February 26, 2019

Crystal Glass recently paid $3.60 as an annual dividend. Future dividends are projected

at $3.80, $4.10, and $4.25 over the next 3 years, respectively. Beginning 4 years from

now, the dividend is expected to increase by 3.25 percent annually. What is one share of

this stock worth to you if you require a 12.5 percent rate of return on similar

investments?

A. $42.92

B. $43.40

C. $45.12

D. $45.88

E. $46.50

The capital asset pricing model (CAPM) assumes which of the following?

I. a risk-free asset has no systematic risk.

II. beta is a reliable estimate of total risk.

III. the reward-to-risk ratio is constant.

IV. the market rate of return can be approximated.

A. I and III only

B. II and IV only

C. I, III, and IV only

D. II, III, and IV only

E. I, II, III, and IV

Which of the following will decrease the value of a call option?

I. a decrease in the exercise price

II. a decrease in the value of the underlying security

III. an increase in the risk-free rate

IV. an increase in the time to expiration

A. II only

B. I and II only

C. III and IV only

D. I, II, and IV only

E. I, II, and III only

Hanover Tires is being acquired by Better Tires for $89,000 worth of Better Tires stock.

Hanover Tires has 2,500 shares of stock outstanding at a price of $36 a share. Better

Tires has 6,000 shares outstanding with a market value of $23 a share. The incremental

value of the acquisition is $4,200. How many new shares of stock will be issued to

complete this acquisition?

A. 2,472 shares

B. 3,016 shares

C. 3,133 shares

D. 3,870 shares

E. 3,987 shares

Based on the information below, what is the cross-rate for Australian dollars in terms of

Swiss francs?

A. 0.5607

B. 0.7219

C. 0.8744

D. 1.1437

E. 1.2834

The Blue Moon Hotel and Spa spends $359,000 a week to pay bills and maintains a

lower cash balance limit of $250,000. The standard deviation of the disbursements is

$46,800. The applicable weekly interest rate is 0.045 percent and the fixed cost of

transferring funds is $60. What is the hotel's optimal upper cash limit based on the

Miller-Orr model?

A. $430,836

B. $447,905

C. $528,700

D. $739,459

E. $861,672

Which form of financing do firms prefer to use first according to the pecking-order

theory?

A. regular debt

B. convertible debt

C. common stock

D. preferred stock

E. internal funds

Hungry Hoagie's has identified the following two mutually exclusive projects:

At what rate would you be indifferent between these two projects?

A. 17.34 percent

B. 17.72 percent

C. 19.41 percent

D. 19.69 percent

E. 20.28 percent

A conditional sales contract:

A. passes title to the goods sold to the buyer at the time the contract is signed.

B. normally calls for one lump sum payment on the contract payment date.

C. generally has a built-in interest cost.

D. is payable immediately upon receipt.

E. is a formal bid for a project.

Suppose the real rate is 9.5 percent and the inflation rate is 1.8 percent. What rate would

you expect to see on a Treasury bill?

A. 9.50 percent

B. 11.30 percent

C. 11.47 percent

D. 11.56 percent

E. 11.60 percent

When a firm announces an upcoming seasoned stock offering, the market price of the

firm's existing shares tends to:

A. increase.

B. decrease.

C. remain constant.

D. respond but the direction of the response is not predictable as shown by past studies.

E. decrease momentarily and then immediately increase substantially within an hour

following the announcement.

Bob's Pizza is considering either leasing or buying a new oven. The lease payments

would be $10,400 a year for 3 years. The purchase price is $29,000. The equipment has

a 3-year life and then is expected to have a resale value of $3,500. Bob's Pizza uses

straight-line depreciation, borrows money at 10 percent, and has a 32 percent tax rate.

What is the net advantage to leasing?

A. $209

B. $233

C. $248

D. $271

E. $298

Polly's Home Accents currently sells 345 units a month at a price of $59 a unit. Polly

thinks she can increase her sales by an additional 55 units if she switches to a net 30

credit policy. The monthly interest rate is 0.4 percent and the variable cost per unit is

$32. What is the net present value of the proposed credit policy switch?

A. $349,135

B. $350,895

C. $426,507

D. $621,929

E. $821,135

Roger's Store begins each week with 150 phasers in stock. This stock is depleted each

week and reordered. The carrying cost per phaser is $48 per year and the fixed order

cost is $70. What is the optimal number of orders that should be placed each year?

A. 48.69

B. 51.71

C. 54.20

D. 61.10

E. 64.50

You have some property for sale and have received two offers. The first offer is for

$89,500 today in cash. The second offer is the payment of $35,000 today and an

additional $70,000 two years from today. If the applicable discount rate is 11.5 percent,

which offer should you accept and why?

A. You should accept the $89,500 today because it has the higher net present value.

B. You should accept the $89,500 today because it has the lower future value.

C. You should accept the first offer as it has the greatest value to you.

D. You should accept the second offer because it has the larger net present value.

To compute the value of a put using the Black-Scholes option pricing model, you:

A. first have to apply the put-call parity relationship.

B. first have to compute the value of the put as if it is a call.

C. compute the value of an equivalent call and then subtract that value from one.

D. compute the value of an equivalent call and then subtract that value from the market

price of the stock.

E. compute the value of an equivalent call and then multiply that value by e-RT.

A project has an accounting break-even point of 15,329 units. The fixed costs are

$382,000 and the projected variable cost per unit is $29.10. The project will require

$780,000 for fixed assets which will be depreciated straight-line to zero over the

project's 6-year life. What is the projected sales price per unit?

A. $47.65

B. $48.18

C. $54.02

D. $56.67

E. $62.50

You own some equipment that you purchased 4 years ago at a cost of $216,000. The

equipment is 5-year property for MACRS. You are considering selling the equipment

today for $75,500. Which one of the following statements is correct if your tax rate is

35 percent?

A. The tax due on the sale is $26,425.

B. The book value today is $178,675.20.

C. The accumulated depreciation to date is $37,324.80.

D. The taxable amount on the sale is $37,324.80.

E. The aftertax salvage value is $62,138.68.

Lucas Enterprises recently opted to open a new retail outlet. If the outlet outperforms

the expectations, the manager can opt to increase the store's size. If it underperforms,

the manager can opt to close the store. These choices that the manager has been given

are called:

A. call options.

B. put options.

C. straddles.

D. managerial options.

E. executive options.

Martin invested $1,000 six years ago and expected to have $1,500 today. He has not

added or withdrawn any money from this account since his initial investment. All

interest was reinvested in the account. As it turns out, Martin only has $1,420 in his

account today. Which one of the following must be true?

A. Martin earned simple interest rather than compound interest.

B. Martin earned a lower interest rate than he expected.

C. Martin did not earn any interest on interest as he expected.

D. Martin ignored the Rule of 72 which caused his account to decrease in value.

A firm has sales of $2,190, net income of $174, net fixed assets of $1,600, and current

assets of $720. The firm has $310 in inventory. What is the common-size statement

value of inventory?

A. 13.36 percent

B. 14.16 percent

C. 19.38 percent

D. 30.42 percent

E. 43.06 percent

East Coast Marina has 220,000 shares of stock outstanding. The current market value of

the firm is $18.92 million. The company has retained earnings of $3.8 million, paid in

surplus of $6.7 million, and a common stock account value of $220,000. The company

is planning a 3-for-2 stock split. What will the market price per share be after the split?

A. $28.67

B. $57.33

C. $66.67

D. $108.00

E. $129.00

You are getting ready to prepare pro forma statements for your business. Which one of

the following are you most apt to estimate first as you begin this process?

A. fixed assets

B. current expenses

C. sales forecast

D. projected net income

E. external financing need

The Square Box is considering two projects, both of which have an initial cost of

$35,000 and total cash inflows of $50,000. The cash inflows of project A are $5,000,

$10,000, $15,000, and $20,000 over the next four years, respectively. The cash inflows

for project B are $20,000, $15,000, $10,000, and $5,000 over the next four years,

respectively. Which one of the following statements is correct if The Square Box

requires a 12 percent rate of return and has a required discounted payback period of 3.5

years?

A. Both projects should be accepted.

B. Both projects should be rejected.

C. Project A should be accepted and project B should be rejected.

D. Project A should be rejected and project B should be accepted.

E. You should be indifferent to accepting either or both projects.

You estimate that you will owe $42,800 in student loans by the time you graduate. The

interest rate is 4.25 percent. If you want to have this debt paid in full within six years,

how much must you pay each month?

A. $611.09

B. $674.50

C. $714.28

D. $736.05

E. $742.50

Danielle's is a furniture store that is considering adding appliances to its offerings.

Which of the following should be considered incremental cash flows of this project?

I. utilizing the credit offered by a supplier to purchase the appliance inventory

II. benefiting from increased furniture sales to appliance customers

III. borrowing money from a bank to fund the appliance project

IV. purchasing parts for inventory to handle any appliance repairs that might be

necessary

A. I and II only

B. III and IV only

C. I, II, and IV only

D. II, III, and IV only

E. I, II, III, and IV

Which one of the following terms is defined as the management of a firm's long-term

investments?

A. working capital management

B. financial allocation

C. agency cost analysis

D. capital budgeting

E. capital structure

Which of the following increase the price sensitivity of a bond to changes in interest

rates?

I. increase in time to maturity

II. decrease in time to maturity

III. increase in coupon rate

IV. decrease in coupon rate

A. II only

B. I and III only

C. I and IV only

D. II and III only

E. II and IV only

The change in revenue that occurs when one more unit of output is sold is referred to

as:

A. marginal revenue.

B. average revenue.

C. total revenue.

D. erosion.

E. scenario revenue.

Which one of the following statements regarding employee stock options (ESOs) is

correct?

A. ESOs grant an employee the right to buy a fixed number of shares of company stock

at the market price.

B. Employees must exercise their ESOs prior to those ESOs becoming vested.

C. Employees may forfeit their ESOs if they terminate their employment with the

issuing firm.

D. If a firm issue ESOs it must make them available to all employees.

E. Employees can sell their ESOs if they do not want to personally exercise them.

Assume the price of Westward Co. stock increases by one percent. Which one of the

following measures the effect that this change in the stock price will have on the value

of the Westward Co. options?

A. theta

B. vega

C. rho

D. delta

E. gamma

A project has a required payback period of three years. Which one of the following

statements is correct concerning the payback analysis of this project?

A. The cash flows in each of the three years must exceed one-third of the project's

initial cost if the project is to be accepted.

B. The cash flow in year three is ignored.

C. The project's cash flow in year three is discounted by a factor of (1 + R)3.

D. The cash flow in year two is valued just as highly as the cash flow in year one.