Assume that clienteles exist. Given this assumption, which one of the following
statements is correct?
A. A firm can increase its share price by increasing its dividend payout.
B. Dividend policy is irrelevant as long as each clientele group is currently satisfied.
C. All firms will adopt a high-dividend-payout policy.
D. All dividends become irrelevant.
E. All firms should adopt a low-dividend-payout policy.
Answer:
This morning, Jeff found a bond certificate lying on the floor of a bank. He picked it up
and noticed that the bond matured today. He presented the bond to the bank teller and
received both the principal and interest payment. The bond that Jeff found must have
been which one of the following?
A. Debenture
B. Note
C. Registered form bond
D. Bearer form bond
E. Callable bond
Answer:
International Travel Services has net income of $48,400, total assets of $219,000, total
equity of $154,800, and total sales of $411,700. What is the common-size percentage
for the net income?
A. 9.00 percent
B. 11.76 percent
C. 15.53 percent
D. 22.10 percent
E. 850.62 percent
Answer:
You just returned from a trip to Venezuela and have 1,650 bolivares fuertes in your
pocket. How many dollars will you receive when you exchange this money if the U.S.
dollar equivalent of the bolivares fuertes is 0.465701?
A. $629.08
B. $768.41
C. $811.40
D. $2,897.18
E. $3,543.05
Answer:
Which of the following are weaknesses of the dividend growth model?
I. Market risk premium fluctuations
II. Lack of dividends for some firms
III. Reliance on historical beta
IV. Sensitivity of model to dividend growth rate
A. II only
B. I and II only
C. I and III only
D. II and IV only
E. I, II, III, and IV
Answer:
A firm has net income of $114,000, a return on assets of 12.6 percent, and a debt-equity
ratio of 0.60. What is the return on equity?
A. 17.11 percent
B. 18.98 percent
C. 20.16 percent
D. 22.20 percent
E. 24.60 percent
Answer:
Ten years from now, you will be inheriting $100,000. What is this inheritance worth to
you today if you can earn 5.5 percent interest, compounded annually?
A. $58,543.06
B. $63,215.46
C. $72,419.05
D. $72,798.47
E. $74,003.15
Answer:
Elkins Feed Lot is an all-equity firm with positive net income. Which one of the
following will result if the firm pays a cash dividend?
A. Number of shares outstanding will increase
B. Earnings per share will decrease
C. Total assets will remain constant
D. Price-earnings ratio will decrease
E. Total equity will increase
Answer:
Michael Jackson, Inc. currently has an operating cycle of 154 days and a cash cycle of
38 days. The firm is implementing some changes that will reduce the inventory period
by 16 days and decrease the receivables period by 4 days on average. The accounts
payable period will be decreased by 4 days. How many days will be in the new cash
cycle once all of these changes become effective?
A. 15 days
B. 16 days
C. 22 days
D. 55 days
E. 61 days
Answer:
What is the advertisement, commonly found in financial newspapers, that announces a
public offering of securities and provides the name of the underwriters called?
A. Prospectus
B. Red herring
C. Tombstone
D. Green Shoe
E. Underwriter’s ad
Answer:
Which of the following are effective means of aligning management goals with
shareholder interests?
I. Employee stock options
II. Threat of a takeover
III. Management bonuses tied to performance goals
IV. Threat of a proxy fight
A. I and III only
B. II and IV only
C. I, II, and III only
D. I, III, and IV only
E. I, II, III, and IV
Answer:
The Green Tomato purchased a parcel of land six years ago for $299,500. At that time,
the firm invested $64,000 grading the site so that it would be usable. Since the firm
wasn’t ready to use the site itself at that time, it decided to lease the land for $28,000 a
year. The Green Tomato is now considering building a hotel on the site as the rental
lease is expiring. The current value of the land is $355,000. The firm has no loans or
mortgages secured by the property. What value should be included in the initial cost of
the hotel project for the use of this land?
A. $0
B. $299,500
C. $355,000
D. $363,500
E. $419,000
Answer:
Mary owns 100 shares of stock. Each share entitles her to one vote per open seat on the
board of directors. Assume there are three open seats in the current election and Mary
casts all 300 of her votes for a single candidate. What is the term used to describe this
type of voting?
A. Proxy
B. Aggregate
C. Cumulative
D. Straight
E. Condensed
Answer:
Martin & Martin, Inc. stock is currently selling for $19 per share. The firm just made an
offer to one of its major shareholders to repurchase all the shares owned by that
shareholder for $25 per share. What type of offer is being made?
A. Rights offer
B. Secondary issue
C. Targeted repurchase
D. Tender offer
E. Private issue
Answer:
Which one of the following is the pretax cost of debt?
A. Average coupon rate on the firm’s outstanding bonds
B. Coupon rate on the firm’s latest bond issue
C. Weighted average yield to maturity on the firm’s outstanding debt
D. Average current yield on the firm’s outstanding debt
E. Annual interest divided by the market price per bond for the latest bond issue
Answer:
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
Answer:
Which one of the following is a payment by a firm to its shareholders from any source
other than current or accumulated retained earnings?
A. Interest
B. Distribution
C. Retained earnings
D. Dividend
E. Stock repurchase
Answer:
Which of the following should be included in the analysis of a proposed investment?
I. Erosion effects
II. Opportunity costs
III. Sunk costs
IV. Side effects
A. I only
B. II only
C. I and IV only
D. I, II, and IV only
E. I, II, III, and IV
Answer:
Blazer Sports Store is preparing to pay its quarterly dividend of $2.20 a share this
quarter. The stock closed at $70 a share today. What will the ex-dividend stock price be
if the relevant tax rate is 15 percent and all else is held constant?
A. $55.28
B. $55.50
C. $55.83
D. $55.94
E. $57.70
Answer: