On which one of the following dates do dividends become a liability of the issuer for
accounting purposes?
A. First day of the fiscal year in which the dividend is expected to be paid
B. Twelve months prior to the expected dividend payment date
C. On the declaration date
D. On the date of record
E. On the date of payment
Answer:
For the most recent year, Wilson Enterprises had sales of $689,000, cost of goods sold
of $470,300, depreciation expense of $61,200, and additions to retained earnings of
$48,560. The firm currently has 12,000 shares of common stock outstanding, and the
previous year’s dividends per share were $1.18. Assuming a 35 percent tax rate, what
was the times interest earned ratio?
A. 1.47
B. 2.09
C. 2.58
D. 3.15
E. 3.67
Answer:
The Toy Store has beginning retained earnings of $28,975. For the year, the company
earned net income of $4,680 and paid dividends of $1,600. The company also issued
$3,000 worth of new stock. What is the value of the retained earnings account at the end
of the year?
A. $20,445
B. $22,695
C. $27,375
D. $32,055
E. $35,255
Answer:
Which one of the following refers to the relationship between nominal returns, real
returns, and inflation?
A. Call premium
B. Fisher effect
C. Conversion ratio
D. Bid-ask spread
E. Clean-dirty spread
Answer:
The December 31, 2013, balance sheet of Suzette’s Market showed long-term debt of
$638,100 and the December 31, 2014, balance sheet showed long-term debt of
$574,600. The 2010 income statement showed an interest expense of $42,300. What
was the firm’s cash flow to creditors during 2014?
A. $21,200
B. $26,700
C. $54,900
D. $102,400
E. $105,800
Answer:
A stock has a beta of 1.24, an expected return of 13.68 percent, and lies on the security
market line. A risk-free asset is yielding 2.8 percent. You want to create a $6,000
portfolio consisting of Stock A and the risk-free security such that the portfolio beta is
0.65. What rate of return should you expect to earn on your portfolio?
A. 8.50 percent
B. 9.16 percent
C. 9.33 percent
D. 9.41 percent
E. 9.56 percent
Answer:
Which one of the following indicators offers the best assurance that a project will
produce value for its owners?
A. PI equal to zero
B. Negative rate of return
C. Positive AAR
D. Positive IRR
E. Positive NPV
Answer:
Which one of the following might be included in a bond’s list of negative covenants?
A. Maintaining a current ratio of 1.2 or more
B. Maintaining a minimum cash balance of $1.2 million
C. Limiting cash dividends to $1 per share or less
D. Maintaining a times interest earned ratio of 2 or more
E. Providing audited financial statements in a timely manner
Answer:
Given the following information, what is the expected return on a portfolio that is
invested 35 percent in Stock A, 45 percent in Stock B, and the balance in Stock C?
A. 11.84 percent
B. 12.53 percent
C. 12.91 percent
D. 13.46 percent
E. 13.87 percent
Answer:
You can exchange $1 for either Can$1.2512 or 100.37. What is the cross-rate between
the Canadian dollar and the Japanese yen?
A. Can$0.0125/1
B. Can$0.013723/1
C. Can$0.014582/1
D. Can$80.2191/1
E. Can$131.0818/1
Answer:
Greenwood Motels has filed a petition for bankruptcy but hopes to continue its
operations both during and after the bankruptcy process. Which one of the following
terms best applies to this situation?
A. Chapter 7 bankruptcy
B. Liquidation
C. Technical insolvency
D. Accounting insolvency
E. Reorganization
Answer:
Chick ‘N Fish is considering two different capital structures. The first option consists of
25,000 shares of stock. The second option consists of 15,000 shares of stock plus
$150,000 of debt at an interest rate of 7.5 percent. Ignore taxes. What is the break-even
level of earnings before interest and taxes (EBIT) between these two options?
A. $2,813
B. $3,134
C. $16,410
D. $28,125
E. $31,338
Answer:
Which one of the following statements about a limited partnership is correct?
