Smelly Perfumes sells 3,500 units of its perfume collection each year at a price per unit
of $275. All sales are on credit with terms of 1/7, net 30. The discount is taken by 40
percent of the customers. What is the amount of the companys accounts receivable?
A. $54,849
B. $58,246
C. $61,003
D. $64,815
E. $67,778
The DuPont identity can be used to help a financial manager determine the:I. degree of
financial leverage used by a firm.II. operating efficiency of a firm.III. utilization rate of
a firms assets.IV. rate of return on a firms assets.
A. II and III only
B. I and III only
C. II, III, and IV only
D. I, II, and III only
E. I, II, III, and IV
Last year, when the stock of Alpha Minerals was selling for $55 a share, the dividend
yield was 3.2 percent. Today, the stock is selling for $41 a share. What is the total return
on this stock if the company maintains a constant dividend growth rate of 2.5 percent?
A. 6.13 percent
B. 6.58 percent
C. 6.90 percent
D. 7.47 percent
E. 7.40 percent
Which one of the following best describes a line of credit?
A. Long-term, prearranged, committed bank loan
B. Short-term loan secured by accounts receivable
C. Short-term loan secured by inventory
D. Long-term, prearranged, noncommitted bank loan
E. Short-term prearranged bank loan that can be either committed or noncommitted
Peterboro recently defaulted on a bank loan. To avoid a bankruptcy proceeding, the
bank agreed to a composition. This composition would do which one of the following?
A. Forgive the loan payment in its entirety
B. Extend the due date on the missed loan payment
C. Reduce the amount of the loan payments so Peterboro can pay on time
D. Transfer some of Peterboros assets to the bank in lieu of the loan payment
E. Transfer all the equity shares in Peterboro to the lending bank
Western Hardwood Sales has total equity of $79,000, a profit margin of 4.8 percent, an
equity multiplier of 1.5, and a total asset turnover of 1.3. What is the amount of the
firms sales?
A. $154,050
B. $173,550
C. $181,430
D. $185,620
E. $739,440
Capstone Investments is considering a project that will produce cash inflows of $11,000
in year 1, $24,000 in year 2, and $36,000 in year 3. What is the present value of these
cash inflows if the company assigns the project a discount rate of 12 percent?
A. $41,997.60
B. $46,564.28
C. $54,578.17
D. $54,868.15
E. $63,494.54
Which one of the following statements concerning issue costs is correct?
A. The underwriters pay the spread.
B. Taxes are an indirect underwriting cost.
C. Seasoned equity offerings (SEOs) tend to be less costly than IPOs.
D. Straight bonds are more costly to issue than convertible bonds.
E. The total direct cost as a percentage of gross proceeds for an IPO tends to decrease as
the size of the offer decreases.
A preferred stock pays an annual dividend of $6. What is one share of this stock worth
to you today if you require a 12 percent rate of return?
A. $6.14
B. $7.98
C. $43.00
D. $50.00
E. $98.00
The Greasy Spoon Restaurant is considering a project with an initial cost of $525,000.
The project will not produce any cash flows for the first three years. Starting in year 4,
the project will produce cash inflows of $721,000 a year for three years. This project is
risky, so the firm has assigned it a discount rate of 16 percent. What is the projects net
present value?
A. $417,294.85
B. $424,591.11
C. $451,786.86
D. $492,255.56
E. $512,408.23
Which one of the following occupations best fits into the international area of finance?
A. Bank teller
B. Treasury bill analyst
C. Currency trader
D. Insurance risk manager
E. Local bank manager
The use of borrowing by an individual to adjust his or her overall exposure to financial
leverage is referred to as:
A. M&M Proposition I.
B. capital restructuring.
C. homemade leverage.
D. M&M Proposition II.
E. financial risk management.
By definition, an inventory loan is which one of the following types of loan?
A. Secured short-term loan
B. Unsecured short-term loan
C. Secured long-term loan
D. Unsecured long-term loan
E. Trust receipt loan
Brick House Cafe has a 35 percent tax rate and total taxes of $35,280. What is the value
of the interest tax shield if the interest expense is $16,700?
A. $4,887
B. $5,010
C. $5,595
D. $5,845
E. $6,023
The reinvestment approach to the modified internal rate of return:
A. individually discounts each separate cash flow back to the present.
B. reinvests all the cash flows, including the initial cash flow, to the end of the project.
C. discounts all negative cash flows to the present and compounds all positive cash
flows to the end of the project.
D. discounts all negative cash flows back to the present and combines them with the
initial cost.
E. compounds all of the cash flows, except for the initial cash flow, to the end of the
project.