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Which one of the following is most indicative of a totally efficient stock market?
A. extraordinary returns earned on a routine basis
B. positive net present values on stock investments over the long-term
C. zero net present values for all stock investments
D. arbitrage opportunities which develop on a routine basis
E. realizing negative returns on a routine basis
Champion Bakers uses specialized ovens to bake its bread. One oven costs $689,000
and lasts about 4 years before it needs to be replaced. The annual operating cost per
over is $41,000. What is the equivalent annual cost of an oven if the required rate of
return is 13 percent?
A. -$272,638
B. -$248,313
C. -$232,407
D. -$200,561
E. $196,210
The cost of preferred stock is computed the same as the:
A. pre-tax cost of debt.
B. return on an annuity.
C. aftertax cost of debt.
D. return on a perpetuity.
E. cost of an irregular growth common stock.
Your portfolio is comprised of 40 percent of stock X, 15 percent of stock Y, and 45
percent of stock Z. Stock X has a beta of 1.16, stock Y has a beta of 1.47, and stock Z
has a beta of 0.42. What is the beta of your portfolio?
A. 0.87
B. 1.09
C. 1.13
D. 1.18
E. 1.21
The LIBOR is primarily used as the basis for the rate charged on:
A. short-term debt in the Lisbon market.
B. mortgage loans in the Lisbon market.
C. Eurodollar loans in the London market.
D. U.S. federal funds.
E. interbank loans in the U.S.
An increase in current liabilities will have which one of the following effects, all else
held constant? Assume all ratios have positive values.
A. increase in the cash ratio
B. increase in the net working capital to total assets ratio
C. decrease in the quick ratio
D. decrease in the cash coverage ratio
E. increase in the current ratio
Which one of the following is an example of a sunk cost?
A. $1,500 of lost sales because an item was out of stock
B. $1,200 paid to repair a machine last year
C. $20,000 project that must be forfeited if another project is accepted
D. $4,500 reduction in current shoe sales if a store commences selling sandals
E. $1,800 increase in comic book sales if a store commences selling puzzles
The average compound return earned per year over a multi-year period is called the
_____ average return.
A. arithmetic
B. standard
C. variant
D. geometric
E. real
An increase in which one of the following will decrease the cash cycle, all else equal?
A. payables turnover
B. days sales in inventory
C. operating cycle
D. inventory turnover rate
E. accounts receivable period
What is the net cash flow from investment activity for 2009?
A. -$1,840
B. -$1,680
C. -$80
D. $80
E. $1,840
As the degree of sensitivity of a project to a single variable rises, the:
A. less important the variable to the final outcome of the project.
B. less volatile the project's net present value to that variable.
C. greater the importance of accurately predicting the value of that variable.
D. greater the sensitivity of the project to the other variable inputs.
E. less volatile the project's outcome.
Taylor Supply has made an agreement with its bank that it can borrow up to $10,000 at
any time over the next year. This arrangement is called a(n):
A. floor loan.
B. open loan.
C. compensating balance.
D. line of credit.
E. bank note.
During the year, Kitchen Supply increased its accounts receivable by $130, decreased
its inventory by $75, and decreased its accounts payable by $40. How did these three
accounts affect the firm's cash flows for the year?
A. $245 use of cash
B. $165 use of cash
C. $95 use of cash
D. $95 source of cash
E. $165 source of cash
A firm with a flexible short-term financial policy will:
A. maintain a low balance in accounts receivables.
B. only have minimal amounts, if any, invested in marketable securities.
C. invest heavily in inventory.
D. have low cash balances.
E. have tight restrictions on granting credit to customers.
In actual practice, managers frequently use the:
I. average accounting return method because the information is so readily available.
II. internal rate of return because the results are easy to communicate and understand.
III. discounted payback because of its simplicity.
IV. net present value because it is considered by many to be the best method of analysis.
A. I and III only
B. II and III only
C. I, II, and IV only
D. II, III, and IV only
E. I, II, III, and IV
Which one of the following is a capital budgeting decision?
A. determining how many shares of stock to issue
B. deciding whether or not to purchase a new machine for the production line
C. deciding how to refinance a debt issue that is maturing
D. determining how much inventory to keep on hand
E. determining how much money should be kept in the checking account
Cash management primarily involves:
A. optimizing a firm's collections and disbursements of cash.
B. maximizing the income a firm earns on its cash reserves.
C. reconciling a firm's book balance with its bank balance.
D. determining the optimal level of liquidity a firm should maintain.
E. determining the best method of raising capital.
Ted is analyzing a project using simulation. His focus is limited to the short-term. To
ease the simulation process, he is combining expenses into various categories. Which
one of the following should he include in the fixed cost category?
A. production department payroll taxes
B. equipment insurance
C. sales tax
D. raw materials
E. product shipping costs
Peter has successfully managed the finances of A.D. Leadbetter in a manner that has
yielded abnormally high returns. Due to this success, Peter has decided to publish a
newsletter for financial executives so that he can share his superior financial wisdom
with others. There is a very real probability that Peter has which one of the following
characteristics?
A. gambler's fallacy
B. frame dependence
C. overconfidence
D. representativeness heuristic
E. sentiment-based risk attitudes
Stephanie is going to contribute $300 on the first of each month, starting today, to her
retirement account. Her employer will provide a 50 percent match. In other words, her
employer will contribute 50 percent of the amount Stephanie saves. If both Stephanie
and her employer continue to do this and she can earn a monthly rate of 0.90 percent,
how much will she have in her retirement account 35 years from now?
A. $1,936,264
B. $1,943,286
C. $1,989,312
D. $2,068,418
E. $2,123,007
Which one of the following will decrease if a firm can decrease its operating costs, all
else constant?
A. return on equity
B. return on assets
C. profit margin
D. equity multiplier
E. price-earnings ratio
The Sports Store has a $100,000 line of credit with City Bank. The loan agreement
requires that 2 percent of the unused portion of the credit line be deposited in a non-
interest bearing account as a compensating balance. The interest rate on the borrowed
funds is 1.4 percent per quarter. The Sport Store's short-term investments are paying 1.5
percent per quarter. What is the effective annual interest rate on the line of credit if The
Sports Store borrows the entire $100,000 for one year? Assume any funds borrowed or
invested use compound interest.
A. 5.72 percent
B. 5.76 percent
C. 6.00 percent
D. 6.08 percent
E. 6.14 percent
A small stock dividend is defined as a stock dividend of less than _____ percent.
A. 10 to 15
B. 15 to 20
C. 20 to 25
D. 25 to 30
E. 30 to 35
A stock is selling for $60 per share. A call option with an exercise price of $67 sells for
$3.31 and expires in 4 months. The risk-free rate of interest is 2.8 percent per year,
compounded continuously. What is the price of a put option with the same exercise
price and expiration date?
A. $8.99
B. $9.23
C. $9.47
D. $9.69
E. $9.94
The Cement Works has a beginning cash balance for the quarter of $784. Susie, the
firm's president, requires that a minimum cash balance of $800 be maintained and
requires that borrowing be used to maintain that balance. If funds have been borrowed,
then she requires that those loans be repaid as soon as excess funds are available.
Currently, the firm has a loan outstanding of $1,260. How much will the firm borrow or
repay this quarter if the quarterly receipts are $3,918 and the quarterly disbursements
are $3,774?
A. borrow $16
B. borrow $128
C. borrow $144
D. repay $128
E. repay $144
Which one of the following statements concerning venture capitalists is correct?
A. Venture capitalists assume management responsibility for the firms they finance.
B. Exit strategy is a key consideration when selecting a venture capitalist.
C. Venture capitalists limit their services to providing money to start-up firms.
D. Most venture capitalists are long-term investors in a firm.
E. A venture capitalist normally invests in a new idea and finances that idea until the
newly-formed firm can issue an IPO.
North Side Wholesalers has sales of $948,000. The cost of goods sold is equal to 72
percent of sales. The firm has an average inventory of $23,000. How many days on
average does it take the firm to sell its inventory?
A. 11.24 days
B. 12.30 days
C. 16.48 days
D. 26.35 days
E. 29.68 days
On average, your firm sells $38,700 of items on credit each day. The firm's average
operating cycle is 49 days and it acquires and sells inventory, on average, every 17
days. What is the average accounts receivable balance?
A. $657,900
B. $848,000
C. $1,238,400
D. $1,315,500
E. $1,896,300
This morning, TL Trucking invested $80,000 to help fund a company expansion project
planned for 4 years from now. How much additional money will the firm have 4 years
from now if it can earn 5 percent rather than 4 percent on its savings?
A. $2,940.09
B. $3,651.82
C. $4,008.17
D. $4,219.68
E. $4,711.08
Which one of the following statements concerning a sole proprietorship is correct?
A. A sole proprietorship is designed to protect the personal assets of the owner.
B. The profits of a sole proprietorship are subject to double taxation.
C. The owner of a sole proprietorship is personally responsible for all of the company's
debts.
D. There are very few sole proprietorships remaining in the U.S. today.
E. A sole proprietorship is structured the same as a limited liability company.
An individual on the floor of the NYSE who owns a trading license and buys and sells
for his or her personal account is called a:
A. floor trader.
B. exchange customer.
C. specialist.
D. floor broker.
E. market maker.
In the Black-Scholes model, the symbol "δ" is used to represent the standard
deviation of the:
A. option premium on a call with a specified exercise price.
B. rate of return on the underlying asset.
C. volatility of the risk-free rate of return.
D. rate of return on a risk-free asset.
E. option premium on a put with a specified exercise price.
What is the standard deviation of the returns on a stock given the following
information?
A. 1.57 percent
B. 2.03 percent
C. 2.89 percent
D. 3.42 percent
E. 4.01 percent
Latetia owns a convertible bond. Which one of the following terms would describe the
value of this bond if it were not convertible?
A. conversion premium
B. straight bond value
C. conversion value
D. inverted value
E. market value
You are considering the following two mutually exclusive projects. Both projects will
be depreciated using straight-line depreciation to a zero book value over the life of the
project. Neither project has any salvage value.
Should you accept or reject these projects based on payback analysis?
A. accept Project A and reject Project B
B. reject Project A and accept Project B
C. accept both Projects A and B
D. reject both Projects A and B
E. You cannot make this decision based on payback analysis.