A. All partners have their losses limited to their capital investment in the partnership.
B. All partners are treated equally.
C. There must be at least one general partner.
D. Equity financing is easy to obtain and unlimited.
E. Any partner can transfer his or her ownership interest without ending the partnership.
Answer:
Kelso’s Pharmacy generates $2 in sales for every $1 the firm has invested in total assets.
Which one of the following ratios would reflect this relationship?
A. Receivables turnover
B. Equity multiplier
C. Profit margin
D. Return on assets
E. Total asset turnover
Answer:
The Green Shoe option is most apt to be exercised when an IPO is ______ and _____.
A. underpriced; oversubscribed
B. underpriced; undersubscribed
C. correctly priced; neither over- nor undersubscribed
D. overpriced; oversubscribed
E. overpriced; undersubscribed
Answer:
The Sarbanes-Oxley Act:
A. makes the officers of a public corporation personally responsible for the firm’s
financial statements.
B. requires all corporations to fully disclose its financial dealings to the general public.
C. places the responsibility for a firm’s financial statements solely on the chief financial
officer.
D. requires that the board of directors be solely responsible for the firm’s financial
dealings.
E. places total responsibility for the financial statements of a firm on the auditor who
certifies the statements.
Answer:
Cross Town Cookies is an all-equity firm with a total market value of $720,000. The
firm has 150,000 shares of stock outstanding. Management is considering issuing
$200,000 of debt at an interest rate of 7 percent and using the proceeds to repurchase
shares. The projected earnings before interest and taxes are $58,600. What are the
anticipated earnings per share if the debt is issued? Ignore taxes.
A. $0.25
B. $0.33
C. $0.38
D. $0.41
E. $0.47
Answer:
Suppose you know that a company’s stock currently sells for $75 per share and the
required return on the stock is 14 percent. You also know that the total return on the
stock is evenly divided between capital gains yield and a dividend yield. If it’s the
company’s policy to always maintain a constant growth rate in its dividends, what is the
current dividend per share?
A. $4.24
B. $4.91
C. $5.34
D. $5.76
E. $6.07
Answer:
If you have three thousand euros, how many dollars do you have given the following
exchange rates?
A. $2,261.42
B. $2,608.14
C. $3,211.09
D. $3,979.80
E. $4,216.50
Answer:
Financial leverage:
A. increases as the net working capital increases.
B. is equal to the market value of a firm divided by the firm’s book value.
C. is inversely related to the level of debt.
D. is the ratio of a firm’s revenues to its fixed expenses.
E. increases the potential return to the shareholders.
Answer:
Which one of the following indicates that a project is definitely acceptable?
A. Profitability index greater than 1.0
B. Negative net present value
C. Modified internal rate return that is lower than the requirement
D. Zero internal rate of return
E. Positive average accounting return
Answer:
Which one of the following is true if the managers of a firm accept only projects that
have a profitability index greater than 1.5?
A. The firm should increase in value each time the firm accepts a new project.
B. The firm is most likely steadily losing value.
C. The price of the firm’s stock should remain constant.
D. The net present value of each new project is zero.
E. The internal rate of return on each new project is zero.
Answer:
Katie owns 100 shares of ABC stock. Which one of the following terms is used to refer
to the return that Katie and the other shareholders require on their investment in ABC?
A. Weighted average cost of capital
B. Pure play cost
C. Cost of equity
D. Subjective cost
E. Cost of debt
Answer:
A firm has a cost of debt of 7.5 percent and a cost of equity of 16.2 percent. The
debt-equity ratio is 0.45. There are no taxes. What is the firm’s weighted average cost of
capital?
A. 11.75 percent
B. 12.29 percent
C. 13.50 percent
D. 14.47 percent
E. 16.20 percent
Answer:
Which one of the following statements is correct concerning both the dollar return and
the percentage return on a stock investment?
A. The dollar return is dependent on the size of the investment while the percentage
return is not.
B. The dollar return is more accurate than the percentage return because the dollar
return includes dividend income while the percentage return does not.
C. The dollar return considers the time value of money while the percentage return does
not.
D. Dollar returns are based on capital gains while percentage returns are based on the
total rate of return.
E. Dollar returns must either be zero or a positive value while percentage returns can be
negative, zero, or positive.
Answer: