A firm has a return on equity of 16 percent, a return on assets of 11 percent, and a 30
percent dividend payout ratio. What is the sustainable growth rate?
A. 5.72 percent
B. 6.84 percent
C. 7.12 percent
D. 11.38 percent
E. 12.61 percent
Answer:
Belk Department Store charges a daily rate of 0.01 percent on its store credit cards.
What interest rate is the company required by law to report to potential customers?
A. 35.98 percent
B. 36.50 percent
C. 39.00 percent
D. 40.04 percent
E. 40.48 percent
Answer:
Al’s Bakery has a checkbook balance of $1,650. A $700 deposit was made today and
will be added to the available balance tomorrow. There are two outstanding checks that
total to $623. There are no other outstanding items. Which one of the following
statements accurately reflects this situation?
A. The disbursement float is $1,650.
B. The firm’s current available balance is equal to $1,650 plus $700 minus $623.
C. The firm’s collection float exceeds its disbursement float.
D. The firm’s available balance is greater than its book balance.
Answer:
The goal of financial management is to increase the:
A. future value of the firm’s total equity.
B. book value of equity.
C. dividends paid per share.
D. current market value per share.
Answer:
A firm uses the extended economic order quantity approach to inventory management.
Which one of the following inventory levels is considered to be the minimum inventory
level given this approach?
A. Zero inventory
B. Reorder point level
C. Safety stock level
D. 50 percent of the reorder quantity
E. Safety stock plus the reorder quantity
Answer:
Which one of the following is an ordinary annuity, but not a perpetuity?
A. $75 paid at the beginning of each monthly period for 50 years
B. $15 paid at the end of each monthly period for an infinite period of time
C. $40 paid quarterly for 5 years, starting today
D. $50 paid every year for ten years, starting today
E. $25 paid weekly for 1 year, starting one week from today
Answer:
Circle K Stores has net income of $41,000, a profit margin of 3.7 percent, and a return
on assets of 9 percent. What is the capital intensity ratio?
A. 0.41
B. 0.86
C. 1.16
D. 1.34
E. 2.43
Answer:
Which one of the following is the suggested method of handling exchange rate risk for
a large, multinational firm headquartered in the U.S.? Assume the operations in each
country represent a different division of the firm.
A. At the division level
B. At a level that combines all divisions representing a separate geographic continent
C. At a level that combines divisions based on the currency used by each division
D. By segregating U.S. operations and foreign operations
E. On a centralized basis for all divisions
Answer:
Given the following partial stock quote, what is the expected annual dividend?
A. $0.99
B. $1.08
C. $1.13
D. $1.28
E. $1.33
Answer:
Mike’s Place has total assets of $123,800, a debt-equity ratio of 0.75, and net income of
$7,100. What is the return on equity?
A. 3.48 percent
B. 3.73 percent
C. 5.74 percent
D. 10.04 percent
E. 13.61 percent
Answer:
Kroeger Exporters has total assets of $74,300, net working capital of $22,900, owners’
equity of $38,600, and long-term debt of $23,900. What is the value of the current
assets?
A. $21,600
B. $24,300
C. $38,900
D. $34,700
E. $46,100
Answer:
Baugh and Essary reports the following account balances: inventory of $17,600,
equipment of $128,300, accounts payable of $24,700, cash of $11,900, and accounts
receivable of $31,900. What is the amount of the current assets?
A. $46,700
B. $56,000
C. $61,400
D. $175,000
E. $199,700
Answer:
The current yield on a bond is equal to the annual interest divided by which one of the
following?
A. Issue price
B. Maturity value
C. Face amount
D. Current market price
E. Current par value
Answer:
Turner Industries started a new project three months ago. Sales arising from this project
are exceeding all expectations. Given this, which one of the following is management
most apt to implement?
A. Option to wait
B. Soft rationing
C. Strategic option
D. Option to abandon
E. Option to expand
Answer:
Which one of the following best represents the transaction motive for holding cash?
A. Buying extra inventory in response to an unexpected sale offered by a supplier
B. Distributing the weekly paychecks
C. Increasing the minimum cash balance for the firm’s main bank account
D. Unexpectedly purchasing a competitor’s firm
E. Holding cash in anticipation that the firm may need to close for a few days if
floodwaters keep rising
Answer:
The quiet period is designed to do which one of the following?
A. Prevent the original investors in a firm from selling their shares and destabilizing a
security’s price during the first six months of public trading
B. Ensure that all potential investors have fair access to identical information
C. Ensure that all bidders are heard in a Dutch auction
D. Stabilize the aftermarket
E. Quiet the market so the SEC can fairly evaluate a new securities offer
Answer:
Lakeside Rides is adding a new roller coaster to its amusement park. The firm expects
this addition to increase its overall ticket sales and increase attendance at its park. In
particular, the firm expects to sell more tickets for its current roller coaster and
experience extremely high demand for its new coaster. Sales for its boat ride are
expected to decline but food and beverage sales are expected to increase significantly.
Which of the following are considered side effects associated with the new roller
coaster?
I. Ticket sales for the new roller coaster
II. Change in ticket sales for the existing coaster
III. Change in ticket sales for the boat ride
IV. Change in food and beverage sales
A. I only
B. III only
C. II and III only
D. I, II, and III only
E. II, III, and IV only
Answer:
Tattler, Inc. has declared a $4.60 per share dividend. Suppose capital gains are not
taxed, but dividends are taxed at 20 percent. New IRS regulations require that taxes be
withheld at the time the dividend is paid. Tattler sells for $87 per share, and the stock is
about to go ex-dividend. What do you think the ex-dividend price will be?
A. $82.40
B. $83.32
C. $85.08
D. $86.67
E. $87.00
Answer:
You own a portfolio equally invested in a risk-free asset and two stocks. If one of the
stocks has a beta of 1.12 and the total portfolio is equally as risky as the market, what
must the beta be for the other stock in your portfolio?
A. 1.37
B. 1.54
C. 1.88
D. 1.98
E. 2.97
Answer:
The one-year forward rate between the U.S. and Japan is 122.47 = $1. A one-year
risk-free security in Japan is yielding 5.3 percent while it is 4.6 percent in the U.S.
Assume interest rate parity exists. What is the spot rate between the U.S. and Japan?
A. 120.41
B. 121.08
C. 121.66
D. 121.94
E. 122.03
Answer:
Kurt’s Forest Products is currently issuing both 5-year and 10-year bonds at par. The
bonds each pay 6.5 percent annual interest and have face values of $1,000. You decide
to purchase one of each of these bonds. Assume the yield to maturity on each of these
bonds is 7.4 percent 1 year from now. Given this, you will realize _____ percent price
depreciation on the 5-year bond and _____ percent price depreciation on the 10-year
bond.
A. 3.02; 3.39
B. 3.02; 4.08
C. 3.02; 5.77
D. 3.39; 4.08
E. 3.39; 5.77
Answer:
Which of the following will increase the value of a levered firm according to M&M
Proposition I, with taxes?
I. Decrease in the amount of the debt
II. Increase in the value of the unlevered firm
III. Decrease in the tax rate
IV. Increase in the interest rate on the debt
A. II only
B. I and IV only
C. II and III only
D. II and IV only
E. II, III, and IV only
Answer:
Explain how a firm can structure its operations such that it creates its own internal
hedge to long-run exposure to exchange rate risk.
Answer:
The present value of the benefits of a particular investment happens to equal the initial
cost of that investment at the required rate of 14 percent. What is the value of the
investment’s internal rate of return, its net present value, and its profitability index?
Answer:
Explain the difference between computing the value of a zero growth dividend-paying
stock and computing the value of a constant growth dividend-paying stock.
Answer:
Explain why investors receive exactly what they pay for in a totally efficient market.
Answer:
What is the significance of the slope of the security market line? Should investors
prefer a steeper slope or a flatter slope?
Answer:
Assume the federal government mandates that all retail stores in the northern states
install heated sidewalks to help minimize the number of injuries that occur from people
falling as a result of snow and ice buildup on those sidewalks. How should a firm
determine the cost of capital for a project such as this?
Answer:
Identify some of the specific costs firms incur if their current asset levels are either too
high or too low.
Answer:
How can a firm benefit from preparing a short-term financial plan?
Answer: