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1) Which one of the following is the best definition of Eurocurrency?
A.Any paper money used by a country that has adopted the euro as its common
currency
B.Money deposited in a financial institution outside the country whose currency is
involved
C.Both paper and coins officially adopted under the euro system of coinage
D.U.S. dollars owned by any country that has adopted the euro as its currency
E.Any exchange of funds between two countries that have adopted the euro as their
official currency
2) Which one of the following statements is correct?
A.Generally speaking, the size of a firm has no effect on its tendency to pay dividends
B.The market crash and the accounting scandals in the early 2000s tended to cause
financially stable firms to cease paying cash dividends
C.The majority of firms either started paying or increased their dividends per share in
response to the May 2003 change in dividend taxation
D.Firms tend to prefer cash dividends over share repurchases for their flexibility and
tax benefits
E.A non-dividend-paying firm is more apt to do a stock repurchase than to commence
paying dividends
3) General Importers announced today that its next annual dividend will be $2.60 per
share. After that dividend is paid, the company expects to encounter some financial
difficulties and is going to suspend dividends for five years. Following the suspension
period, the company expects to pay a constant annual dividend of $1.30 per share. What
is the current value of this stock if the required return is 18 percent?
A.$3.01
B.$3.55
C.$3.89
D.$4.27
E.$4.88
4) A common-size balance sheet helps financial managers determine:
A.which customers are paying on a timely basis
B.if costs are increasing faster or slower than sales
C.if changes are occurring in a firm's mix of assets
D.if a firm is generating more or less sales per dollar of assets than in prior years
E.the rate at which the firm's dividends are changing
5) Which one of the following is the equity risk arising from the daily operations of a
firm?
A.Strategic risk
B.Financial risk
C.Liquidity risk
D.Industry risk
E.Business risk
6) Which one of the following occurs when interest rate parity exists between Countries
A and B?
A.Country A investors are indifferent between risk-free investments in Countries A and
B
B.Forward exchange rates for Countries A and B must be equal for all time periods
C.Risk-free interest rates in Countries A and B must be equal
D.Spot and forward exchange rates between the currencies of the two countries must be
equal
E.Significant covered interest arbitrage opportunities between currencies of Countries A
and B must exist
7) A call provision grants the bond issuer the:
A.right to contact each bondholder to determine if he or she would like to extend the
term of his or her bonds
B.option to exchange the bonds for equity securities
C.right to automatically extend the bond's maturity date
D.right to repurchase the bonds on the open market prior to maturity
E.option of repurchasing the bonds prior to maturity at a prespecified price
8) Whitt's BBQ has sales of $348,000, a profit margin of 8.1 percent, and a capital
intensity ratio of 0.70 . What is the total asset turnover rate?
A.1.04
B.1.08
C.1.13
D.1.29
E.1.43
9) Over the period of 1926-2011, which one of the following investment classes had the
highest volatility of returns?
A.Large-company stocks
B.U.S. Treasury bills
C.Small-company stocks
D.Long-term corporate bonds
E.Long-term government bonds
10) T.L.C. Enterprises just revised its capital structure from a debt-equity ratio of 0.30
to a debt-equity ratio of 0.45 . The firm's shareholders who prefer the old capital
structure should:
A.sell some shares and hold the sale proceeds in cash
B.sell all of their shares and loan out the entire sale proceeds
C.do nothing
D.sellsome shares and loan out the sale proceeds
E.borrow funds and purchase more shares
11) Kelsey International declared a dividend on Friday, November 13, that is payable on
Friday, December 4, to holders of record on Monday, November 30 . What is the latest
date that you can purchase this stock if you wish to receive this dividend? Assume there
are no banking holidays within this period of time.
A.Tuesday, November 24
B.Wednesday, November 25
C.Thursday, November 26
D.Friday, November 27
E.Monday, November 30
12) Dexter Companies has a conventional factoring arrangement with its local bank.
Which one of the following would be a common characteristic of that type of financing
arrangement?
A.Dexter Companies will receive the full amount of the accounts receivable included in
this arrangement on an agreed upon date sometime in the future
B.The responsibility for collecting the covered receivables lies with Dexter Companies
C.Any bad debt that results from an account receivable included in this arrangement
will be a cost to the bank
D.Dexter Companies will pay a monthly fee to the bank and in turn will receive
payment for the full amount of its accounts receivable
E.The arrangement keeps the receivables as an asset of Dexter Companies but places a
lien on those accounts in favor of the lending bank
13) Harry Joiner, Inc. currently has an inventory turnover of 15.7, a payables turnover
of 9.6, and a receivables turnover of 8.1 . How many days are in the cash cycle?
A.30.29 days
B.32.70 days
C.56.51 days
D.84.39 days
E.104.72 days
14) Ignoring the option to wait:
A.may overestimate the internal rate of return on a project
B.may underestimate the net present value of a project
C.ignores the ability of a manager to increase output after a project has been
implemented
D.is the same as ignoring all strategic options
E.ignores the value of discontinuing a project early
15) Stevenson's Bakery is an all-equity firm that has projected perpetual earnings before
interest and taxes of $138,000 a year. The cost of equity is 13.7 percent and the tax rate
is 32 percent. The firm can borrow money at 6.75 percent. Currently, the firm is
considering converting to a debt-equity ratio of 0.45 . What is the firm's levered value?
A.$527,613
B.$689,919
C.$752,987
D.$829,507
E.$903,682
16) Stock Y has a beta of 1.28 and an expected return of 13.7 percent. Stock Z has a
beta of 1.02 and an expected return of 11.4 percent. What would the risk-free rate have
to be for the two stocks to be correctly priced relative to each other?
A.2.38 percent
B.2.76 percent
C.3.23 percent
D.3.69 percent
E.4.08 percent
17) Gamma Corp. is expected to pay the following dividends over the next four years:
$5, $12, $18, and $1.80. Afterward, the company pledges to maintain a constant 4
percent growth rate in dividends, forever. If the required return on the stock is 14
percent, what is the current share price?
A.$37.92
B.$41.06
C.$43.18
D.$46.09
E.$49.31
18) Which of the following costs will tend to increase if a firm switches to a restrictive
short-term financial policy from a flexible short-term policy?
I. lost sales due to out-of-stock items
II. inventory warehousing costs
III. cash-outs
IV. total annual order costs
A.I and III only
B.II and IV only
C.I, III, and IV only
D.I, II, and IV only
E.I, II, III, and IV
19) Scenario analysis asks questions such as:
A.How will changing the number of units sold affect the outcome of this project?
B.What is the best outcome that should reasonably be expected?
C.How much will a $1 increase in the variable cost per unit change the net present
value?
D.Will the net present value increase or decrease if the quantity sold increases by 100
units?
E.How will the operating cash flow change if the depreciation method is changed?
20) Which one of the following statements is correct?
A.From a legal perspective, preferred stock is a form of corporate equity
B.All classes of stock must have equal voting rights per share
C.Common shareholders elect the corporate directors while the preferred shareholders
vote on mergers and acquisitions
D.Dividends are tax-free income for individual investors
E.Shareholders prefer noncumulative dividends over cumulative dividends
21) The aftertax cost of which of the following is affected by a change in a firm's tax
rate?
I. Preferred stock
II. Debt
III. Equity
IV. Capital
A.I and III only
B.II and IV only
C.I, II, and IV only
D.II, III, and IV only
E.I, II, III, and IV
22) A U.S. firm has total assets valued at 687,000 located in Germany. This valuation
did not change from last year. Last year, the exchange rate was 0.94 = $1. Today, the
exchange rate is .0.75 = $1. By what amount did these assets change in value on the
firm's U.S. financial statements?
A.-$185,148.94
B.-$162,311.19
C.$162,311.19
D.$185,148.94
E.$0
23) Classic Pickles is a mature manufacturing firm. The company just paid a $4 annual
dividend, but management expects to reduce the payout by 4 percent per year,
indefinitely. If you require a 12 percent return on this stock, what will you pay for a
share today?
A.$21.42
B.$24.00
C.$25.24
D.$28.56
E.$30.02
24) Mind Blowers, Inc. has a new project in mind that will increase accounts receivable
by $28,000, decrease accounts payable by $6,000, increase fixed assets by $36,000, and
decrease inventory by $11,000. What is the amount the firm should use as the initial
cash flow attributable to net working capital when it analyzes this project?
A.-$45,000
B.-$37,000
C.-$23,000
D.-$17,000
E.-$1,000
25) New Century Products is a company that was founded last year. While the outlook
for the company is positive, it currently has negative earnings. If you wanted to
measure the progress of this firm, which one of the following ratios would probably be
best to monitor given the firm's current situation?
A.Price-sales ratio
B.Market-to-book ratio
C.Profit margin
D.ROE
E.ROA
26) The market where euros, pesos, dollars, and pounds are traded is referred to as
which one of the following?
A.ADR market
B.LIBOR market
C.Gilt market
D.Euromarket
E.Foreign exchange market
27) Based on the most recent survey information presented in your textbook, CFOs tend
to use which two methods of investment analysis the most frequently?
A.Payback and net present value
B.Payback and internal rate of return
C.Internal rate of return and net present value
D.Net present value and profitability index
E.Profitability index and internal rate of return
28) Rocky Top, Inc. purchased some welding equipment six years ago at a cost of
$579,000. Today, the company is selling this equipment for $110,000. The tax rate is 35
percent. What is the aftertax cash flow from this sale? The MACRS allowance
percentages are as follows, commencing with year 1: 14.29, 24.49, 17.49, 12.49, 8.93,
8.92, 8.93, and 4.46 percent.
A.$81,380
B.$96,152
C.$98,635
D.$101,540
E.$110,000
29) Maria is the sole proprietor of an antique store that she has operated at the same
location for the past 16 years. The store rents the space in which it is located but does
own all of the inventory and fixtures. The store has an outstanding loan with the local
bank but no other debt obligations. There are no specific loan covenants or assets
pledged as security for the loan. Due to a sudden and unexpected downturn in the
economy, the store is unable to generate sufficient funds to pay the loan payments due
to the bank. Which of the following options does the bank have to collect the money it
is owed?
I. Sell the inventory and use the cash raised to apply to the debt
II. Sell the store fixtures and use the cash raised to apply to the debt
III. Take funds from Marias personal account at the bank to pay the stores debt
IV. Sell any assets Maria personally owns and apply the proceeds to the stores debt
A.I only
B.III only
C.I and II only
D.I, II, and III only
E.I, II, III, and IV
30) The Waffle House pays a constant annual dividend of $1.25 per share. How much
are you willing to pay for one share if you require a 25 percent rate of return?
A.$4.72
B.$5.00
C.$6.52
D.$6.63
E.$6.83
31) A bond trader just purchased and resold a bond. The amount of profit earned by the
trader from this purchase and resale is referred to as the:
A.market yield
B.yield-to-call
C.bid-ask spread
D.current yield
E.bond premium
32) The Golf Range is considering adding an additional driving range to its facility. The
range would cost $76,000, would be depreciated on a straight-line basis over its
seven-year life, and would have a zero salvage value. The anticipated income from the
project is $34,000 a year with $14,400 of that amount being variable cost. The fixed
cost would be $16,200. The firm believes that it will earn an additional $13,000 a year
from its current operations should the driving range be added. The project will require
$2,000 of net working capital, which is recoverable at the end of the project. What is
the internal rate of return on this project at a tax rate of 34 percent?
A.7.53 percent
B.9.29 percent
C.11.47 percent
D.12.68 percent
E.14.04 percent
