Which one of the following statements is correct, all else held constant?
A. Beta is used to compute the return on equity and the standard deviation is used to
compute the return on preferred.
B. A decrease in a firms WACC will increase the attractiveness of the firms investment
options.
C. The aftertax cost of debt increases when the market price of a bond increases.
D. If you have both the dividend growth and the security market lines costs of equity,
you should use the higher of the two estimates when computing WACC.
E. WACC is applicable only to firms that issue both common and preferred stock.
As of 2003, the maximum tax rate on long-term capital gains for high-income
individuals was which one of the following rates?
A. 10 percent
B. 15 percent
C. 20 percent
D. 35 percent
E. 39 percent
Taylors Market received five checks today and went to the bank to deposit all of them.
Unfortunately, the bank was closed for the day due to a robbery. How does the bank
closure affect the firms float assuming these five checks are the only outstanding bank
items?
A. Collection float increased
B. Collection float decreased
C. Disbursement float increased
D. Disbursement float decreased
E. Net float remained unchanged
Which one of the following statements is correct?
A. If a firm decreases its inventory period, its accounts receivable period will also
decrease.
B. The longer the cash cycle, the more cash a firm typically has available to invest.
C. A firm would prefer a negative cash cycle over a positive cash cycle.
D. Decreasing the inventory period will also decrease the payables period.
E. Both the operating cycle and the cash cycle must be positive values.
Dexter, Inc. has a bond issue outstanding. The issues indenture provision prohibits the
firm from redeeming the bonds during the first three years. This provision is referred to
as the _____ provision.
A. safeguard
B. market
C. liquidity
D. deferred call
E. sinking fund
The Corner Store is a small-sized, general store which stocks a minimal level of basic
supplies and offers gasoline to a rural community. Which one of the following types of
credit is probably best-suited for financing this stores inventory?
A. Trust receipt financing
B. Receivables factoring
C. Field warehousing
D. Blanket inventory lien
E. Receivables assignment
Uptown Construction is comparing two different capital structures. Plan I would result
in 23,000 shares of stock and $320,000 in debt. Plan II would result in 17,000 shares of
stock and $260,000 in debt. The interest rate on the debt is 10 percent. Ignoring taxes,
EPS will be identical for Plans I and II when EBIT equals which one of the following?
A. $8,550
B. $9,000
C. $9,600
D. $10,400
E. $10,750
A debt-free firm has net income of $228,400, taxes of $46,200, and depreciation of
$21,300. What is the operating cash flow?
A. $182,200
B. $103,500
C. $107,100
D. $249,700
E. $295,900
Green Tea House has a 35 percent tax rate and an interest tax shield valued at $6,728
for the year. How much did the firm pay in annual interest?
A. $2,153
B. $2,304
C. $2,468
D. $19,107
E. $19,223
Florence Mills is an all-equity firm with a total market value of $250,000. The firm has
8,000 shares of stock outstanding. Management is considering issuing $50,000 of debt
at an interest rate of 7 percent and using the proceeds on a stock repurchase. Ignore
taxes. How many shares can the firm repurchase if it issues the debt securities?
A. 1,600 shares
B. 1,618 shares
C. 1,647 shares
D. 1,656 shares
E. 1,699 shares
You expect to receive $20,000 at graduation one year from now. You plan on investing
it at 6 percent until you have $100,000. How long will you wait from now?
A. 27.47 years
B. 27.51 years
C. 27.55 years
D. 28.54 years
E. 28.62 years