
Answer:
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 project’s life
Answer:
Lewis Materials recently offered 15,000 shares of stock but received payment for only
12,500 shares since that was all the shares the underwriters could sell. What type of
underwriting was this?
A. Syndicated
B. Firm commitment
C. Private placement
D. Best efforts
E. Dutch auction
Answer:
Which one of the following is a graphical representation of the operating and cash
cycles?
A. Operations line
B. Production period
C. Cash flow time line
D. Inventory flow chart
E. Customer service line
Answer:
The one-year forward rate for the Swiss franc is SF 1.1375 = $1. The spot rate is SF
1.1426 = $1. The interest rate on a risk-free asset in Switzerland is 3.3 percent. If
interest rate parity exists, a one-year risk-free security in the U.S. is yielding _____
percent.
A. 2.28
B. 2.51
C. 2.98
D. 3.40
E. 3.76
Answer:
Cookies and Cream has 9,000 shares of stock outstanding at a market price of $14.65
per share. What will the price per share be after the firm declares a 12 percent stock
dividend? Ignore taxes and market imperfections.
A. $12.24
B. $13.08
C. $14.65
D. $14.96
E. $15.00
Answer:
Overnight Trucking recently purchased a new truck costing $150,800. The firm
financed this purchase at 8.6 percent interest with monthly payments of $2,100. How
many years will it take the firm to pay off this debt?
A. 7.04 years
B. 7.22 years
C. 8.10 years
D. 8.23 years
E. 8.44 years
Answer:
This morning, Lambert Materials bought 10,000 of its outstanding shares in the open
market. What type of transaction was this?
A. Stock payout
B. Stock distribution
C. Stock dividend
D. Stock repurchase
E. Stock reversal
Answer:
You want to save $200 a month for the next 24 years and hope to earn an average rate
of return of 11 percent. How much more will you have at the end of the 24 years if you
invest your money at the beginning of each month rather than the end of each month?
A. $1,611.29
B. $1,807.70
C. $2,238.87
D. $2,569.14
E. $2,707.27
Answer:
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
Answer:
Tom and Jerri currently own 300 shares of Alpha stock. Each share is currently worth
$36. What will Tom and Jerri’s investment in Alpha be worth if the company declares a
4-for-3 stock dividend?
A. $6,075
B. $10,800
C. $19,000
D. $21,600
E. $28,800
Answer:
Suppose your company needs to raise $28 million and you want to issue 20-year bonds
for this purpose. Assume the required return on your bond issue will be 8 percent, and
you’re evaluating two issue alternatives: an 8 percent annual coupon and a zero coupon
bond. Your company’s tax rate is 25 percent. In 20 years, what will your company’s
repayment be if you issue the coupon bonds? What if you issue the zeros? (Assume
annual compounding on the zero coupon bond.)
A. $28.00 million; $122.12 million
B. $28.00 million; $130.51 million
C. $30.00 million; $122.12 million
D. $30.24 million; $130.51 million
E. $30.24 million; $122.12 million
Answer: